IF NFL CONTRACTS ARE NOT GUARANTEED, HAS COLIN KAEPERNICK ACTUALLY LOST ANYTHING BY LOSING HIS CONTRACT?

By now you may have heard Colin Kaepernick’s name in the news. One of the more recent developments in his long saga is that Kaepernick filed a lawsuit against the NFL around October 16, 2017, claiming collusion between the owners in the league. I do not intend to comment on the strengths and/or weaknesses of the legal bases for his claims, nor do I intend to enter into any philosophical, sociological, or political discussions regarding the circumstances that led to this point. However, I do think it is interesting to look at this claim for what it is on its face: an act by one party that caused a breach of a non-guaranteed contract to a second party, creating damage to that second party.

How does this relate to your business?

With non-guaranteed contracts as the backdrop, could Kaepernick’s lawsuit have any teeth when it comes to his true economic damages? Just like in many business scenarios, assumptions based on professional judgement and experience have to be made. If you have a company that is early-stage, or you or your company has signed a new contract where the earnings on the contract may be hard to determine, how do you go about projecting the value of that business or contract?

In the case of Kaepernick, this “breach of contract” is in litigation, creating a situation where economic damages is being sought. One of the accepted ways to approach a calculation of damages is to use the Yardstick approach, or comparable individual approach, in this case, under the “but-for” theory of damages. Essentially, “but-for” this breach of contract, what would have been Kaepernick’s earnings?

Major Sport’s Contracts

Unlike the other three American major sport leagues (MLB, NBA, and NHL), the NFL does not have guaranteed contracts for its players. That’s not to say they’re prohibited (they’re not), they just have not been utilized as of today. And the typical response, when asked by journalists and the public at large, of why not: “That’s just the way it has always been done.”

Part of the reasoning for the prevalence of non-guaranteed contracts in the NFL is Article 26, Section 9 of the league’s Collective Bargaining Agreement (“CBA”). This clause has been around in the CBA for decades and stipulates that all guaranteed contracts must be “fully-funded” up front, with the money held in escrow. The NFL was not always the revenue generating giant it is today, and players would certainly have wanted to make sure the owners held up their end of the bargain. However, owners now use this clause as a crutch, allowing economic pressures to be one of the many reasons they are opposed to signing a guaranteed deal.

Kaepernick’s On-Field Performance

Colin Kaepernick was selected by the San Francisco 49ers with the 36th overall pick (4th pick of the 2nd round) during the 2011 NFL draft. In his 2nd year with the team, Kaepernick led the 49ers to the Super Bowl in February 2013, albeit losing to the Ravens. At that time, he was 25 years old. Following the Super Bowl appearance, and a season in which Kaepernick played well and started all 16 games, he signed a contract extension in 2014 that breaks down as follows:

As the chart above shows, Kaepernick’s Super Bowl run earned him a contract extension worth up to $115 million, along with an additional $12 million in potential escalators (not factored in the chart above, as he failed to earn them by his on-field performance). However, as discussed earlier, the contract was not guaranteed, save for the signing bonus paid in 2014. Subsequent to his Super Bowl appearance, Kaepernick was paid his total earnings for 2014 through 2016, but for $750,000 (which was a portion of his roster bonus in 2015) for missing some games. Before the 2017 season, Kaepernick was released by the 49ers. Now that he has filed suit, has he been damaged by the remaining $75 million on his contract? Has he been damaged by more for potential future contracts? Less? Let’s look at potential yardsticks.

Kapernick’s Comps: Tom Brady or…?

When looking at potential yardsticks for Kaepernick, we need to find a quarterback who had measurable similarities to Kaepernick, potentially in either style of play and/or accomplishments at a similar stage of their career. On the style of play point, Kaepernick is viewed more as an “option” style quarterback with running ability, and less of a pure pocket passer. Looking at this style of quarterback, the initial thoughts on yardsticks would lead towards players such as Michael Vick, Tim Tebow, or Johnny Manziel. However, none of those player’s career arcs lend themselves to be a quality yardstick to Kaepernick.

In looking at Kaepernick’s accomplishments, he reached the Super Bowl (but lost) at age 25. Other quarterbacks in the modern era to achieve similar success at that age include: Tom Brady (24, 26, 27), Ben Roethlisberger (23, 26), Eli Manning (27), Aaron Rodgers (27), Russell Wilson (25, 26), and Cam Newton (26). In examining that list, all of those quarterbacks exhibited continued successes well beyond their Super Bowl runs, and all still remain with their current teams today. In examining Kaepernick’s career arc, his performance, as well as his ability to play 16 games started to deteriorate in the two years following his Super Bowl run. That general career arc leads me to the one player to be used as a yardstick that was left off that previous list.

Rex Grossman

Believe it or not, Rex Grossman might be the best yardstick we have to ascertain what Kaepernick’s career arc and earnings potential may have looked like. Rex Grossman was drafted 22nd overall in the 2003 draft by the Chicago Bears. At age 26, Grossman led the Bears to the Super Bowl in February 2007 and lost to the Colts and Peyton Manning. Following his Super Bowl run, Grossman played two more years with the Bears, where his performance and ability to play 16 games deteriorated. Below is a chart of Grossman’s career games and earnings, beginning with his Super Bowl season in 2006:

After becoming a free agent following the 2008 season, Grossman signed a one-year contract with the Texans to be a back-up, followed up by multiple one-year contracts with the Redskins. In analyzing this career arc, Rex Grossman provides a viable yardstick by which to measure Kaepernick’s lost career arc.

Kaepernick v. Grossman: What that means for Breach of Contract Damages

Kaepernick and Grossman did not truly play in overlapping eras during their careers, and the levels of salary that each experience are not commensurate. However, utilizing the yardstick method and some statistical analysis, Grossman’s career earnings, expressed as percentages, can be applied to Kaepernick’s career earnings potential. Grossman’s highest earnings, $2.5 million, came in 2008, immediately before he became a free agent. Likewise, Kaepernick’s highest earnings of $14.3 million, came in 2016 right before his release by the 49ers. In looking at Grossman’s post Super Bowl career, I examined the percentage of Grossman’s greatest salary year (2008) that he achieved each subsequent year.

I then applied Kaepernick’s highest earnings year (2016) to the remainder years in Grossman’s career.

As expressed by the above chart, utilizing Grossman as a yardstick yields several results. The first is there is a built in assumption: that to utilize Grossman as the yardstick, Kaepernick’s career would last 5 years after his highest earning year of 2016. This places Kaepernick’s retirement in 2021, when he would be 33. This assumption appears to be reasonable. The second result is that for those five remaining years, Kaepernick would earn some lesser percentage then what he actually earned in 2016, his highest year. The resulting lost contract earnings to Colin Kaepernick, based on Rex Grossman as a yardstick, is likely to be $27,370,200.

?Present Value of Future Earnings and Limiting Factors

In addition, there are several other potential damages that I have not attempted to calculate, which Kaepernick might be entitled to and could claim. Some of these damages may include lost endorsements, lost retirement earnings, and general damage to his name and image.

While this is my approach and best efforts to try and calculate the lost earnings of Colin Kaepernick as a football player, there is certainly much more information that is not currently public and may never be public within this dispute. As well, there may also be intricacies within Kaepernick’s contract and/or the CBA that lend further confusion within this matter. Ultimately, it is up to Kaepernick’s legal representation to present his case and make a claim that Kaepernick is entitled to damages at all, given the non-guaranteed nature of NFL contracts. One side effect from this suit may very well be how future NFL CBA’s are constructed and what player contracts look like going forward.

As stated at the outset, this article is intended to be an exercise in accounting using principles of damage theory, and is not intended to be viewed as an opinion on the merits of the case or underlying facts. It also represents my opinion and not necessarily that of my firm.