Are long term contracts too long ?

New Chelsea owner Todd Boehly has wasted little time in making his mark at the West London club. From naming himself the sporting director to arranging get together dinners with fellow directors. Mr Boehly is certainly shaking things up.?

It has been reported that Todd Boehly is going to take a US style approach when issuing contracts to players. Marc Cucurella and Carney Chukwuemeka both recently joined Chelsea on 6 year contracts. It is unusual, because most football clubs generally sign players on contracts from 1 to 5 years. In US sports it is common for players to commit to signing 7, 8, 9 and 10+ year deals. In fact, back in 1981, Magic Johnson and the Los Angeles Lakers agreed to a bizarre 25-year, $25 million contract starting from 1984 and expiring in 2009.?

In this article, I will advocate for the players and make a case why they should avoid signing long term contracts where possible. FYI, everything here is my own opinion.

What is a long term contract?

We are referring to a player’s employment contract with a club and the duration it lasts for. Personally, I think anything more than 4 years can be considered a long-term contract but for the purpose of this article we will class a long term as any contract lasting longer than 5 years.

Why is it an issue?

Firstly, it may not be. Each football player is an individual with different circumstances, so there is no one size fits all approach.? A player may want the security that a long term contact brings, which is fine.?

However, security comes at a price.?

I believe that because the premier league grows at such a rapid pace there is a high likelihood of clubs changing or increasing their salary structures year on year. The trajectory of a premier league player’s salary has only gone up since the league's inception in 1992. As a result of this, I believe it’s difficult to create a long-term contract that doesn't have (potentially) a significant downside risk for the player. I think this concept is succinctly put by the famous quote from rapper Fat Joe “Yesterday’s price is not today’s price”.

In outlier situations it is possible to negotiate a salary which is benchmarked significantly far enough into the future for a long term contract to work. Mesut Ozil's reported 350k per week deal at Arsenal in 2018 was a good example of this.?￡350k per week is about average for an elite premier league player in 2022. Professional footballers have an extremely limited window of opportunity to make such amounts, why not maximise your earnings ?

Along with salaries and market conditions changes, it is perhaps football clubs that suffer from the most change of all. New managers, transfers, change of ownership, leaving backroom staff, injuries and the list goes on. When you have committed to a long term contract, there is less opportunity to fix the deck in your favour when unexpected changes occur. It is particularly perilous when another club wants to buy a player and the interested club is seen as a step up. Unless the current club wants to sell on their terms it's quite difficult to manoeuvre into favourable situation . Even more so because the clubs who have the financial means to offer long term contracts are also ones who have the financial durability to reject all but ludicrous amounts. For example we could see Wesley Fofana move for upwards of ￡80 million who at the time of writing has not yet been capped for France. Aside from his talent, Leicester's stance and valuation originates from the player’s contractual status where Fofana has a number of years left to run.?

For clubs, there are benefits. The ￡63 million that Chelsea are reportedly going to pay Brighton for Marc Cucurella can be amortised across the 6 years of his contract. So effectively the fee paid for Marc Cucurella will cost Chelsea ￡10.5 million per year (not including the player’s salary here). The idea being the longer the contract the cheaper the cost per year.

It is also worth noting that outside of the premier league, the contractual stability for the rest of the English pyramid is almost the polar opposite. For example, in the Championship you will still find a host of players on one or two year contracts. So long term contracts only appear to be given out at the elite + elite end of football.

Comparison with US sports?

Although long term contracts are commonplace in US sports there are usually several termination clauses that can allow a player to terminate a contract before its expiry and become a free agent. For example, an NBA player might sign a 9 year contract with a team but have an option to terminate the contract after 3 years depending on certain conditions.

So are early termination clauses the best option for player protection in long term contracts?

Unfortunately not because there is a fundamental difference between US sports and how football works. It's that in football, we buy players. In US sports no money is exchanged for the registration of a player. US sports teams can trade players and draft picks but not buy or sell players to one another.?

From a football club perspective, it would be a hard sell for them to invest ￡50m in signing a player and then grant them an exercise to terminate their contract after 2 or 3 years.?

Am I losing, how much ?

Unless a player and their agent is able to negotiate a salary that is ahead of the market curve then signing a long term contract at current market conditions isn't the most prudent thing to do from a financial point of view.?

Below, I have mocked up a small example showing the loss by a player seeing out his 6 year deal compared to a player leaving on a free and signing a new deal in the same timeframe.

Basic Wage (BW) upon signing is ￡20k per week = ￡960K Per Annum (PA)?

10% incremental increase to BW PA

All figures are gross

Player A - Commits to whole 6 year contract

Year 1 - ￡22,000 PW = PA ￡1,056,000?

Year 2 - ￡24,200 PW = PA ￡1,161,600?

Year 3 - ￡28,400 PW = PA ￡1,363,200?

Year 4 - ￡ 36,800 PW = PA ￡1,766,400?

Year 5 - ￡ 40,480 PW = PA ￡1,943,040

Year 6 - ￡ 44,528 PW = PA ￡2,137,344?

Player A’s total gross earnings from BW = ￡9,427,584 over 6 years?

Player B- Leaves as a free agent

Year 1 - ￡22,000 PW = PA ￡1,056,000?

Year 2 - ￡24,200 PW = PA ￡1,161,600?

Year 3 - ￡28,400 PW = PA ￡1,363,200?

Player’s contract with the club ends and signs for new team?

Year 0 - ￡50,000 PW = PA ￡2,400,000

Year 1- ￡55,000 PW = PA ￡2,640,000?

Year 2 - ￡60,500 PW = PA ￡2,904,000?

Player’s total gross earnings from BW = ￡11,524,800 over 6 years?

Difference between leaving a contract after 3 years as opposed to staying for 6 years = ￡2,097,216

Main Takeaway?

Signing a long term contract can provide security but once committed it can leave you behind the constant market rises in salaries. You might get left with a bitter taste in your mouth as what once was a good deal at the time of signing, in a few years no longer seems so sweet. Thus to get more money at your current club you have to add more years. The cycle continues...