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Nerdy Birds: How A.J. Terrell's Fifth-Year Option Works


The Falcons have picked up A.J. Terrell's fifth-year option, extending his contract through the 2024 season. This contract mechanism has become a popular one for teams over the past decade. Today we're going to look at where it came from, how it works, and what it means for the Falcons and Terrell going forward.

How It Works

Each player drafted in the first round of the NFL draft receives a four-year contract with a team option for an additional year, hence the fifth-year option you've heard so much about. Unlike the franchise tag, which can only be exercised by a team on a player who is set to enter free agency, the team must decide whether it will pick up a player's fifth-year option after their third season.

For example, following the 2021 season, the Falcons picked up Chris Lindstrom's fifth-year option but declined Kaleb McGary's. That meant that while both players were under contract for the 2022 season, Lindstrom remained under contract for 2023 while McGary became a free agent at the start of the new league year on March 15. Both players will be under contract for quite a bit longer as Linstrom signed a five-year extension and McGary inked a new three-year deal.

A.J. Terrell, who was selected with the 16th pick in the first round of the 2020 NFL Draft, is the latest Falcon to have his fifth-year option exercised. It's important to note that the Falcons could work out a long-term extension with Terrell at any point during this offseason. Deciding on the fifth-year option doesn't preclude an extension as Terrell became eligible for a contract extension on the day after the end of the season, his third in the NFL.

While Jeff Okudah was also selected in the first round of the 2020 NFL Draft, he is not eligible for the fifth-year option as the Lions re-structured his contract prior to trading him to Atlanta.

Before we get into the economics of Terrell's fifth-year option, let's look at how this contract mechanism came about and how it's changed since it was introduced in the 2011 Collective Bargaining Agreement.

History Lesson

The 2011 CBA was a landmark agreement between the NFL owners and the players association. The agreement put an end to a four-month work stoppage that stretched from March to the end of July that year, which meant no offseason program and free agency was delayed until the start of training camp. Players were, quite literally, locked out of team facilities and were prohibited from communicating with coaches.

Now, we won't go into all the details, but the CliffsNotes are that the NFL and NFLPA agreed to a CBA in 1992 which was renewed four times, and due to several, we'll call them sticking points, the owners elected to opt out of that agreement which led to the end of the deal following the 2010 season. Fun fact, the 2010 season was played without a salary cap.

One of the major issues that both the owners and players agreed needed to be worked out was the disproportionate amount of money that was going draft picks while many veteran players were left to compete for fewer dollars. For example, Jamarcus Russell signed a six-year $61 million contract in 2007. Sure, today $10 million a year for a quarterback doesn't sound too bad but according to Spotrac, the salary cap was $109 million that season. That's nearly 10 percent of the cap going to a player before they've played a single snap.

That only continued to escalate over the next few years with top draft picks earning a larger and larger portion of the pie, culminating in Rams first-overall pick Sam Bradford getting nearly $50 million of a six-year $86 million contract fully guaranteed.

All these numbers are beginning to sound a little like Monopoly money, but the gist is that both the owners and players wanted to reduce the size of the piece of pie going to rookies. For owners, it meant investing less in the volatile draft market; for the players, it meant a larger slice going to proven veterans. The rookies didn't get left out in the cold though. The 2011 CBA set the standard first-round contracts that we have today, four years with a team option for a fifth year, which would, in theory, allow players to hit free agency a year earlier than under the traditional six-year agreements of the previous generation.

"Rookie earnings, especially at the top of the draft, were shaved by more than 50 percent," wrote Andrew Brandt for Sports Illustrated in 2014. "As an example, 2010 top pick Sam Bradford netted $48 million in his first four years, with 2011 top pick Cam Newton earning $21 million over the same time frame."

In the 2011 CBA, the fifth-year option was split between the top 10 picks and the remaining 22 selections. The top 10 picks received a one-year contract equal to the transition tag in their fourth season. Again, we'll spare you the NFL's penchant for legalese and hit the CliffsNotes. The transition tag is whichever is higher, the average of the top 10 salaries at a player's position or 120 percent of that player's salary in the previous season.

The remaining draft picks (11-32) were a little more straightforward, as those players received a one-year contract at the average of players ranked third to 25th in salary at their position. That changed in 2020 with the introduction of another new CBA. Now the fifth-year option payouts are based on position and whether a player hits certain playtime thresholds or makes the Pro Bowl on the original ballot – not as an alternate.

Since 2011, an average of 19.2 players per draft year have had their fifth-year options exercised. Atlanta has picked up the fifth-year option on seven of its 10 eligible players. That includes Hayden Hurst, who had his option declined by the Falcons after being acquired from Baltimore via trade. The Falcons have given long-term extensions to four players who had their fifth-year option exercised, Julio Jones, Desmond Trufant, Jake Matthews, and Chris Lindstrom.

Economics of AJ

Bearing all of that in mind, Terrell has played 44 of a possible 49 games over the first three years of his career, clearing the playtime requirements. According to Over the Cap's projections, Terrell is in line for a one-year, fully guaranteed contract worth around $12 million. Keep in mind that it is for the 2024 season.

It's easy to get lost in all the numbers but building out the salary cap puzzle is a vital part of managing an NFL roster both in the short and long term. There's no one way to do it and every team is faced with different challenges but knowing that you've got one of your best defensive players under contract for the next two seasons is like having a corner of the puzzle filled out. It gives you a place to start from as you try to turn a jumble of pieces into a clear picture.

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