What is the fifth year option?

Last week, the Detroit Lions announced they were exercising their option to extend Eric Ebron’s rookie contract from four years to five years. Prior to adding the additional year, the former 10th selection overall in the 2014 NFL Draft was set to become a free agent after the 2017 season. The rule creating the fifth-year option first took effect in the same year the tight end was selected, forcing teams to decide whether or not to extend contracts on rookies drafted in 2011. Here is Ross Tucker at the Sporting News giving a (relatively) simple explanation of the rule:

The option pays players taken in the first 10 picks the transition tag—average salary of the top 10 earning players at the position—while players picked between picks 11-32 get the average of the 25 highest paid players at their position except for the first three.

Tucker’s take on the fifth-year option is that teams should default to always exercising the option unless they believe there is an injury risk (which would guarantee the fifth-year’s money even if the player did not play in that fifth year):

It's also why it is more noteworthy if a team chooses not to pick up the option than if they do. Remember, a team can easily still cut any of these players after this upcoming season well before the 2015 salary they are due as part of the option becomes fully guaranteed next March. It's basically an option to have an option if you think about it. It gives any of these teams the right to either extend, release or renegotiate with these players next January or February—while having all of the control. There's no reason not to pick it up unless the player has been a huge disappointment or the team doesn't even want to take on the very small risk that a player suffers such a devastating injury, that it puts the team on the hook for his 2015 salary.

Even in the face of substantial injury risk, teams may still exercise the option. As good a deal as Tucker made it sound three years ago, the truth is that fifth-year options are sometimes declined. Consider the 2014 class of which Ebron is a member. Both Sports Illustrated and Pro Football Talk have trackers for the current fifth-year option decisions for all teams.

Options not picked up for the rookie class of 2014?

Ebron’s option

As the 10th overall selection, Detroit must use the more expensive transition tag style calculation for Ebron’s year. Using projections by an agent provided to CBS Sports, tight end under the top 10 pick rule is expected to cost $8.25 million. Back in January, Kyle Meinke at MLive.com reported the option was thought to be worth around $8.5 million before free agency, so $8.25 million is a reasonable projection.

Along with the salary at stake, the other aspect to consider with fifth-year options is the injury guarantee. While Ebron was hit with an Achilles ankle injury scare before the 2016 season, he played significant snaps in 13 regular season games and the Wild Card loss to Seattle. The young tight end has played in 42 out of 50 possible games (after including two playoff games), so there are no serious injury risks here.

Interlude: Opportunity Cost

Before we get to analyzing the actual choice made by Detroit, it is useful to review what factors are appropriate to include in the evaluation. The general framework comes to us from microeconomic theory of individual choice; economics at its core is the study of how decisions are made. When we teach undergraduate micro classes, the concept presented to students is opportunity cost.

The 64 dollar question to ask for each possible choice that could be made is this: what are you passing up when you choose to do that? What opportunity would no longer be available once you pick it? The most obvious costs that people intuitively recognize are monetary costs (e.g. paying 99 cents to get two tacos), but the money itself is not what we mean by opportunity cost. The thing to really care about are the other things that could have been bought with the money. Nobody eats the money: they eat the value menu hamburger bought with the 99 cents.

So what might your opportunity cost be while standing at a fast food restaurant with 99 cents (and whatever tax amount needed)? You can eat two tacos, or you can eat a hamburger, or you can walk away hungry with the 99 cents still in your pocket and the opportunity to buy something else later. The components of the decision are these:

Choice Set: What options are available? Maybe you have a menu with two tacos for 99 cents, a hamburger for 99 cents, and a filet mignon for 50 dollars. Maybe you are permitted to buy nothing and remain hungry - how much do you hate being hungry?

Budget: What resources can you trade? This could be time, labor, materials, money, etc. What you can afford limits (to a hoity-toity economist, they would say “constrains”) what options are truly relevant. If you only have 99 cents, the 50 dollar filet mignon is not a realistic option.

Timing: Do you need to make the decision right now? Are you allowed to use your resources for something later? Will your choice set or budget change in such a future period?

It is not enough to only evaluate the thing being bought or chosen; it is important to also know what else could have been bought or chosen.

What else could the Lions actually get in free agency?

Getting back to Bob Quinn’s decision, we have information for one possible option in the choice set: pick up the fifth year for about $8.25 million in 2018 and get the services of Eric Ebron. Setting aside freak injuries and other uncontrollable and unknowable things (such as salary cap changes), the best available proxies we have for pricing and quality on alternatives are free agent contracts and on-field production from the past few seasons.

TE Salary cap hits, sorted by 2017 value Rank Name 2017 Team 2017 2016 2015 2014 Rank Name 2017 Team 2017 2016 2015 2014 1 Jason Witten Dallas $12,262,000 $5,500,000 $6,112,000 $8,412,000 2 Greg Olsen Carolina $10,350,000 $4,500,000 $6,300,000 $7,800,000 3 Jimmy Graham Seattle $10,000,000 $8,906,250 $8,000,000 $4,000,000 4 Charles Clay Buffalo $9,000,000 $5,862,000 $5,000,000 $1,459,000 5 Jack Doyle Indianapolis $8,000,000 $1,600,000 $585,000 $495,000 6 Coby Fleener New Orleans $7,500,000 $2,381,250 $1,699,615 $1,456,813 7 Kyle Rudolph Minnesota $6,800,000 $6,618,750 $6,440,625 $2,773,134 8 Rob Gronkowski New England $6,750,000 $6,267,708 $8,650,000 $5,400,000 9 Ladarius Green Pittsburgh $6,187,500 $2,400,000 $772,725 $682,725 10 Jordan Reed Washington $5,737,500 $3,340,676 $742,278 $642,278 11 Julius Thomas Miami $5,600,000 $7,300,000 $10,300,000 $741,000 12 Antonio Gates LA Chargers $5,437,500 $5,185,000 $8,374,264 $5,862,500 13 Travis Kelce Kansas City $5,418,400 $2,900,000 $853,826 $706,826 14 Dion Sims Chicago $5,333,333 $1,750,000 $701,888 $611,888 15 Delanie Walker Tennessee $5,317,708 $6,000,000 $5,275,000 $4,000,000 16 Jared Cook Oakland $5,300,000 $2,626,909 $8,300,441 $6,098,677 17 Dennis Pitta Baltimore $5,200,000 $3,187,500 $6,200,000 $3,200,000 18 Dwayne Allen New England $4,937,500 $8,000,000 $1,717,826 $835,826 19 Tyler Eifert Cincinnati $4,782,000 $2,584,375 $2,251,637 $1,876,364 20 Marcedes Lewis Jacksonville $4,250,000 $3,468,750 $3,850,000 $8,250,000 21 Vance McDonald San Francisco $4,162,500 $2,437,500 $981,594 $817,995 22 Benjamin Watson Baltimore $4,000,000 $2,968,750 $1,900,000 $1,684,375 23 Brent Celek Philadelphia $4,000,000 $1,916,668 $4,800,000 $4,075,000 24 Eric Ebron Detroit $3,897,455 $3,311,563 $2,783,898 $2,227,118 25 Martellus Bennett Green Bay $3,850,000 $5,100,000 $6,125,000 $6,025,000 26 Jermaine Gresham Arizona $3,750,000 $3,406,028 $3,109,375 $4,832,000 27 Ryan Griffin Houston $3,500,000 $689,793 $381,611 $514,670 28 Vernon Davis Washington $3,333,333 $2,000,000 $2,477,941 $7,367,916 29 Virgil Green Denver $3,300,000 $2,750,000 $2,200,000 $661,236 30 Zach Ertz Philadelphia $3,020,000 $3,200,000 $1,467,054 $1,222,545 31 Lee Smith Oakland $3,000,000 $2,750,000 $3,350,000 $688,401 32 James Hanna Dallas $3,000,000 $1,746,146 $686,213 $596,213 33 Anthony Fasano Miami $2,750,000 $3,000,000 $2,031,250 $4,281,250

Instances where players changed to a new team have the cap hit value shown in bold in the table. Based solely off of salary cap hit, the value of $8.25 million appears to be quite high, and would be the fifth highest TE cap value this year. Someone might point at Rob Gronkowski’s $6.75 million cap hit or Travis Kelce’s $5.418 million value and complain that a single year of Ebron for $8.25 million is too high.

Single-year cap hit is not the only thing that matters, though. The reason so many marquee names come with somewhat lower cap hits is due to multi-year contract structuring. If we consider the full contracts for the top end tight ends, we gain valuable perspective on what a good tight end is really worth. The table below shows the current and future cap hits (only Kelce, Ertz, Reed, and Witten had contracts through 2021) for tight ends who caught at least 50 passes in 2016, sorted by yards per game.

TE Salary cap hits, 2017-2020 Rank Name Age 2017 2018 2019 2020 REC Yards/G Rank Name Age 2017 2018 2019 2020 REC Yards/G 13 Travis Kelce 27 $5,418,400 $10,018,400 $9,968,400 $10,468,400 85 70.3 2 Greg Olsen 32 $10,350,000 $9,750,000 80 67.1 30 Zach Ertz 26 $3,020,000 $10,245,000 $9,745,000 $9,495,000 78 58.3 3 Jimmy Graham 30 $10,000,000 65 57.7 10 Jordan Reed 26 $5,737,500 $10,300,000 $9,721,000 $10,300,000 66 57.2 24 Eric Ebron 24 $3,897,455 $8,250,000 61 54.7 15 Delanie Walker 32 $5,317,708 $7,033,334 65 53.3 7 Kyle Rudolph 27 $6,800,000 $7,300,000 $7,125,000 83 52.5 17 Dennis Pitta 31 $5,200,000 $5,200,000 86 45.6 25 Martellus Bennett 30 $3,850,000 $8,550,000 $8,600,000 55 43.8 1 Jason Witten 35 $12,262,000 $6,500,000 $6,500,000 $6,500,000 69 42.1 12 Antonio Gates 36 $5,437,500 53 39.1 41 C.J. Fiedorowicz 25 $1,972,826 54 37.3 4 Charles Clay 28 $9,000,000 $9,000,000 $9,000,000 57 36.8 5 Jack Doyle 27 $8,000,000 $5,250,000 $5,650,000 59 36.5

Missing from this table because they did not catch at least 50 passes were:

Rob Gronkowski, 27 - cap hit of $11 million in 2018 and $12 million in 2019

Coby Fleener, 28 - cap hits of $8 million, $9 million, and $9.1 million for 2018-2020

Ladarius Green, 26 - cap hits of $6.187 million, $5.687 million, and $5.687 million

Dion Sims, 26 - cap hits of $6.333 million in both 2018 and 2019

Jermaine Gresham, 28 - $7.25 million, $8.25 million, and $8.75 million for 2018-2020

Finally, note that C.J. Fiedorowicz from Houston is still on his rookie deal and will hit free agency next year. Now, looking at the table above, we can clearly see that the $8.25 million estimate for Ebron’s fifth-year option fits right into the pack of where the rest of the legitimate receiving threat tight ends are being paid.

Important thing to remember: Eric Ebron is just 23 years old. The same age as Taylor Decker. https://t.co/BEfz6Kx4Cj — Pride Of Detroit (@PrideOfDetroit) March 22, 2017

Also worth pointing out is the fact that the former Tar Heel and current Call of Duty enthusiast is the youngest player on that entire list. Only Fiedorowicz is even within one year of Ebron in terms of age. When the Lions’ tight end hits free agency, he will be around the same age as Kelce, Ertz, and Reed are now. Based on the contractual terms for those players in 2018 and later, we can reasonably conclude that this is simply what a young tight end who is a substantial part of an offense is likely to make in those years. That’s just what it’s going to cost to get a guy who can post numbers like Detroit got in 2016 from their guy, whether the tight end is named Eric Ebron or something else.

A dearth of outside options

As pointed out earlier by Tucker, the Lions do not absolutely need to keep Ebron in 2018 for $8.25 million (or whatever it turns out to be); they can cut him before March and avoid paying for the fifth year as long as Ebron is healthy. Yes, that saves the cap space, but what would that do to the offense? The team cannot simply drop its starting tight end and not replace him.

Which alternative would Bob Quinn find most desirable:

Eric Ebron is worth the money

Top pass catching tight ends in the current NFL marketplace for talent receive contracts that carry cap hit values between $8 million and $10 million in 2018. Among tight ends who were substantial contributors on their teams’ passing offenses (say, 50 or more receptions), Ebron was in the top ten for catches, yards per catch, and yards per game. Whether people want to admit it or not, the raw prospect out of North Carolina has become a legitimate receiving threat.

For a TE who can't catch, Ebron caught an awful lot of passes. Only 9 caught more in 2016 and Ebron missed a few games. https://t.co/t7h1PLDCPN — Pride Of Detroit (@PrideOfDetroit) March 22, 2017

He produces in a position-role niche where comparable talent is quite scarce. Supposing the team did not bring Eric Ebron back in 2018 for the projected $8.25 million, there is no other tight end with the same combination of youth and athleticism likely to be available in free agency even if Quinn was willing to go out and pay that guy. This is not a situation like Riley Reiff or Larry Warford, where high quality alternatives at similar stages of their career like Rick Wagner and T.J. Lang would be available; there will simply be no other players like Ebron to sign.

What would be an effective alternative? Go old and sign someone like Gates or Watson and spend another draft pick on an athletic tight end? There seems to be no reason to do that when Detroit already has exactly the type of player they would hope to draft. Moreover, even if they were to draft a player just as talented, the Ebron-clone would not be as good as the original because it would be missing all the invested time in building rapport with Matthew Stafford, working with the Detroit coaching staff and playing in Jim Bob Cooter’s offense.

Eric Ebron is a good player producing at a level commensurate with the fifth-year option salary the Lions are likely to pay him in 2018. Remember what the offense was like without Ebron in the lineup—when there was no receiving threat at tight end. There are few receiving tight ends in the league who could even be considered of comparable quality, and obtaining a different one would probably consume valuable draft resources in the long run either as a spent pick or in a trade. Anyone who remembers the lean times at tight end should be nodding their head in assent, that the Lions should not walk away hungry and go without—that Bob Quinn should take the damn tacos.