Drastic times sometimes call for drastic measures.
On Wednesday evening, ESPN NFL Insider Field Yates reported that the Chiefs have taken out an insurance policy on their MVP quarterback’s massive deal, an unconventional practice in the world of non-guaranteed NFL contracts.
When you do a record-setting deal, it’s smart business to insure the contract. And the Chiefs have done that with Patrick Mahomes. https://t.co/F7sc5a5hKk
— Field Yates (@FieldYates) September 10, 2020
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According to ESPN, the policy offers the organization protection against any potentially significant injury that could keep Mahomes off the field, as well as providing corresponding salary cap credit for missed time.
Mahomes’ Big Guarantee Presents Business Risk
Despite the undeniable talent and enormous upside of the Chiefs’ Super Bowl-winning quarterback, the Mahomes deal presents a unique challenge to a business tied to a league-wide salary cap. With his extension in place, the All-Pro passer is guaranteed approximately $141.4 million over the course of his new deal, $30 million more than Houston Texans QB Deshaun Watson and Los Angeles Rams QB Jared Goff received on their recent mega-deals.
What’s more, Mahomes has the potential to accumulate up to $503 million in total earnings, thanks to some added playoff and award incentives. Oddly enough though, his $5.3 million cap hit (base salary + bonuses) represents only 2.4 percent of the team’s cap this season.
The 24-year-old is now under contract — the largest in sports history — in Kansas City through the 2031 season.
How Mahomes’ Deal Came Together
Like any complex business deal, Mahomes’ new contract did not come together overnight. In fact, representatives for the NFL superstar, including agents Chris Cabott and Leigh Steinberg, have been working behind the scenes since January 2019, according to Sports Illustrated’s Greg Bishop:
As the Super Bowl season unfolded, the quarterback’s reps continued to drill deeper on short- versus long-term options. A three- or four-year guaranteed deal held great appeal and fit with recent trends throughout sports. Foremost, it would allow the agents to renegotiate again while Mahomes remained in his prime and the salary cap continued to rise like an elevator that would never stop. But Cabott saw one prominent hang-up with a shorter agreement: Unlike in baseball and basketball, when an NFL star signs a deal, the team must immediately fund all of the guaranteed cash to the NFL, and he believed it would be more difficult to maximize the money for that reason. The agents looked into taking out an insurance policy to offset the unlikely but not impossible event that Mahomes wouldn’t be able to negotiate for a third time (like, if for any reason, he never played again). But none of the policies, combined with a shorter, all-guaranteed contract could net as much total as the longer-term options.
Known for his long-standing reputation around the league and innovative negotiation tactics, Steinberg sought out ways to get Mahomes more guaranteed money up front, rather than delay the cash until the latter years of the deacade-long deal — a term the agents now refer to as “guarantee mechanisms.”
Both Cabott and Steinberg describe it as the latest innovation in the evolution of pro football contracts. The first five years—and roughly $140 million—of Mahomes’s deal are guaranteed against injury. But for each year that he remains on the Chiefs’ roster, significant, eight-figure chunks—at least $21.7 million (’21) and as much as $49.4 million (’27)—become guaranteed. There are buyout opportunities, but those very guarantees make releasing Mahomes in any one season prohibitively expensive, which to his reps means that Mahomes basically signed a guaranteed contract, without the Chiefs needing to lay out over $400 million up front. In the improbable event he is let go, he would then hit the open market.
Even for generational athletes such as Mahomes, starting and finishing a career with one franchise has become a rarity. For now though, the face of the franchise turns his attention to the Houston Texans for the 2020 season opener on Thursday night.