Why Peyton Manning Will Command The Largest Contract In NFL History

INDIANAPOLIS IN - JANUARY 08: Quarterback Peyton Manning #18 of the Indianapolis Colts passes the ball in the first quarter against the New York Jets during their 2011 AFC wild card playoff game at Lucas Oil Stadium on January 8 2011 in Indianapolis Indiana. (Photo by Jonathan Daniel/Getty Images)

When it comes to Peyton Manning this offseason, two things are inevitable, assuming a CBA is in fact negotiated:

  1. Manning will demand, and receive, the largest contract in NFL history.
  2. Fans will consequentially complain that Manning is selfish and his contract will prevent the Colts from signing or retaining valuable free agents.

It's no secret that Colts owner Jim Irsay intends on making Manning the highest-paid player in the NFL.  We know that the Colts have no qualms about breaking the bank for their Pro Bowl quarterback.  Manning has destroyed just about every franchise record and is taking aim at some ridiculous league records, setting him up for a hefty payday in the near future.  Some may argue that Indy's postseason shortcomings should factor into the negotiations, but then I would argue in return that wins are not a quarterback stat.

Regardless of what you think of Manning, he will receive the largest contract in NFL history.  Apparently, he will receive it quietly.  And whether it's a cent or a century mark more than the contract Tom Brady received this past season, fans and pundits will inevitably flood the forums and airwaves to claim that Manning is selfish, that he's crippling his team's cap situation, that the Colts cannot field a competitive team when Manning commands over a quarter of their payroll.

What nobody will talk about, though, is the economic reasoning behind Manning's mega-contract.  Believe it or not, these negotiations involve more than Manning, Irsay and Manning's agent Tom Condon.  We have to consider a larger structure, a larger economic force that impacts the player market and affects almost every player in the NFL.  Contracts are not just meaningful on the individual level in this league, they represent milestones, negotiating points for other players. 

We'll take a look at this economic reasoning after the jump.

Let's quickly run through a hypothetical scenario that I feel best demonstrates the economic reasoning behind Manning's contract negotiations.

In this scenario, let's imagine that Manning takes a contract that fans feel allows the team to be more competitive.  Tom Brady's contract averages $18 million per year with $48.5 million guaranteed, so let's say Manning signs a contract that averages $14 million per year with $40 million guaranteed.

Now, let's imagine -- again, just for argument's sake -- that Matt Ryan is due for contract re-negotiation next year.  Ryan's agent is probably going to approach the Atlanta Falcons with a line that goes something like this:

My client will be an elite quarterback in this league during the length of this contract, thus the contract should average $20 million per year.

The Falcons would counter with this:

Peyton Manning only averages $14 million per year.  You're crazy if you think we're going to pay Matt Ryan $6 million more annually than Peyton Manning.

This is because NFL contracts operate as a fluid economy.  One contracts always one-ups the next.  Manning was the highest-paid quarterback with his last contract...until Michael Vick was highest-paid the next year.  Brady's the highest-paid quarterback in the NFL right now...until Manning is.  And Manning will be again...until someone else is.

If Manning accepts anything less than his actual value, which is league tops, he screws up the negotiating system for all other players and agents.  His contract is no longer a gauge, but an erroneous benchmark.  Teams would attempt to low-ball players while agents maintain that their clients deserve to continue climbing Contract Mountain.  It would be an unmitigated disaster, and the NFL Players Association would never allow it to happen.

Manning will command, and receive, the largest contract in NFL history because his contract has to be that benchmark.  For now.  He can't take a "charity contract" because it skews the negotiating system and throws all other players out of alignment.  Taking a lesser contract would probably 'reset' the negotiating table for lack of a better term and roll back prices on NFL players.  The Falcons aren't going to give Ryan exponentially more than Manning.  It's just not going to happen.

Players -- especially players like Manning, one of the faces of the NFL -- are pressured to accept market value for their services because it provides context for all other contract negotiations.  Manning is a driving force in a larger economy.  If he accepts anything less than market value, he lowers everyone else's market value.  And when everyone else's market value is lowered, the NFLPA becomes very upset.

I know fans don't ever want to consider contract negotiations in this light, as it's easier to just say that Manning is greedy and selfish and makes too much money off commercials to take the Colts for upwards of $20 million per year.  But this is how the NFL works.

I don't know exactly how much Manning will command.  What I can tell you is that Brady's contract is the benchmark for Manning's.  Brady's contract runs from 2011-14 (four years) and totals $72 million.  Of that $72 million, $48.5 million is guaranteed.  He also received a $16 million signing bonus, $10 million of which he deferred to 2011 in case of lockout.  The contract is back-loaded, and looks like this when we break it down*:

  • 2010: $7.5 million salary + $16 million signing bonus + $3 million roster bonus = $26.5 million
  • 2011: $5.75 million salary + $4 million roster bonus + $250k offseason workout = $36.5 million (2010 + 2011)
  • 2012: $5.75 million salary + $6 million roster bonus + $250k offseason workout = $48.5 million
  • 2013: $9.75 million salary + $5 million roster bonus + $250k offseason workout = $63.6 million
  • 2014: $9.75 million salary + $5 million roster bonus + $250k offseason workout = $78.5 million

*a few figures were incomplete or exempt, hence some addition errors.  We do know base salaries and roster bonuses for each of the five years involved, though, including the re-structured 2010 year.

Key to Brady's contract are roster bonuses and the fact that in 2013, heavy percentages of his compensation begin to become guaranteed.  This would, along with higher base salaries, present the contract as back-loaded, also making it seem prime for re-negotiation and/or bonus shuffling when the later years come into play.

Brady averages about $18 million per year total on the four-year extension, which should be a ballpark that Condon will work with.  Manning probably won't ask for less than $20 million a year.  He could ask for up to $25 million per year. 

We'll have to remember, as this contract comes together and is ultimately announced, that monster contracts aren't always what they appear.  Take Donovan McNabb's extension with the Washington Redskins, for example.  On paper, the extension is worth up to $88.5 million over five years.  However, in the fine print it becomes clear that it takes a $10 million option bonus to trigger McNabb's base salary from 2011 forward, so he could only be owed $3.75 million if cut this offseason.  McNabb is the best current case study in contract literature.

What we can probably expect to see with Manning is a contract with a hefty signing bonus (don't be surprised to see something in the $50 million range) and some astronomical back-end base salaries accompanied with roster bonuses.  The question, then, becomes contract length.  Brady's contract runs through 2014 on a four-year extension, so how long will the Colts extend Manning?  Five years sounds about right to me, six might be pressing but still plausible.  I'd look for Manning to be extended into 2015, possibly 2016.  With a $50 million signing bonus (let's say) and averaging $25 million per year on the higher end of the estimate, let's call his contract a five-year, $175 125 million extension.

[EDIT:] MarkColtsFanatic pointed out my math error here, in including Manning's signing bonus over and above his salary and not doing the same for Brady.  My numbers are a bit goofed, but you get the idea: Manning will be looking for $20-25 million per year and you all can speculate as to what the contract length actually is.  As the total value of his seven-year contract signed in 2004 was appraised at $99.2 million or about $14 million per year, I'm guessing we see something close to a total value near $150 million if on that seven year range or perhaps closer to $120 million if five or six years.  Just my guess though.  This isn't informed by anything but speculation, and math really isn't my strong suit.  Econ 101 and Finite Mathematics were not my fondest IU memories.

Will it actually be that high?  I would guess not.  If he averages $20 million per year, even considering the $50 million signing bonus, it comes out to five years, $150 100 million which sounds a little more in line.  Still, I wouldn't be shocked to see a figure between those two numbers.

It's possible that Manning won't see every cent of this deal and it could loaded with any number of stipulations: Pro Bowl incentives, Super Bowl incentives, base salary triggers, voidable back-end years circled for re-negotation.  We won't know until Manning puts pen to paper.

All we know for now is that Manning will break the bank, and the NFL economy demands that he does.  He's not just signing a contract for himself, he's signing a contract for every other quarterback who will ever sign a contract, at least until the salary system collapses and is forced to fall back when players are asking for numbers that a salary cap era just can't support.

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