Leverage

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Leverage

Postby DarthMonk » Mon Feb 20, 2012 8:30 pm

I'm trying to better understand the leverage concept in terms of NFL contracts since it's been such a big issue in another thread. I'm ready to learn.

It seems to me the one who has the leverage depends on the situation. If I understand the Peyton Manning situation correctly he is owed $28M by the Colts on March 8 and a total of $63M on his contract. If they pay him the $28M he remains a Colt and they owe him the other $35M over time. If they don't pay him he is a FA. At this point he's likely to leave.

The bad part for the Colts seems to be they lose Manning and get nothing for him. (The losing-him part is probably not that big a deal anymore. He's not the 30-year-old Manning that dominated defenses weekly.) The good part for the Colts is they keep a lot of money.

The good part for Manning is he is now free to go to the highest bidder. The bad part is I don't think the bids will be very high and he never sees the $28M much less the $63M.

It seems to me that, in the general sense, a player in Manning's situation has leverage but that in this particular case, that leverage is a ghost which is extremely unlikely to come back and haunt the Colts. He's old, he's damaged goods, and no one is going to pay him a king's ransom - are they? :hmm:

Am I missing something?

:feedback;

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Re: Leverage

Postby 1niksder » Mon Feb 20, 2012 9:17 pm

DarthMonk wrote:I'm trying to better understand the leverage concept in terms of NFL contracts since it's been such a big issue in another thread. I'm ready to learn.

It seems to me the one who has the leverage depends on the situation. If I understand the Peyton Manning situation correctly he is owed $28M by the Colts on March 8 and a total of $63M on his contract. If they pay him the $28M he remains a Colt and they owe him the other $35M over time. If they don't pay him he is a FA. At this point he's likely to leave.

The bad part for the Colts seems to be they lose Manning and get nothing for him. (The losing-him part is probably not that big a deal anymore. He's not the 30-year-old Manning that dominated defenses weekly.) The good part for the Colts is they keep a lot of money.

The good part for Manning is he is now free to go to the highest bidder. The bad part is I don't think the bids will be very high and he never sees the $28M much less the $63M.

It seems to me that, in the general sense, a player in Manning's situation has leverage but that in this particular case, that leverage is a ghost which is extremely unlikely to come back and haunt the Colts. He's old, he's damaged goods, and no one is going to pay him a king's ransom - are they? :hmm:

Am I missing something?

:feedback;

DarthMonk

If you go back to the thread that you mentioned., back when it was a debate and not yet a declaration, I was saying Peyton has nothing to lose because he gambled last year.

At any rate...

He took less money than offered last year (knowing he was injuried) and signed a 5 year $90 million deal with a $20 million to sign and a $28 million option bonus in 2012. The option bonus is the leverage (either way it doesn't get paid). Go back to last year...

Manning counted around $10.4 million against the cap last season counting the pro-ration of the SB, his 2011 base of $3.4 million + $3 million in a roster bonus. If the option bonus were to be paid it would all count this season on the cap. That would be $28 million option bonus, $4 million pro-rated SB and $7.4 million 2012 base salary (roughly $39.4 million in cap space).

Had Manning (this Manning) won the Super Bowl, the Colts still wouldn't have paid him and lost almost $40 million in cap space, but Manning's performance would allow him more say in how that $28 million would be redistributed. Considering how 2011 went Manning has no leverage at all, the Colts are totally justified in not paying the bonus based on last season.

Peyton could have the leverage of the fan base (if he wanted to use it) because he is a icon in Indy. As far as his contract goes, he's out in the cold. Cutting him would cost the Colts $15 million plus in dead cap money or a savings of about $13 million if they don't pay him. The best move for the Colts would have been for Irsay to STFU and cut Manning prior to March 8th, but he's left the door open for Manning to influence the fan base. That would switch it from a contract levrage to profit leverage. Currently cutting Manning will cost the Colts nothing, cutting Manning while Manning is trying to work out something to be a Colt for life would cost the Colts in ticket sales, product sales and all up and down their profit sheets.

Manning made over $100 million in pay checks from the Colts, if he can't go into the OTA's working with the WRs he's not worth as much unless he's in the Colts OTA not working with WRs. Any new fan base will want to see results ASAP for the kind of money he'd be talking to the Colts about.

This doesn't mean Manning has no leverage IF the Colts want him back because if they're talking then they are talking about a contract that has already been signed. But the Colts have to want him back.

If they don't after saying they're willing to talk, Peyton making a attempt will effect Irsay's bottom line if he refuses after saying he was willing.

Leverage changes as the talks proceed but if they're not talking the guy paying the bonus has the leverage over the guy that is looking to get paid.
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Re: Leverage

Postby DarthMonk » Mon Feb 20, 2012 10:07 pm

1niksder wrote:Leverage changes as the talks proceed but if they're not talking the guy paying the bonus has the leverage over the guy that is looking to get paid.


... especially if the guy stands to get a lot less elsewhere while probably not ever being a meaningful threat as the leader of an opponent?

I'm thinking of my current job. I sign one-year contracts. I'm being asked to sign one by the end of March. If I don't I can be released and am owed nothing. I have leverage in as much as they don't want to have to deal with replacing me. I can probably get more money out of them and may try. They have leverage in so far as without them, I am staring at the abyss of potential unemployment with a mortgage to pay and mouths to feed. If I ask for more they may pony up or they may say "See ya." I have some leverage but I am not sure how much.

Maybe we should talk. :-k

I could also sign the contract, find another job, then leave but I don't think it would be ethical though, in this particular case, it would probably be legal.

It seems like some of this applies to Manning. He does not have the leverage I have with regards to being replaced. They have 2 blue-chippers auditioning in a week. The Colts also do not have the leverage my employer has insofar as Manning is rich already.

I feel like his age and health take away almost all, if not all, his leverage.

Thanks for the reply. I'd love to read another one.

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Re: Leverage

Postby 1niksder » Wed Feb 22, 2012 2:19 pm

DarthMonk wrote:Thanks for the reply. I'd love to read another one.

DarthMonk


Here you go...Link

Cullen Jenkins is sticking with the Eagles, on a restructured contract.

Jenkins, a defensive tackle who started all 16 games for the Eagles last season, signed a five-year, $25 million contract with the team seven months ago, shortly after the lockout ended. There was no immediate word on the specifics of his restructured deal.

“We are very excited about having Cullen back on our football team,” Eagles G.M. Howie Roseman said in a statement released by the team. “Cullen made an immediate impact for us this year on and off the field. We look forward to a great future together with him an Eagles uniform.”

Jenkins had a great start to the 2011 season, with four sacks in the first three games, although he had just 1.5 sacks the rest of the season.


Like Manning's deal last year they signed the Jenkins deal knowing it would have to be reworked.

Jenkins had four years left on his 2011 deal worth about $14.5 million, now he's looking at $5.8 million this year instead of $7.5 million. That frees up about $1.7 million in space for the Fecals. At face value it looks like Cullen lost the leverage battle and it cost him. almost $2 million. But if you look at the whole restructure you see his base pay dropped from $2.5 million in 2012 but that base is now guaranteed as is his 2013 base. Neither were guaranteed in the 2011 deal, nor did the 2011 deal contain a $1 million roster bonus next year and a $2 million roster bonus in 2013.

The second year bonus is the leverage needle. In year one it's dead center, as the year goes the needle moves to indicate who is more like to end up with the money. After the year ended Jenkins seemed to do enough to earn the money, but he just hit the other side of 30. He'll receive the money but he had to agree to have other money due this upcoming year moved back and guaranteed.

In the short term it was rework this deal or lose the $5 million roster bonus by being released, or rework this deal so I get the $5 million and if they want to cut m next year I'll still get what I'm giving up now. If he makes the roster next season he'll be $1 million up on where he would have been under the 2011 deal and by 2013 this restructure will have netted him $3 million.

This year will be the only year that this restructure will help the Fecals cap situation. Unlike the Manning situation the player had the leverage because he played at a high level last season.
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Re: Leverage

Postby The Hogster » Wed Feb 22, 2012 3:38 pm

I have argued that thread that Peyton Manning has leverage in this case. Here's why. He doesn't have to do anything to put himself in a favorable position. The Colts have to take action. Peyton doesn't.


Peyton Manning will either (i) receive $28M on March 8th, or (ii) receive the right to negotiate with all 32 teams on March 9th or before. He's in the driver's seat because the burden is on the Colts to either pay or release him. And, either way Peyton wins.

Why does Peyton win? Because the Colts are rebuilding around Andrew Luck. The money owed on Peyton's deal is just in theory. It doesn't exist because nobody believes they are going to pay him that much given his injury and the fact that Luck is supposed to be a once in a lifetime prospect.

Most players have no leverage when under contract. Why? Because the team doesn't have to redo their deals when they OUTperform it. The team can make you play for your current Salary until you become a free agent. See Desean Jackson, Matt Forte etc. Additionally, if a player holds out, he's fined in the offseason, loses pay checks in the season, and IF he sits out too long, he loses a year of eligibility making him have to WAIT longer to become a Free Agent. The rules take the leverage from the players.

In this case, Peyton knows he's under contract for several years. That contract would pay him a lot of money. But, he knows that the Colts don't want to pay that contract. As a result, if he does NOTHING, he becomes a free agent.

Peyton is represented by Tom Condon. Condon knows that a team will pay Peyton for the next 3 years--a LOT of money. His new deal will include more incentives than his current one, but I guarantee that deal also includes a huge up-front bonus. That bonus will be bookended by a roster bonus on the following year. So, think about it--will a team pay Peyton a huge bonus to sign--and then release him prior to his next year's roster bonus?? Probably not. Why? Because even if he can't play this year, or isn't very healthy, the odds favor that he'd be coming into form by the time the next year's bonus is due. Thus keeping Peyton in a position with leverage.


Some people say that he should restructure his deal. I find that utterly unfounded and actually the most unwise thing he could do. It would basically allow the Colts to keep him, save face, and not have to pay him, and keep him from other teams. ALL losing options.

Tom Condon knows this, which is why you hear nothing from the Manning camp these days. They'll wait it out because they have leverage.

Check out this definition of leverage on Wiki. It sums up why Peyton has it. I suspect he wants to be a Free Agent rather than return to a rebuilding Colts franchise. He can force that position. In fact, he forced it when he signed this deal with this structure. That's the point of these big bonuses. It gives the player leverage when it becomes due.

http://en.wikipedia.org/wiki/Leverage_(negotiation)
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Postby The Hogster » Wed Feb 22, 2012 4:14 pm

Another way to think about it is in a Buyer/Seller situation. Let's say Peyton Manning manufactures Peyton Manning Bobble Heads. He has an exclusive contract to sell his Bobble Heads through WalMart only.

WalMart has an agreement to buy his Bobble Heads at $1M per year. But, the past year, customers noticed a defect in the Bobble Heads. WalMart now wants Peyton to sell them the Bobble Heads at only $250,000 per year. AND, to make up for their lost profits, they will now be selling Andrew Luck Bobble Heads right beside Peyton Bobble Heads. In fact, WalMart is going to increase the money it spends to market Luck Bobble Heads for the next decade.

Peyton Manning says to himself. For one, I may never be able to sell my Bobble Heads to a store for $1M a year ever again. BUT, I think I can sell them for more than $250k. Besides, I want to sell my Bobble Heads at a store that only sells Peyton Manning Bobble Heads.

In this scenario, Peyton as a manufacturer has leverage. He knows that if he doesn't do anything, he's scheduled to get a $1M payment--which is more than he'd ever get elsewhere. Or, he gets released from his exclusive contract with WalMart, and is free to sign with Target, Home Depot, or whereever he wants--with the power of choice and the ability to have his product as the #1 focus.

No Manning isn't selling toys, but he's selling his services. The Colts are WalMart, and Manning doesn't want to sell his product on the cheap especially when WalMart will be investing it's focus on Luck's product. The great thing about his situation is that in order for WalMart to get what they want--to sell Luck--Manning gets what he wants--the ability to shop--and he doesn't have to do a thing to get it. Leverage.
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Re: Leverage

Postby 1niksder » Wed Feb 22, 2012 4:53 pm

The Hogster wrote:I have argued that thread that Peyton Manning has leverage in this case. Here's why. He doesn't have to do anything to put himself in a favorable position. The Colts have to take action. Peyton doesn't.


There is no way the Colts are going to add a one year cap hit of $28 million for any one player. No team in the league would, so all parties involved knew last year before the deal was signed that even if Peyton were to get $28 million in 2012 it wouldn't be in the form of a option bonus and know team would tie up that kind of money week before free agency starts.

Peyton has no leverage because he has given the Colts no reason to consider paying him all or part of that money in some other form. The Colts have the leverage because they still have the money in hand and Peyton has no guaranteed money due. The Colts a huge dead cap number to look at but it's not $28 million huge.

Peyton takes no action and becomes unemployed and saves the Colts about $7.4 million in projected cap space. He loses out all around because he's also losing on another $28.2 million in future salary (2013-2015) from the 2011 deal. This is in no way leverage for Peyton even if he wants out.


The Colts will do what they planned to do when the deal was signed.... address it prior to the new NFL year, Not paying the Bonus saves the Colts roughly $10.5 million in cap space in 2012 to be spent to upgrade their roster. If Peyton can be designated as a post Jun 1 cut not paying will save even more.




If Peyton can go out and get a four year $8.9 million per year deal then he's only losing the $28 million. Knowing that still wouldn't give him any leverage




Peyton priced himself out of Wal-Mart he's going to lower his price to even lower what Wal-Mart offered (had he talked to them to find out) and head over to the Dollar Store bobble heads in hand
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Postby The Hogster » Wed Feb 22, 2012 5:29 pm

That's where we disagree. Your Post suggests you look at free agency as "unemployment". I look at it as the freedom to bargain & choose. There is a premium on free agency. Free Agency + Interest = A Market (Peyton). Free Agency + No Interest = Unemployment (Terrell Owens).

Also, when the Colts signed this deal, they may not have expected to pay the $28M in the form of an option bonus. But, they didn't expect to have the #1 pick either. They anticipated the restructure would be to keep him in Indy at a manageable cap number. You can't look at this in a vacuum. The Colts wound up landing the #1 pick. That changed everything. Additionally, Peyton won't be able to restructure because of these circumstances. Why would he want to? You are looking at this as if there is a chance that he gets another dollar from the Colts. He's not. Even if he signed a deal for nothing but incentives. How could he meet them if Luck starts the season?

A restructure into an incentive based deal is not wise for Peyton because of these reasons: (i) Right now the $28M bonus makes Peyton untradeable, restructuring the deal would basically allow the Colts to have the ability to trade him (Trade < Free Agency) because Peyton has less leverage, less choice in a trade situation (ii) Peyton doesn't want to stay in Indy if they're rebuilding around Luck--new Coaches, New Management, New QB--why would Peyton want to be there, (iii) if he took a few million dollars now, and entered an incentive based deal--why would the Colts even allow him to reach the incentives?? They'd have every reason to just start Luck to minimize what Peyton is being paid. That's just bad business.

You seem to be looking at this in a vacuum. It's not all about the cap hit because the Colts have other players on the roster that will impact the cap depending on what happens to them. The Colts are not going to be cap strapped next year.

Peyton priced himself out of Wal-Mart he's going to lower his price to even lower what Wal-Mart offered (had he talked to them to find out) and head over to the Dollar Store bobble heads in hand

I'd never advise Peyton to restructure. You would? For what? If that is such a wise idea, why don't you think his agent is doing it??

Do you really believe you're outsmarting Manning's agent with this restructure theory?
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Postby DarthMonk » Wed Feb 22, 2012 6:37 pm

So far so civil.

These seem like key statements to me:

The Hogster wrote:That's where we disagree. Your Post suggests you look at free agency as "unemployment". I look at it as the freedom to bargain & choose. There is a premium on free agency. Free Agency + Interest = A Market (Peyton). Free Agency + No Interest = Unemployment (Terrell Owens).


The Hogster wrote:Peyton is represented by Tom Condon. Condon knows that a team will pay Peyton for the next 3 years--a LOT of money. His new deal will include more incentives than his current one, but I guarantee that deal also includes a huge up-front bonus.


I would say that, in general, free agency is freedom to bargain and choose more than it is unemployment. That is clearly the case for a young underpaid guy. Manning is old and, if the Colts give him $28M in a few weeks, overpaid.

If The Hogster is correct with his 2nd quote then he is likely correct with his assessment of leverage in this instance. On the other hand, it is possible a restructure acceptable to the Colts would net more money than the future deal he might get if and when he departs. I also think how well he is likely to play in the future and how that may or may not affect the Colts is relavant. If he were young and healthy and going to Houston he'd have a lot more leverage than he does now. Trouble is he's old, hurt, and almost definitely leaving the division.

I don't think either party (Colts or Manning) has the other "over a barrel."

Am I making sense?

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Postby 1niksder » Wed Feb 22, 2012 6:46 pm

DarthMonk wrote:So far so civil.

I don't think either party (Colts or Manning) has the other "over a barrel."

Am I making sense?

DarthMonk

Yes you are making sense, as it would for Manning to at least see what might be on the table in Indy
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Postby The Hogster » Wed Feb 22, 2012 7:11 pm


I think you are making sense Darth. I do believe in this NFL that there will be a good market for Peyton. A lot will depend on his (i) workout, (ii) physical, and (iii) progress with respect to nerve regeneration.


Peyton isn't as desperate as say a T.O. who has no leverage. As a result, you probably won't see him throwing passes to air with his shirt off anytime soon. If word gets out that Peyton can drop back and throw passes and look even close to an NFL QB, he's going to get paid.

Think of it like this--even Jacksonville's owner said that he would have drafted Tim Tebow. QBs like Peyton generate tons of interest, and money. A team will sign Peyton, sell tons of #18 jerseys, luxury boxes, and season tickets. Why? Because the fan excitement and anticipation of what is to come drives up revenue.

Anyone remember the Donovan McNabb All In Campaign?? People in DC do. We saw Donovan everywhere, and people actually believed or "hoped" he would come here with a chip on his shoulder, and look like 2004 Donovan. It didn't happen, but people spent money thinking it would. That will be x100 for Peyton, and owners know this. Whatever they invest in him, they will recoup through TV deals, tickets, merchandising, vending--money will not be the problem for Peyton. Now, his health might.
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Postby chiefhog44 » Wed Feb 22, 2012 9:12 pm

I'm gonna tell you, if Manning isn't on the Colts next year, their fan base is going to be pissed at Irsay for this whole debacle. UNLESS...Irsay makes it seem he is pulling out all the stops to keep him. I think this is going to be nearly impossible to do, and thus, gives Manning all the leverage if he keeps saying, I want to play here and I'm willing to restructure, and oh by the way, I am making big strides on coming back.

The problem here is Irsay is already in rebuilding mode and thus shown his hand to the fan base. He's fired his coaches, GM's, isn't signing any of the fre agents, and mate comments that it's time to rebuild with another QB. His statements about Peyton being a Colt if healthy is going to come back to haunt him. The owner is in a really bad position. He doesn't want Peyton back, wants to start fresh, but the fans don't. And you know what, the guy deserves it. He's such an ass.
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Postby 1niksder » Wed Feb 22, 2012 10:23 pm

chiefhog44 wrote:I'm gonna tell you, if Manning isn't on the Colts next year, their fan base is going to be pissed at Irsay for this whole debacle. UNLESS...Irsay makes it seem he is pulling out all the stops to keep him. I think this is going to be nearly impossible to do, and thus, gives Manning all the leverage if he keeps saying, I want to play here and I'm willing to restructure, and oh by the way, I am making big strides on coming back.

The problem here is Irsay is already in rebuilding mode and thus shown his hand to the fan base. He's fired his coaches, GM's, isn't signing any of the fre agents, and mate comments that it's time to rebuild with another QB. His statements about Peyton being a Colt if healthy is going to come back to haunt him. The owner is in a really bad position. He doesn't want Peyton back, wants to start fresh, but the fans don't. And you know what, the guy deserves it. He's such an ass.


I agree with all of this which is why Irsay has publicly said he's willing to rework the deal (92% of us don't believe him), by Peyton not even willing (or appear to be) to sit down with him takes away the little bit of leverage Peyton would have. Currently he's like that dude running around here without a leg to stand on... and having to prove he can still play at a high level. Peyton at 80% is worth more to the Colts than he would be to any team that might be interested in him. He has his outstanding contract as a starting point if he sits down with the Colts. With anybody else he only has his x-rays and hope.
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Postby The Hogster » Thu Feb 23, 2012 7:26 am

1niksder wrote:
I agree with all of this which is why Irsay has publicly said he's willing to rework the deal (92% of us don't believe him), by Peyton not even willing (or appear to be) to sit down with him takes away the little bit of leverage Peyton would have. Currently he's like that dude running around here without a leg to stand on... and having to prove he can still play at a high level. Peyton at 80% is worth more to the Colts than he would be to any team that might be interested in him. He has his outstanding contract as a starting point if he sits down with the Colts. With anybody else he only has his x-rays and hope.


This is backwards in my opinion. Not that it doesn't make sense in theory. But, in reality it doesn't apply because the Colts hold the #1 pick. They have the right's to draft the younger, healthier version of Peyton Manning. Manning is worth less to the Colts than he is to a team without a franchise QB. The team generally has more power than players, just like employers usually have power over employees. But, Peyton is no ordinary employee. He has leverage here. See Andrew Brandt's article explaining such.

Jim Irsay has turned the decision on whether Peyton Manning stays with the Colts into its own reality show/soap opera. Unfortunately for Irsay, he is not the party with leverage in this negotiation.
My sense is Manning will have several teams interested despite his recent medical issues. And those options may include the Redskins and Dolphins, two teams with ownership history showing a willingness to pay a premium for name brands.

Options create leverage, and leverage creates large guaranteed contracts. Will that guarantee exceed the $28 million Manning is schedule to make? That's a good question, but my sense is it would be close.


http://www.huffingtonpost.com/andrew-br ... 95974.html

Who is Andrew Brandt??

Brandt is a Lecturer in Sports Business at the Wharton School at the University of Pennsylvania, teaching Sports Law and Negotiations.

After attending Stanford University and Georgetown University Law Center, Brandt has had a career on both sides of professional sports. Brandt has been a player representative, first for ProServ in Washington, DC, representing top athletes such as Michael Jordan and Boomer Esiason -- and later for Woolf Associates in Boston, representing NFL players including Matt Hasselbeck, Adam Vinatieri and Ricky Williams.


This isn't to say that the Colts don't have some leverage as well. The injury gives them a way out of the contract. But, they really have no other choice unless Peyton gives them one.
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Postby The Hogster » Tue Mar 06, 2012 9:07 pm

As stated prior. No restructure was agreed to as it should not have. Official release & ceremony to come today. Peyton will leave Indy with a statute in front of the Dome & hit the market to collect his money. Leverage.
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