Holdouts amongst NFL rookies continue due to offset language and deferred compensation.

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Joey Bosa’s holdout has caught the attention of many over the last month, as both Bosa and the San Diego Chargers have been unable to come to a resolution pertaining to terms within his rookie contract.  Despite the Collective Bargaining Agreement (CBA) of 2011, which was designed to limit contract disputes between NFL teams and rookies, Bosa’s issues exemplify the obstacles NFL rookies must overcome in order to obtain a contract that warrants their worth.

As rookie negotiations kept the rookies off the field and began costing the teams more money for players who had never even played a game before, the NFL decided it was time for a change.     

 Prior to 2011, NFL contracts were too bloated for the likings of the NFL team owners.  Rookies were coming into the NFL negotiating deals that were equal, if not greater to, the contracts that established veterans received.  First overall draft picks and starting quarterbacks like Sam Bradford and Mathew Stafford, received top-tier contracts without having even played a single game.  Coming into the league in 2010, Bradford received a record six-year deal with $50 million guaranteed, with additional incentives.  This was an increase from Stafford’s 2009 deal worth $41.7 million guaranteed, with incentives worth $72 million.

In addition, contract negotiations became nightmares for NFL executives because negotiations were getting more complicated and keeping rookies off the field during the most important phase of transitioning from college to the NFL, training camp.  Not only do players adjust to the speed and style of the game through training camp, but training camp also helps build chemistry.  As rookie negotiations kept the rookies off the field and began costing the teams more money for players who had never even played a game before, the NFL decided it was time for a change.

Even though the CBA structured rookie contracts in order to reduce negotiation issues, there have been two terms that have been highly contentious: offset language and deferred bonus compensation.

In 2011, the NFL and National Football League Players Association (NFLPA) negotiated a new Collective Bargaining Agreement which contained provisions that structured rookie contracts in a way that was supposed to alleviate many of the problems that occurred during rookie contract negotiations.  Under the new CBA, rookie players are now forced to sign a pre-determined contract that is correlated with their draft position.  The wage scale gives the most money to the first pick, with each subsequent pick gradually receiving less money.  In addition to the mandatory wage scale, the duration of the contracts are also pre-determined.  Second through seventh round draft picks contracts are four years, while first round draft picks contracts are four years with a fifth year option.

NFL contracts can seem quite lucrative when they are reported by the media, but the truth is that the contracts only guarantee a fraction of the money reported, while the remaining money must be earned through performance. 

Even though the CBA structured rookie contracts in order to reduce negotiation issues, there have been two terms that have been highly contentious: offset language and deferred bonus compensation.

Before trying to understand offset language, one needs to realize that most of the time, money is not fully guaranteed under NFL contracts.  Unlike many other sports leagues such as the NBA or MLB, the NFL contract money has to be negotiated, and often times the contract of a professional football player contains a salary and bonus based on performance.  NFL contracts can seem quite lucrative when they are reported by the media, but the truth is that the contracts only guarantee a fraction of the money reported, while the remaining money must be earned through performance.  Agents will often over report the dollar amount on contracts in order to lure prospective clients into retaining their services.

If a contract does not contain offset language, when a rookie is cut, he is entitled to the remaining sum of money under his contract in addition to whatever money he may receive under a contract with a new team.

Another wrinkle within NFL contracts is the ability of a team to cut a player and no longer be liable for paying that player any remainder of the contract.  In the rookie contract context, when a drafted player signs his contract, the four-year salary is guaranteed unless the team cuts him.  When a rookie is cut, he is then free to sign with other teams.  This is where offset language is key.

Deferred compensation is not a new contract tactic.  Teams like to utilize deferred compensation in structuring deals with players because it helps teams be flexible, accommodate other player’s contracts, and maneuver within the confines of the salary cap. 

If a contract does not contain offset language, when a rookie is cut, he is entitled to the remaining sum of money under his contract in addition to whatever money he may receive under a contract with a new team.  In other words, the player can “double dip” and receive two salaries from two different teams in the same year.  Obviously, NFL teams hate making contracts without offset language because in addition to having to pay a player that they have cut from the roster, the salary paid is included in that year’s salary cap.  A salary cap is a limit on the amount of money that a team can spend on player salaries.  Therefore, paying a cut rookie’s salary reduces a team’s ability to lure attractive players with competitive compensation.

Another issue that arises in rookie contracts is deferred compensation.  Deferred compensation occurs when a player agrees to receive payment for previous performance at a later date.  Deferred compensation is not a new contract tactic.  Teams like to utilize deferred compensation in structuring deals with players because it helps teams be flexible, accommodate other player’s contracts, and maneuver within the confines of the salary cap.

Bosa wants either  no offset language, or his bonus to be paid during the 2016 season instead of deferred until next year. 

In recent weeks these issues have been highlighted due to the dispute between Joey Bosa and the San Diego Chargers regarding his rookie contract.  Bosa was taken third overall in the 2016 NFL draft.  He performed off-season workouts with the team but when training camp was just around the corner, he decided not to participate, due to a failure to come to agreement in his contract regarding offset language and his bonus.  Bosa wants either  no offset language, or his bonus to be paid during the 2016 season instead of deferred until next year.  The Chargers have been unwilling to budge on either term.

The General Manager (GM) of the Chargers, Tom Telesco, has refused to change the Charger’s position due to the team’s precedent of only signing players under favorable terms.  Since Telesco has been GM, offset language and structuring bonuses have been included in each contract in favor of the team.

The San Diego Chargers are notorious for being stingy negotiators.  Since 2000, the Chargers have struggled with signing players prior to training camp and have experienced holdouts with players such as Philip Rivers, LaDanian Tomlinson, Quenton Jammer, and Shawn Merriman.

While Bosa can point to other players in his draft that have received terms that he desires, it seems unlikely that his fellow draftees will have any impact on leveraging the Chargers to cave to his demands.

Bosa’s terms are not unreasonable either.  The other top-five picks from the 2016 draft class have had unique contracts whereby the players either received their bonuses up front, or with no offset language.  The number one overall draft pick, Jared Goff, has no offset language, but is deferring his bonus.  On the other hand, second overall pick, Carson Wentz, does have offset language in his contract, yet only a small percentage of his bonus is deferred until next year.  While Bosa can point to other players in his draft that have received terms that he desires, it seems unlikely that his fellow draftees will have any impact on leveraging the Chargers to cave to his demands.

Should Bosa and the Chargers not arrive at an agreement, the Chargers will still have rights to Bosa throughout the rest of the year.  The Chargers could cut, continue to negotiate, or choose to do nothing with Bosa during that period.  After this league year, Bosa would be free to enter the 2017 NFL draft.

It is unlikely, however, that Bosa would re-enter the draft.  It is more likely that both parties will come to some sort of agreement.  However, Bosa’s situation is a prime example of how there are still flaws in the CBA when it comes to deterring hold-outs in rookie contracts due to issues that can arise when negotiating offset language and deferred compensation.

The current CBA is set to expire in 2020.  It will be interesting to see if or how the NFL and NFLPA deal with offset language in the CBA in 2020.  Until then, it seems likely that rookie disputes like Bosa’s will continue to emerge in the future.