The Houston Texans saw this coming in October 2017, when then-rookie quarterback Deshaun Watson took the league by storm, throwing for 16 touchdowns in a four-game span. In his next two seasons, he led the Texans to consecutive division titles.
Entering his fourth year, Watson is eligible to be paid like a long-term franchise quarterback.
According to ESPN's Jeremy Fowler, several league executives believe Watson will be the next NFL quarterback to get a megadeal and reset the bar for contracts, which currently is $35 million annually, set by the Seattle Seahawks' Russell Wilson in April 2019.
It might not last long. Kansas City Chiefs quarterback Patrick Mahomes, who was picked in the same draft as Watson but has an MVP award and Super Bowl ring, will almost certainly get an even larger deal, perhaps in the $40 million range.
So the Chiefs are watching closely, and have issues similar to those of the Texans to iron out before they reward their star quarterback.
Big cap considerations
Both teams are already up against the league's salary cap. Houston currently has $18.6 million in cap space in 2020 and $34.9 million in 2021, based on ESPN Roster Management's adjusted cap value. In order to maintain financial flexibility, the Texans will have to maneuver other players' salaries to take on Watson's contract extension.
In 2021, Houston currently owes left tackle Laremy Tunsil $19.4 million, defensive end J.J. Watt $17.5 million, wide receiver Brandin Cooks $12 million and three other players more than $10 million. Neither Watt nor Cooks is guaranteed any money beyond the 2020 season. It would seem head coach and general manager Bill O'Brien is high on Cooks after trading the No. 57 pick for him prior to a draft that was deep in receiver talent.
Watson currently accounts for 2.11% of the Texans' salary cap. O'Brien has been active in trading away productive and expensive players such as Jadeveon Clowney and DeAndre Hopkins while also adding players who were almost as expensive via trade in Tunsil ($14.1 million), Cooks ($8 million), receiver Kenny Stills ($7 million) and running back David Johnson ($11.1 million). The Texans also added Randall Cobb ($6.1 million) in free agency.
Although those players were added with the idea of improving the offense around Watson, it came at a hefty price. Tunsil, Johnson and Cooks would count for $33.2 million against the cap in 2020 and $40.4 million in 2021.
The Chiefs' cap situation is even tighter. Kansas City currently has $2.8 million left in cap space for 2020, per ESPN Roster Management, and that's with Mahomes' cap hit at $5.3 million taking up just 2.28% of their salary cap. The Chiefs have nine players set to make more than $10 million next season, including defensive end Frank Clark ($19.3 million cap hit), wide receivers Tyreek Hill ($17.7 million) and Sammy Watkins ($15.8 million), and defensive back Tyrann Mathieu ($16.3 million).
Given Mahomes' accomplishments, he is expected to get a larger contract than Watson. In January, ESPN's Fowler spoke to several executives who suggested the reigning Super Bowl MVP could hit or eclipse $40 million a year.
Currently, Los Angeles Rams quarterback Jared Goff (15.47% of team cap) slightly edges out Wilson (15.42%) in accounting for the highest percentage of his team's cap space.
Teams that have won Super Bowls typically have a more balanced salary structure when it comes to quarterback salaries. Since 2011, when the new CBA set a scale for rookie contracts based on the slot where each player was picked, four teams have won with their quarterback on a rookie contract, according to ESPN Stats & Information research. Of those five other Super Bowls, three were won by former New England Patriots quarterback Tom Brady. In 2018, Tom Brady's 13% of the Patriots' cap space ranked 11th in the NFL that season. Twelve quarterbacks have won a Super Bowl in their first four seasons, including Brady twice.
Another variable that could affect Watson's extension is what the Cowboys do with quarterback Dak Prescott. He was tagged by Dallas in March, which carries a $31.5 million cap value for 2020. He also could sign a long-term deal before the July 15 franchise tag deadline.
Sarah Barshop breaks down the Texans signing LT Laremy Tunsil to a 3-year extension, with Deshaun Watson the next player Houston plans to lock up.
Will Watson take long-term approach?
Where does that leave Watson? If the sides reach a deal this summer, Watson and the Texans could agree to a four-year extension with terms similar to what Goff and Philadelphia Eagles quarterback Carson Wentz -- both drafted a year earlier than Mahomes and Watson -- received last summer when each had two years left on their rookie contracts.
A hypothetical Watson deal would project to be just below the $40 million a year Mahomes could command, perhaps a contract extension of four years and $152 million. With the last two years from his rookie contract tacked on, that could make the deal about six years and $172 million.
However, one NFC executive told ESPN that he believes Watson will opt for a shorter deal for the same reasons Prescott wants one: more flexibility and an earlier crack at big money starting in 2023.
"I believe it's just the beginning, just the tip, [for growth]," said Todd France, who represents Prescott, of the quarterback market. "That's why you see players at a lot of positions trying to strike shorter-term deals."
Quarterback Kirk Cousins has taken that approach with the two deals he has signed with the Minnesota Vikings. In March 2018, Cousins signed a three-year, fully guaranteed contract worth $84 million. Two years later, Cousins signed a two-year contract extension with Minnesota worth $66 million, including $61 million guaranteed at signing.
Of course, a key figure for these contracts has been guaranteed money. Goff's contract leads NFL quarterbacks with more than $110 million guaranteed, although if Watson signs a shorter contract, he could be more in Cousins' range.
Because Watson's fifth-year option already counts for $17.5 million against the Texans' 2021 cap, Houston might not have to take extreme measures to make Watson's contract work. The Texans could backload the contract with large base salaries in future seasons that could be reworked down the road. Teams often keep base salaries on the lower side earlier in the contract because most of the early money is paid out in a signing bonus.
If the Texans seek to alleviate some of the pressure on the 2021 cap, they could allot most of Watson's signing bonus in 2020 to go with the current low base salary of the fourth year of his rookie deal. Given that the Texans currently have $18.6 million in salary-cap space, they would still need to do some work on other contracts to make that happen.
One way to do that is by cutting players who would not have a dead money charge. Guard Zach Fulton and Stills are candidates. Fulton is owed $7 million in 2020 and another $7 million in 2021. Stills is owed $7 million in 2020 and is a free agent after the season. Houston also could try to trade Stills to a receiver-needy team late in training camp.
Deflating the bloated deals
The challenge will be continuing to build around Watson with so many bloated contracts on the books.
Unlike last season, when Watson's cap hit accounted for 2.11% of the Texans' cap and Mahomes took up 3.04% of the Chiefs' cap, those numbers will go up significantly. The average team will devote $18.6 million to salaries of quarterbacks in 2020, per Spotrac. That would be 9.4% of a team's cap.
Tunsil will account for 6.75% of the Texans' cap in 2020 after the left tackle set a record for the largest annual salary for an offensive lineman. Making the percentages work is one reason O'Brien gave for trading Hopkins, saying that "it was going to be very, very difficult to have an elite quarterback, an elite defensive end, an elite left tackle and other players" and make the contracts work. It's also one of the reasons the Texans believe they couldn't pay Clowney what he thought he was worth, as the team already had Watt on the roster.
So what moves could Houston make to lower its salary cap for the 2021 season to make more room for Watson's contract and allow for moves in the offseason? The Texans could give Watt a contract extension to add guaranteed money and years to the deal, and by adding length, could spread out his cap hit. He has two years left on the deal he signed in 2014 without any guaranteed money remaining. To reduce the cap hit, Houston could guarantee the money and add additional years.
The Texans also will have to make decisions after the season about Cooks (no guaranteed money) and running back Johnson (owed $9 million in 2021, $2.1 million guaranteed). It also looks unlikely Houston could afford to re-sign wide receiver Will Fuller even if he has an excellent -- and healthy -- 2020 season. He is currently playing on his $10.1 million fifth-year option.
Most teams in this position must depend on replenishing by drafting impact players. For example, the Chiefs are banking on first-round pick Clyde Edwards-Helaire to be another dependable weapon for Mahomes. But because they traded for Tunsil and Stills last August, the Texans didn't have a first-round pick in April and don't have a pick in the first or second rounds of the 2021 draft.
Former Bills QB Jim Kelly says guys like Patrick Mahomes, Deshaun Watson and Lamar Jackson remind him of the legendary QBs like John Elway, Dan Marino and Boomer Esiason.
New variables
Typically, teams can bank on a salary-cap increase from year to year. In 2020, the number went up by $10 million.
But what happens if the 2020 season is shortened by the coronavirus pandemic, or if games are played in front of empty stadiums, affecting league revenue? Teams could be looking at a salary-cap decrease in 2021 because that number is based on the NFL's total revenue.
While the cap could certainly decrease next season, one longtime agent says he believes because the NFL has 10 more years of labor peace after the 2020 season, that the league will borrow from the future, "and at worst, the 2021 cap will be flat."
That doesn't mean that teams won't have cash issues due to lost revenue, but the agent suggests that "from a cap standpoint, it may go up a little bit, it may be completely the same, but it won't go backwards.
"Because the projections, when they get this TV money, are going through the roof," he said. "So they can easily borrow from the future."
The other element to a contract negotiation taking place this offseason is the NFL's collective bargaining agreement, which was approved in March. As part of the CBA, between 2021 and 2023, NFL owners can expand the regular season from 16 games to 17 games. That would mean more revenue for the NFL, so will that affect contracts going forward?
"It should," an agent told ESPN. "If you're at $1.6 million, and a player is making $100,000 a game, and everything stays the same and a new contract, then he should be at $1.7 million. It's just fundamental math. So, yeah, the new CBA should make deals bigger. ... Seventeen games, that's one more game of revenue for the owners, so why shouldn't the player get it?"
Also included in the CBA is language that could let owners and players make money from future gambling revenue. Players will share revenues generated "by the operation of gambling-related businesses located in or physically attached to an NFL stadium," according to language in the CBA. The CBA states that revenue is available through "gambling on any aspect of NFL games, any performance of NFL players in NFL games or in any other NFL/club-related activity."
While the pandemic could certainly affect how the league does contracts, the NFL is clearly expected to remain in a financial growth stage. Watson will get his money, whether it's with a long-term contract extension or a shorter one that would take advantage of the money coming in.
But the Texans have used up their three affordable years of Watson, and after they lock him up with a long-term deal, it will only get more difficult for the Texans to compete for a Super Bowl, which is something the Chiefs accomplished with Mahomes on his rookie contract.
ESPN's Jeremy Fowler contributed to this story.