The reigning Super Bowl MVP has finalised a contract extension with the Kansas City Chiefs, in a deal that sent shock waves around the sporting world.
It has the potential to be the largest contract ever awarded in major league sports history with possible earnings of $450 million (A$644 million) over ten years that would eclipse those of Los Angeles Angels centre fielder Mike Trout.
The contract details
Initial reports placed the value of the contract over $500 million (A$716 million). As it is an extension, Mahomes will is now under contract for 12 years with the Chiefs. He will play the next two years under the terms of his rookie contract and previously exercised fifth-year option, earning approximately $27 million (A$39 million) over this period.
Starting in 2022, the ten-year extension and potential $25 million (A$36 million) in incentives can earn him a maximum of $475 million (A$680 million). These incentives will be met should Mahomes win the NFL MVP ($1.25 million, or A$1.8 million), or win the AFC Championship game ($1.25 million, or A$1.8 million) – so don’t expect him to earn much of that $25 million (A$36 million) portion of the deal.
Importantly, Mahomes’ contract is not calculated based on a percentage of the salary cap (i.e. regardless of what the cap amount is, Mahomes will be paid 20 per cent), as early reports speculated.
Here’s what those freshly inked contract terms look like. At the time of signing, $63 million (A$90 million) is fully guaranteed, with the remainder triggered in guarantee mechanisms. In essence, these mechanisms are dates on which salary in advance becomes guaranteed. As you can see, there is no guaranteed salary in 2023, however the $40.45 million (A$58 million) available to Mahomes in salary, prorated bonus, roster bonus, and workout bonus becomes fully guaranteed on the third day of the 2021 league year. A similar process occurs in 2022 for his 2023 salary, and in 2023 for his 2025 roster bonus. This structure deviates in 2024 when only his base salary and workout bonus in 2025 become guaranteed.
What does it mean?
The effect of this structure is almost like having two five-year contracts. Over the first five years of the extension, Mahomes’ average cap hit will average approximately $40 million (A$57 million) per year. In fact, based on this structure, Mahomes won’t be the highest paid quarterback in the league on a cumulative cash basis until the fourth year of his new deal according to Over the Cap.
The second half of the contract extension is quite different to the first. Starting in 2027, the cap number balloons to nearly $60 million (A$86 million). Before the third day of the 2026 NFL season, both Mahomes and Kansas City will have a decision to make. If things have gone smoothly, I expect both sides to agree on a restructure with Mahomes getting more guaranteed and upfront money, and the Chiefs lowering that cap hit. Alternatively, the high cap charge, which would be at least 20 per cent (assuming a best case scenario $300 million or A$430 million salary cap), gives Mahomes leverage to hit free agency in the prime years for a quarterback.
Naturally, there have been hot takes that this move will prevent the Chiefs from winning another Super Bowl because they will be unable to afford top-end talent. I don’t foresee this being an issue for several reasons.
Firstly, the cap goes up. Global pandemics aside, it always goes up. The NFL generates more revenue than any other professional sports league on the planet, and that revenue pie is only going to grow in the coming years with a new television rights deal which will be renegotiated in 2022. Early estimates indicate the media deal may double from $7.5 billion (A$10.7 billion) to $15 billion (A$21.5 billion).
Add in the fact that the new CBA increased the revenue portion allocated to players from 47 per cent to 48 per cent, and it won’t be long before the salary cap reaches $300 million (A$430 million) per season.
Secondly, veteran players will likely be willing to take less money in exchange for playing with Mahomes and the pursuit of a championship. The states of Kansas and Missouri also have relatively attractive state income tax rates as well, so players will save some money playing for the Chiefs instead of signing for franchises for a bit more money based in higher taxation states such as California and New York.
Finally, if Mahomes is as good as this contract says he is – and he is – he should be able to elevate the players around him. Winning an NFL MVP award and a Super Bowl at such a young age has certainly been helped with an all-star supporting cast of pass-catchers and offensive linemen. As he continues to develop, he should come to rely less on the game-changing ability of Tyreek Hill and Travis Kelce, and get the best out of less heralded players who may not have reached their potential on other rosters.
Ultimately, the quarterback is irrefutably the most valuable position on the field. The Pro Football Focus Wins Above Replacement (WAR) metric is one of the most statistically stable measures of year-on-year player performance. Quarterback is by far the most valuable position in the sport according to this metric. It’s incredibly hard to win a Super Bowl (ask Aaron Rodgers and Drew Brees), but securing elite-level quarterback play is the best way to do this in the modern-day NFL.
The Kansas City Chiefs have done their bit. Over to you Dallas, Houston, and soon enough, Baltimore.
Pay your quarterbacks.