Big four sports teams have been spending freely this summer in spite of revenues lost over the last 18 months and the growing threat of the Delta variant. In fact, between July 27 and Aug. 9, NFL, NBA, NHL and MLB clubs negotiated $5.197 billion worth of new player contracts—according to Spotrac, that is more in cash-out commitments than any other 14-day stretch within the last decade. Spotrac founder Michael Ginnitti cited a scheduling anomaly that saw “all of these leagues drafting, doing rookie contracts, free agent contracts, [restructures] and long-term extensions” at the same time and a general bullishness on the value of live sports rights as catalysts for the record-setting period.
Our Take: The 14-day period starting on July 1, the date NBA and NHL free agency typically begins, is usually when the most money is spent. The previous record was set in July 2019, when big four clubs collectively inked $4.9 billion in player pacts. But because the pandemic pushed back the NHL and NBA seasons, free agency was likewise delayed this summer (to July 28 and Aug. 1, respectively). “Everything basically got moved back one month," which meant overlap with the NFL rookie signings, Ginnitti said. "And the MLB draft was a week before the July 29 NBA draft. So, you also had NBA and MLB rookie signings kicking in. It was just a perfect storm."
Rising salary caps (along with inflation) have helped drive up the value of player contracts over the last decade. But the deals done in late July and early August were negotiated in the face of flat or declining single-season cap outlooks (MLB does not have a cap, so those contracts are the exception).
The cap pullback does not seem to have affected how clubs operate, however. “There is just no fear with these sports and franchises right now,” Ginnitti said. “More than anything, the pandemic taught them that nothing beats live sports. So, with that knowledge in mind, and [the narrative] being reinforced with networks overpaying for rights, everybody is already looking ahead two or three years.”
NBA teams made up about 60% of the dollar commitments from the 14-day period (about $3.17 billion dollars’ worth), signing players to massive deals under the presumption that the cap will rise significantly within the next two years. David Mondress (senior VP contract and basketball operations, BDA Sports Management) said the league's strong track record for revenue growth has given teams the confidence "to spend to hold on to, or attract the best players. [And], with a salary-cap system and revenue sharing, team profitability is protected for all but the highest level of spenders paying significant luxury-tax money."
Ginnitti suggested the short-term nature of NBA contracts and a player-friendly collective bargaining agreement were also factors in driving the record spend. “The ability for these guys to get early extensions is as great as ever,” he said. “Kevin Durant wasn’t even close to in need of a contract extension, and he takes a four-year, $198 million one. Steph Curry got a four-year, $215 million one. The biggest names in the sport are constantly needing new contracts because of the length of these deals. They are not doing 12-year deals like Patrick Mahomes did. They are not doing eight-year deals like NHL superstars do.”
Meanwhile, in the NFL, August is extension season (see: Josh Allen’s recent $150 million guaranteed deal), and there are always a few rookies who sign late (see: Zach Wilson’s $35.1 million contract). But teams spent $647.1 million in late July and early August (+137% YoY), despite the salary cap being down in 2021 (8%, from $198.2 million to $182.5 million). “The money going out right now is because of what’s coming in two years" when new TV deals begin, Ginnitti said.
Super-agent Leigh Steinberg reminds: “The salary cap does not measure cash out. It is possible that many of these contracts were structured with a lower cap number for this year and then a jump next year and in the future.”
That is the case with Allen's deal in Buffalo. "The contract is heavily team-friendly over the next two seasons," Ginnitti said. "His $10.2 million cap hit in 2021 is only $3.3 million more than his original hit (from the rookie contract). And in 2022, Allen's $23 million fifth-year option cap hit has been reduced to $16.38 million in the new deal—almost $7 million of savings." Allen's cap figure will rise to $39 million in 2023.
NHL teams are having similar conversations (albeit on a smaller scale), with $1.36 billion in contractual obligations made during the record-spending period. “There have been a significant number of long-term extensions this offseason,” Ginnitti said. The Spotrac executive added, “The fact that [the league is] back on board with ESPN, and they see some bluer skies ahead,” has a lot to do with the increase in cash out (no 14-day period prior to this summer had ever reached $1.2 billion). For what it’s worth, the money handed out to the current crop of free agents is down slightly from 2019.
Once the MLB trade deadline passes, transaction volume tends to decrease. So during the record period earlier this month, baseball only accounted for $16 million in contracts. Ginnitti said the nominal figure, though, is less indicative of the sport’s outlook than a reflection of its uncapped salary system. “While there are three or four guys getting gigantic paydays each year, for the most part [baseball] is a young man’s game,” he said. “Everybody is playing on minimum contracts or close to it.”
MLB aside, there is an argument that the nearly $5.2 billion tallied in new player contracts should have actually been higher. “There is probably some [NFL] player money being left on the table,” Ginnitti said. “In a normal situation, Josh Allen surpasses Patrick Mahomes. It has been a next man up league for 20 years. But that is just not the case right now. [Teams] can push the fact that they didn’t have a gate, that they lost so much revenue over the last 18 months,” and because “these players have it worse than probably any other player system among big four sports,” ownership usually maintains leverage.
If it took a perfect storm to generate the $5.197 billion total, one would assume the 14-day mark would stand for some time. But Ginnitti thinks with the way the industry is progressing, there is a good possibility the record gets reset in 2023. “If the NFL takes the step forward I think it is going to in two years (from $188 million to $230 million) and these new guys like Trevor Lawrence are ready for new contracts, you’re talking about $50-to-$55 million per year, which would be aligned with NBA money,” he said. “There is a legitimate chance we have a summer of extensions in the NFL [in 2023] that pushes us [close to the record] if you combine it with NBA and NHL free agency.”