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The Rules of the Steinberg Deal

April 12, 1987|Mark Christensen

Before negotiations between a player and his team begin, Leigh Steinberg breaks down the player's contract into several parts: length of contract, size of bonus, size of salary, guarantees for skill, guarantees for injury, option clauses, incentive clauses, loans, annuities, alternative means of payment.

"The first issue," Steinberg says, "is contract length. The team will generally want a longer contract (than the player) because each contract establishes a pay ceiling, not a floor. A player is paid one-sixteenth of his yearly salary at the end of each week during the season and, unless negotiated otherwise, a player can be cut at any time. One of the best protections is a big signing bonus. In Warren Moon's contract, Houston didn't want to guarantee salaries. So, in a $5.5-million package, we took a $4.5-million bonus and a salary of $200,000 per year. If we had taken the package in salaries, and then he'd been cut, he could have lost a bundle."

Most contracts are packages consisting of the signing bonus and an annual salary for a certain number of years. The more years on the contract, the larger the bonus a team will be willing to pay. But it's not in the player's interest to sign a long-term contract unless he's a veteran who has achieved a certain status and wants to lock a great year of performance onto a five-year package.

"You try to negotiate the contract at the penultimate point of leverage and talent. If a player is a low-round draft pick, you don't want a long contract. You may want to wait until he takes his shot. Kenny Easley, for example, came to the end of his contract in 1984, the same year he was Defensive Player of the Year. Which then put him in a position to sign a long-term contract at high, high figures."

Next on the negotiating agenda is whether the salaries will be guaranteed even if the player is cut later, an arrangement known as a skill contract. "Now, there are only 15 of those skill contracts in the whole league," Steinberg says. "Though they're common in baseball and basketball, skill guarantees are tough to negotiate in the NFL."

Next comes the question of potential injury. The current bargaining agreement states that if a player suffers a career-ending injury, he will be paid for the remainder of that year and half of the next season. "So," Steinberg explains, "in a multi-year package, what you're trying to do is get those later salaries guaranteed. A guy signs for four years, gets injured the first year and can never play again--he collects all four years of those salaries. If they won't put that in the contract, you try to get them to buy an injury-protection insurance policy.

"Then you have to face the option clause. Not advantageous to the player. It gives the club a right to renew the athlete's contract at the previous year's salary plus 10%. Those pop up in about 25% of the contracts."

Incentives are another issue. "They can be very complicated," Steinberg says. "If a player is not a starter, we may negotiate for extra monies based on his play time. He may take a smaller salary but then he gets more if he's in 25% of the plays, more if he hits 35% of the plays, 50% and so on. You can also negotiate incentives for quarterbacks, like $25,000 for every start."

Steinberg often negotiates bonuses based on a player's stats. "Take quarterbacks. You can set up five statistical indices: percentage of completions, number of completions, total yardage, touchdown passes, quarterback rating. You then set standards in each of those areas. A 60 quarterback rating triggers X dollars. A 70 rating triggers X dollars plus Y. X amount of touchdown passes triggers. . . .

"Finally there are postseason rewards. Wild-card game. Division championship. Conference championship. Making the Super Bowl. Winning the Super Bowl. You can negotiate rewards for all those. Plus honors incentives. All-AFC. All-Pro. Pro-Bowl. Player of the Year. Sometimes in my contracts I put in charitable incentives. So that Ken O'Brien has $300 for every Jets victory paid by the Jets to a charity. He matches it. Tony Eason has the same arrangement with the Patriots."

Once those issues are settled, a key question is how the money will be paid. Will the bonus be deferred? Will a loan be included in the package? (Low- or no-interest loans to players are prized contractual perks, as are annuities.) "The IRS will impute interest on the loan, regardless of the rate," Steinberg says, "even if there is no interest. As far as the tax man is concerned, there is no such thing as a no-interest loan. They consider it a trade for services, taxable."

What about deferments? "Teams would like bonuses to be deferred forever, because their value is destroyed by inflation. So a very important concept is present value. Take any dollar owed and discount it 10% for each year that it is not paid. This way you're able to put value in 1987 dollar terms on monies to be paid far in the future. A team may say, 'Here's $250,000 up front.' Or they may say, 'Here's $100,000 up front and we'll pay you $50,000 in '88, $50,000 in '89, $50,000 in '90. But you gotta be able to determine the discount value of those dollars in present value terms."

The ultimate value of a contract, Steinberg says, "is not the total amount of money; it's the after-tax spendable dollars in a client's pocket. I try to get my people paid as much as possible as quickly as possible so they can build security, not through deferred payments but on present-value dollars."

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