Under The Cap: The 30-Percent Rule

by J.I. Halsell

A couple of weeks ago, 49ers linebacker Patrick Willis signed a five-year extension worth $50 million in new money with $29 million guaranteed. Throughout the offseason, we have heard about how the 30-percent rule would preclude young talented players from receiving lucrative extension. In spite of these reports, we saw the 49ers and Willis' agent Ben Dogra employ a contract structure that made Willis a very wealthy man.

So how did they navigate the 30-percent rule? Below is an illustration of Willis' 2009 terms under his rookie contract. His new contract could not increase or decrease his annual "salary" amount by more than 30 percent in each year. For the purpose of 30-percent rule calculation, "salary" is defined as base salary plus amounts not treated as signing bonus (for example, option bonus proration and roster bonuses). Willis' 2009 salary of $500,000 plus $1.16 million comprised of amounts not treated as signing bonus resulted in a 30-percent rule "salary" of $1.66 million. This "salary" is then multiplied by 30 percent, resulting in an increase/decrease threshold of $498,000.

Given this $498,000 threshold, Willis' contract is structured as follows, where Year-Over-Year (YOY) Increase illustrates 30-percent rule compliance:

The first thing you will notice is that Willis' signing bonus of $15.5 million does not factor into 30-percent rule compliance, nor does his 2011 supersede signing bonus in the amount of $4.8 million. A superseding signing bonus is used in lieu of an option bonus and simply is a part of a re-executed contract. This superseding signing bonus is very useful in navigating the 30-percent rule since it is not part of the calculation.

In every year of Willis' new contract, the $498,000 YOY Increase threshold is fully maximized by virtue of base salary, roster bonuses, and workout bonuses.

To increase the value of the contract to a level fit for a premier linebacker, contract years 2014-2016 contain easily achievable escalators totaling slightly under $10.1 million. To achieve these escalators, the 49ers defense must improve its year-over-year ranking in any CBA approved defensive category, and this improvement only needs to occur once for achievement.

The Willis deal gives Titans running back Chris Johnson a framework to secure a lucrative extension. However, there must be two willing parties in order to execute a contract, and it does not look as though the Titans are interested at this point.

Hypothetically, if both parties were to work towards an extension, the tables below show Johnson's 30-percent rule calculation.

In creating a hypothetical deal for Johnson, you must gauge the top-tier running back market. Two players to analyze would be the Jaguars' Maurice Jones-Drew and the Rams' Steven Jackson, both of whom have received extensions in the past two years. In 2009, Jones-Drew received a four-year extension worth $7.6 million per year with a guarantee per year of $4.4 million. In 2008, Jackson received a five year deal worth $8.6 million per year with a guarantee per year of $4.1 million.

The tables below illustrate a Johnson extension that utilizes the Willis structure.

This hypothetical deal represents a two-year extension worth $19 million in new money for an average per year of $9.5 million. The deal guarantees $11 million with a guarantee per year of $5.5 million. The 2013 and 2014 P5 Salary Escalators would be achieved, similar to Willis, if the Titans improve in any CBA approved offensive category once over the term of the deal.

This deal and the Willis deal are primarily achievable due to the presence of option bonus proration in their rookie contracts. Option bonus proration helps increase the 30-percent rule "salary" number, which in turn provides for a higher 30-percent rule threshold. Unfortunately for the Eagles' DeSean Jackson, he did not have an option bonus in his rookie contract because he was picked in the second round.

The running back market isn't very lucrative, but if a defensive tackle like Albert Haynesworth can secure a mega contract, then surely Chris Johnson will command a market premium deal as well -- if his productivity continues at this clip.

The issues of timing and precedent-setting have been at the heart of the Chris Johnson extension debate. Teams do not like setting precedents that come back to bite them down the road. Willis has been a Pro Bowl linebacker since entering the league in 2007, and yet played in that third year for $600,000. At this point, the Titans seem to expect Johnson to play his third year at a salary comparable to Willis', $550,000. This offseason, the 49ers had no problem opening up Willis' deal with two years remaining, and I suspect (assuming a clearer labor environment) the Titans would have no qualms about opening up Johnson's deal after the 2010 season when he'll also have two years remaining on his rookie deal.

Some make the argument that a player should honor his contract, but if that player fails to perform to expectations, there is no requirement for the club to honor the contract. More often than not, a club will simply terminate the contract. When a player is outperforming his contract, he does not have that same option. Without guaranteed contracts, the system strongly favors the clubs, which is why a 2,000-yard running back like Chris Johnson has a holdout as his only recourse. As we just illustrated, the contract structure is in place to make this deal possible. There just have to be two willing parties.

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