• How Sports Contracts Vary Sport to Sport

    Earlier this year, three lucky ticketholders divided a record $1.5 billion Powerball jackpot. The windfall for each of them was a cool $529 million.

    It’s lottery season for professional athletes too. Since December 2015, three Major League Baseball free agents – pitchers Zack Greinke and David Price, and outfielder Jason Heyward – signed multi-year contracts with a combined value exceeding $607 million over the potential duration of their deals, according to published reports. Other top players have also signed lucrative deals.

    In the buildup to Super Bowl 50, the National Football League Players Association predicted the salary caps would surge at least $10 million a team beginning this season. The National Basketball Association is expected to see salary cap growth as well.

    Unlike the Powerball – the ultimate longshot game of chance – top professional athletes will convert their skill into millions, thanks to an escalating financial arms race that’s being fueled by lucrative TV deals. The paydays are huge. While the median household income in the U.S. was just over $53,000 last year, the average baseball player earned $4.25 million in 2015, according to a study by the Associated Press. Average annual salaries range from $2 million to $4 million in the other major sports – basketball, hockey and, of course, the National Football League.

    Even the minimum salaries in each of the major sports dwarf the amounts earned by Joe Lunchbucket.

    Because of the differences in how professional sports contracts are structured, the similarities end there. On one side of the ledger are players in the National Basketball Association, the National Hockey League and Major League Baseball, who can generally count on guaranteed contracts in which money is doled out over an agreed-upon number of years (although some deals contain deferred payments as well).

    On the other side are National Football League players, who don’t historically receive such guaranteed annual payouts. Instead, their multiyear contracts are a mix of signing bonuses and guaranteed money – a Byzantine system that can make it difficult to weigh a player contract’s true value. Contracts also can be sweetened with various incentives. Moreover, player contracts have to fit beneath the NFL salary cap, which was a little over $143 million per team in 2015.

    Here’s generally how the NFL system works: Player A signs a three-year, $10 million contract with a $2 million signing bonus. While the promised salary does not necessarily count against the team’s salary cap if Player A is cut in the second year, the remaining share of the $1 million signing bonus generally still counts against that year’s cap.

    Proponents of the NFL system say it better reflects the reality of a sport in which careers are shorter than in the other major sports and team rosters are larger at 53 players (compared to 25 in Major League Baseball and 13 in the NBA). But some NFL players have openly questioned why the NFL – a financial juggernaut celebrating Super Bowl 50 this week in the San Francisco Bay area – can’t do more to pay its players.

    During a news conference prior to the Super Bowl, NFL Players Association executive director DeMaurice Smith told reporters he expects to see the NFL salary cap increase to $153 million per team – and possibly more – in 2016, although that will not be known for sure until the new league year begins in March.

    NFL owners have been opposed to giving players – even the league’s biggest superstars – guaranteed contracts.

    This spring, NFL teams will greet a new crop of newly minted millionaires through the widely watched draft. The league’s rookie salary cap has tamed runaway salaries for unproven players entering the league through the NFL draft.

    While NFL player contracts are not etched in stone, Major League Baseball players and basketball players can usually count on collecting what they sign for.

    Still, there is room to maneuver. In Major League Baseball, for example, star players have taken advantage of opt-out clauses that allow them to return to the open market earlier than the potential terms of their deals.

    After opting out of the last three years of his contract with the Los Angeles Dodgers, Greinke entered the free-agent market this winter and signed a six-year deal worth a reported $206.5 million. (The average annual salary was slightly higher than David Price’s $217 million over seven years with the Boston Red Sox). Heyward will be able to opt out of his reported eight-year, $184 million contract with the Cubs under a similar opt-out clause.

    It’s been four decades since the late Oakland Athletics pitcher Jim “Catfish” Hunter became baseball’s first free agent. It didn’t take long – just a few years – for baseball to crown its first $1 million-a-year players – Nolan Ryan and Dave Parker.

    In the years since then fans have seen big spenders come along – the late New York Yankees owner George Steinbrenner – and have heard dire predictions that big money would ruin the national pastime.

    Through it all, the game has flourished. What’s more, fans of so-called small-market teams such as the Kansas City Royals, the Oakland Athletics and the Tampa Bay Rays have watched their teams enjoy success on a budget.

    In July, the NBA saw its salary cap reach an all-time high of $70 million for the 2015-16 season. But it is expected to go much higher – to about $90 million – the following season, thanks to lucrative television deals.

    As with the other major sports, the salary cap helps keep team spending on salaries in check, which in turn maintains competitive balance in the league. Parity.

    Meantime, fans have been numb to the run-up in the salaries of top players in all sports. Just like nine-figure Powerball jackpots, it’s a trend that doesn’t seem to be coming to an end anytime soon.

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