Inside a performance-based contract

Incentives and salary escalators can be used to bridge the financial gap when there is a disagreement in a negotiation between a player’s agent and the team on the player’s value. These contract mechanisms are usually designed to be classified as Not Likely To Be Earned (NLTBE) so that they will not count against the salary cap when a deal is signed. Generally, any incentives or escalators with higher thresholds than the player or team’s statistical performance in the prior season qualify as NLTBE. The most frequent categories for individual achievement are playtime or based on the player’s primary function (i.e. rushing yards for a running back).

Elvis Dumervil signed this type of contract with the Baltimore Ravens in 2013 after he was released by the Denver Broncos because of a paperwork snafu on his renegotiated contract reducing his 2013 salary from $12 million to $8 million. He received a five-year deal from the Ravens with a base value of $26 million containing $11 million in guarantees. Dumervil’s contract is worth up to $35 million because it has $9 million of base salary escalators and incentives. Since Dumervil had 11 sacks with the Broncos in 2012, his escalators or incentives required him to exceed this sack total in order to be considered NLTBE.

Dumervil has notched 22.0 sacks in 26 career games with the Ravens.

Dumervil triggered $3 million in base salary escalators and earned $1 million in incentives during Week 12’s contest against the New Orleans Saints by getting two sacks to reach the 12-sack mark. He is now second in the NFL with 12.5 sacks and on pace to break Peter Boulware’s franchise record of 15 sacks with a career best 19 sacks.

Dumervil has four different clauses in his contract as follows relating to base salary escalators and incentives.

1. With 12 or more sacks in any regular season, the remaining base salaries in the contract each increase by $1 million. A maximum of $4 million can be earned under this clause.

2. Provided that Dumervil earns the initial escalator (number one), the remaining base salaries in the contract each increase by $1 million with 12 or more sacks in the 2014, 2015 or 2016 regular seasons. The maximum that can be earned under this clause is $3 million.

3. A one-time $1 million bonus is earned with 12 or more sacks in any regular season. It is available every year until earned.

4. Provided that Dumervil earns the initial sack incentive (number three), there is another one-time $1 million bonus for 12 or more sacks in 2014, 2015 or 2016 and (a) team improvement from the previous season in one of eight categories (points allowed by the defense, touchdowns allowed by the defense, total defense, average net yards given up per rushing play, average net yards given up per passing play, sacks, interceptions or team wins) or (b) Dumervil improves from the previous season in one of six categories (interceptions, interception return yards, touchdowns on interception returns, opponent fumble recoveries, opponent fumble return yards or touchdowns on opponent fumble returns). It can also be earned with 13 or more sacks as long as it’s an improvement from the previous season’s sack total. This incentive is also available every year until earned.

The value of Dumervil’s contract has increased to $30 million over five years. He can’t earn the maximum of $35 million because he didn’t have 12 sacks in 2013. The most Dumervil can earn is $33 million if he hits his thresholds again in 2015.

Dumervil’s 2015 and 2016 base salaries, which were originally $4 million, are now $5 million. His $5 million 2017 base salary jumps to $6 million. Dumervil had a $6.375 million cap number in 2015 and 2016 which has now increased to $7.375 million during these years. His 2017 cap number goes from $7.375 million to $8.375 million.

Triggering an escalator doesn’t necessarily mean that the player will make the increased salary. The escalated amount is rarely guaranteed so teams can still ask the player to take a pay cut or release him without any financial obligation. For example, the Atlanta Falcons cut John Abraham in 2013 instead of paying him $6.5 million for the season after he triggered a $1 million base salary increase with 71.62 percent defensive playtime and 10 sacks. Dumervil is assured of making at least $2 million of his performance bonuses ($1 million of the salary escalator and $1 million in incentives) because he isn’t in danger of being released in 2015.

 

Joel Corry is a former sports agent who helped found Premier Sports & Entertainment, a sports management firm that represents professional athletes and coaches. Prior to his tenure at Premier, Joel worked for Management Plus Enterprises, which represented Shaquille O'Neal, Hakeem Olajuwon and Ronnie Lott.

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