After renegotiating his contract with the New England Patriots, star quarterback Tom Brady attracted almost as much admiration for his seemingly selfless concessions as he has for his stellar performance on the field. But a closer look at the restructured deal suggests that Brady, once again, looked for an advantageous opening and came out a winner.
A confusing play
In 2010, Brady, who has played with the Patriots since 2000, agreed to a four-year, $72 million contract extension that made him the highest-paid player in the National Football League (NFL). Brady’s contract was extended further in 2013, when he signed on with the Patriots through 2017. By accepting “only” $27 million in new money for the 2015, 2016, and 2017 seasons, Brady gave the team a hometown discount and freed up cash for Patriots owner Robert Kraft to invest in building a strong roster.
This past December, during the break between the regular NFL season and the Super Bowl victory he led his team to, Brady quietly restructured that renegotiated contract. To the surprise of many, he gave up the $24 million “skill guarantee” built into his 2015, 2016, and 2017 base salaries—money he would have been paid only if his performance deteriorated and the Patriots decided to release him. This left Brady with only an “injury guarantee” (money he would be paid if terminated because of injury) for the remaining years of his contract, reports former sports agent Joel Corry for CBS Sports. In other words, Brady was allowing the Patriots to cut him, even if he’s healthy, during the current off-season without having to pay him future base salaries. In exchange for this apparent concession, the Patriots added what many viewed to be a paltry $1 million to each of the remaining years of his contract.
For the Patriots, the move frees up $24 million in cash that the team otherwise would have had to put in escrow in case they needed to pay it to Brady. Brady is left with $8 million for 2015, $9 million for 2016, and $10 million for 2017. That may sound like a lot, but it’s a “comically low” salary structure relative to other players of his caliber, writes Doug Kyed of the New England Sports Network. Brady’s 2015 salary of $8 million places him 14th among active NFL quarterbacks, despite the fact that his performance is regularly ranked in the top five in most categories and he continues to lead the Patriots to winning seasons. However, given that Brady is a wealthy man whose wife, model Gisele Bündchen, earns more than $40 million annually, it wouldn’t be surprising if he placed other issues above salary in his negotiations.
A hidden strategy
Brady’s renegotiation was widely viewed as motivated by the desire to free up cash for the Patriots to spend on recruiting talented players. But this argument doesn’t hold water, given the team’s and owner Robert Kraft’s healthy coffers, writes Bill Barnwell for ESPN-affiliated blog Grantland.
Instead, Barnwell theorizes, Brady became concerned about his future with the Patriots in the fall of 2014. His season got off to a rough start, beginning with his first opening-day loss since 2003. He could foresee that the Patriots likely would not have released him if they decided to replace him with a younger quarterback, as this would have required them to pay Brady his $24 million skill guarantee. The team could have avoided paying the guarantee only if Brady voluntarily retired or if they traded him to a team of their choosing—neither of which were appealing prospects for the 37-year-old quarterback, who has said he plans to play into his 40s and wouldn’t have liked the risk of playing for a subpar team.
By negotiating away the skill guarantee, Brady ensured that he would become an unrestricted free agent who could choose his next team in the event that the Patriots cut him. Though there’s a good chance Brady will play out the rest of his career in New England, both parties may have seen the value of building greater flexibility into his contract. “The Patriots want to be able to move on from Brady if he’s not up to snuff,” writes Barnwell. “And Brady surely wants to be able to choose where and when he goes out of football.” The renegotiation secures both of those goals—and looks more and more like a win-win deal on close inspection.
3 tips for bigger negotiation wins:
1. Periodically reexamine the terms of your existing deals against your shifting objectives.
2. Recognize when long-term, intangible goals trump more obvious financial concerns.
3. Seize on opportunities for yourself that also meet the other party’s interests.