Ever watch ESPN or NFL Network and hear the analysts talk about “voidable years” in somebody’s contract, and wonder what the hell they’re talkin’ about?
It can be a little intimidating, but in reality, it’s really not that much to it.
What is a “Voidable Year”?
In a nutshell, adding voidable years into a player’s contract is a negotiation ploy that allows that player to increase the upfront guaranteed money he gets, while at the same time allowing the team to stretch-out the proration period of that money, so they take less of a cap hit each year of the contract.
Note: A “cap hit” takes place when a player’s pay (i.e. salary, bonus, etc.) reduces the amount of money left before a team reaches their salary cap limit.
From the player’s perspective, what’s just as exciting, is that it gives the player an opportunity to make more guaranteed money, without having to sacrifice getting to free agency later in their career.
Why? Because normally, the longer your contract, the bigger the signing bonus.
Let’s look at an example.
Let’s say that you get drafted in the first round, and the team offers you a four-year deal with an $8 million signing bonus.
Signing bonuses are guaranteed, so to try to get as much guaranteed, front-end money as you can, your agent counters with a four-year deal with a $10 million signing bonus.
The team might not be too excited about this counter offer, because the higher your signing bonus, the bigger the cap hit the team takes in each year of your contract (remember, your signing bonus is prorated).
So sticking with our example, if you were to accept the $8 million signing bonus for the four-year deal the team offered, over the next four years, the team’s salary cap would take a $2 million dollar hit ($8 million / 4 years = $2 million) every year for the next four years.
It’s not in their best interest to take your agent’s $10 million counter offer,because they’d have to take a $2.5 million hit each year ($10 million / 4 years = $2.5 million) if they did.
So let’s say the team says “no way” to the $10 million signing bonus counter.
Your agent can then come back with an offer for the same signing bonus of $10 million; but to sweeten the deal for the team, he could offer that the contract is stretched out to six years, with the last two years being “voidable.”
The team could still shoot-down his offer, but they’d be much more apt to agree to the $10 million signing bonus now, because the cap hit they’d take each year is now actually less that it was with their original offer.
Here’s the math:
($10,000,000 signing bonus / 6 years) = $1,666,666
The end result, you’re walking away a happy man, with two million more “guaranteed” dollars.
Problem is, now you’re locked into the deal for an extra two years.
Generally speaking, you want to get to free agency as soon as possible, because if you have a solid start to your career, the second deal is where you make big money.
…but that’s where the “voidable” clause comes into play.
With “Voidable Years,” You Can Still Get to Free Agency Early
The voidable clause gives you the ability to still get to free agency after that fourth year; you’d just need to meet some mutually agreed upon performance incentives in order to do so.
So sticking with our example, let’s say you’re a running back who just signed the six-year deal with the $10 million signing bonus, where the fifth and sixth years are voidable.
Let’s also say that the deal says that the fifth and sixth years are only voidable if you gain 1000 yards or more in any of the first four years of your deal.
If you do, you’re a happy man, because not only do you get your guaranteed $10 million, but you get to make it to free agency in four years!
The Team May Not Be As Happy About Your Deal As You Are
But the team isn’t so happy, because if the last two years become voided, the remaining years of the proration move up to the current year.
So instead of the team only taking a $1.6 million dollar hit (remember $10M/6 years = $1.6M per year) during that fourth year, the prorations for the fifth and sixth year cap hits get moved up to that fourth year.
So now, they’re taking a $3.2 million dollar hit against their salary cap in that fourth year, instead of just the $1.6M.
What the team could do to protect themselves, is include a clause allowing them to ”buy back” the fifth and sixth years of the contract for the prorated guaranteed money, if the last two years were to become voided.
Do you understand it a little better now?
I told you it’s not that much to it!
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