NFL’s Funding Rule and Its Implications for Contract Negotiations

The NFL’s funding rule is a controversial topic that has implications for the contracts of star quarterbacks like Deshaun Watson, who signed a record-breaking deal with the Cleveland Browns last year. In this blog post, we will explain what the funding rule is, why it exists, and whether the Browns had to comply with it for Watson’s contract.

What is the funding rule?

The funding rule stipulates that every fully guaranteed dollar owed to a player, but not yet paid to him, must be placed in a league-run escrow account. In other words, even if a player is owed guaranteed money over the course of two or three years, ownership still must place all of that money into a separate bank account. This ensures that the player will receive his money even if the team goes bankrupt or defaults on its obligations.

Why does the funding rule exist?

The funding rule was established at a time when NFL owners were not nearly as wealthy as they are today, and it was possible that a franchise could run out of money to fulfill future guarantees. The NFL Players Association pushed for this rule to protect its members from potential owner insolvency. The funding rule also serves as a deterrent for teams to hand out large guaranteed contracts, since they have to pay upfront for them.

Did the Browns have to comply with the funding rule for Watson’s contract?

Watson’s contract with the Browns is worth $230 million over five years, with $230 million fully guaranteed. According to the funding rule, the Browns would have to deposit $160 million into an escrow account by March 31, 2023. However, the relevant section of the Collective Bargaining Agreement does not include mandatory language for the funding of future guarantees. It says that “the NFL may require” that each club must deposit into a segregated account, not that it “shall” or “must” do so. This means that the NFL has discretion over whether to enforce the funding rule or not. There has been no official confirmation from either the Browns or the league on whether they complied with the funding rule for Watson’s contract. Mike Florio of Pro Football Talk reported that he asked both parties on April 2, 2023 and received no response. He speculated that the NFL may not have required the Browns to do it, and that the funding rule may be nothing more than a “phony device” used by teams as an excuse to not give full guarantees.

What are the implications of the funding rule?

The funding rule could have a significant impact on the quarterback market and the competitive balance of the league. If only certain teams or owners are able or willing to pay for full guarantees upfront, then they may have an advantage over others in attracting and retaining top talent. For example, some analysts have suggested that Kyler Murray’s recent extension with the Cardinals contained less guarantees than Watson’s deal because the Cardinals are not considered a cash-rich team. On the other hand, some players may prefer more flexibility and security over full guarantees, since they can renegotiate their contracts or hit free agency sooner. The funding rule could also be a source of contention between the NFL and the NFLPA in future collective bargaining negotiations. The players’ union may want to eliminate or modify the funding rule to allow more players to receive full guarantees without having to worry about escrow accounts. The league may want to keep or strengthen the funding rule to limit guaranteed contracts and maintain financial stability. The NFL’s funding rule is a complex and controversial issue that affects both players and teams. It will be interesting to see how it evolves and influences contract negotiations in the future.

Final Thoughts: The Future of NFL’s Funding Rule

The NFL’s funding rule is a critical aspect of contract negotiations in the league, especially for players seeking full guarantees. While the rule was established to protect players from potential owner insolvency, it also serves as a deterrent for teams to offer large guaranteed contracts. However, the funding rule’s discretionary nature raises questions about its effectiveness and fairness in the league’s competitive balance. If teams are not required to comply with the funding rule, then it could create an uneven playing field where only certain owners or teams can afford to pay for full guarantees. This could lead to a concentration of talent among a few teams, which could hurt the overall competitiveness of the league. It could also lead to disputes between players and teams over the nature and scope of guaranteed contracts. On the other hand, some players may prefer more flexibility and security over full guarantees, as it allows them to renegotiate their contracts or hit free agency sooner. Additionally, if the funding rule is eliminated or modified, it could create new opportunities for players and teams to negotiate more favorable terms, which could lead to a more dynamic and competitive league. The future of the funding rule will likely depend on the outcome of future collective bargaining negotiations between the NFL and the NFLPA. The players’ union may push to eliminate or modify the rule to allow more players to receive full guarantees without worrying about escrow accounts. The league may want to keep or strengthen the funding rule to limit guaranteed contracts and maintain financial stability. In conclusion, the funding rule is a complex issue that has significant implications for players and teams in the NFL. It will be interesting to see how it evolves and influences contract negotiations in the future, and whether it continues to be a source of controversy and debate in the league.