Over the last several weeks the topic of a long term contract extension for Haloti Ngata has been debated and many have wondered why the Ravens’ Front Office has failed to sign their prized first round pick from the 2006 NFL Draft to a long term contract extension. Instead of a new deal, the Ravens used their Franchise Tag on Ngata yesterday, thereby ensuring that they will either have Ngata on the team for 2011 or receive two 1st round picks in return for allowing him to leave.
What many have failed to understand – and what many in the media have failed to fully explain – is that the team is now essentially prohibited from signing Ngata to a long-term contract extension. “Why?” you ask.
Blame it on the “30% Rule” that is part of the Uncapped Year rules.
The 30% Rule is still in effect at this time because under the league’s calendar, the league is still operating in the 2010 league year – and the 2010 league year is the uncapped year, under which a different set of rules apply. As such, many teams are either restricted or prohibited from signing some of their players to contract extensions.
The 30% Rule basically prohibits a player’s salary from increasing by more than 30% from a “capped” year (2009) to an “uncapped” year (2010). This rule was set in place to prohibit teams from loading up uncapped years with extra large salaries. It did not, however, prohibit teams from giving out incentives and escalators that may increase the player’s salary in an uncapped year, as long as those incentive and/or escalators were CBA recognized.
In the case of Haloti Ngata, the key figure is his 2009 “salary”, which for purposes of the 30% Rule was $2.358M.
Last spring, here on The Money Clip it was explained how the 30% Rule limited the team’s ability to offer Ngata a contract that was worthy of his value. (LINK)
Consequently, given Ngata’s $2.358M 2009 salary, his annual salaries could only increase on a yearly basis by no more than $707K. As such, over the course of a long term deal, Ngata’s base salaries would remain low and only increase by $707K each year.
So, in order to give Ngata a contract worthy of his stature, the team would have had to give him an upfront signing bonus (which is not part of the 30% limitation) of somewhere between $35-40M. That would have been a record signing bonus and basically made any contract extension impractical.
So, last year, the 30% Rule was a major limitation. This year, however, it has become a total prohibition because Ngata has now received his 2010 salary.
Recall, as stated above, that incentives and escalators were exempt from the 30% rule when Ngata signed his rookie contract. So, while the base numbers of his contract called for no more than a 30% increase in his yearly salaries, Ngata received a playing time incentive in his contract that increased his 2010 base salary by $2M (to $4.53M).
So, while these incentive bonuses did not violate the 30% Rule for a contract signed before 2010 became the Uncapped Year, it would cause a violation of the 30% Rule for any contract extension executed during the Uncapped Year (which despite the 2010 season being completed, the 2010 league year continues until March 3rd). The difference between his 2009 and 2010 salaries ($2.358 M v. $4.53 M) is far more than 30%.
This increase makes it impossible for the team to now sign Ngata to an extension and not be in violation of the 30% rule. The CBA does not offer a way for the contract extension to go back and essentially retroactively adjust those salaries to bring them into compliance with the 30% Rule.
So, unfortunately, for the Ravens and Ngata, no deal can be completed at this time and they will have to wait until after a new CBA is agreed upon to reach a contract extension that will make Ngata one of the highest paid defensive players in the NFL.