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Lines being drawn in legal battle over Vick's bonus money

The most interesting piece of football business this summer is the interpretation of Michael Vick's contract.

It's clear he isn't playing for the Falcons in 2007 and his $6 million salary will not be paid. Consequently, the club will receive a $6 million credit to its salary cap. All year, the Falcons had Vick accounted for on the salary cap sheet and now they get to use that cap space to secure other players to long-term deals if they wish to. That's the easy part of the business. Recouping bonus money the Falcons previously paid to Vick is the challenging part.

The Falcons want to recoup millions of dollars in bonus pay because Vick will not provide the future services the club says he was paid to provide. The NFL Players Association, on Vick's behalf, will argue that the bonus money paid to Vick was for services performed, and therefore already earned by Vick.

Due to the precedent set in the Ashley Lelie arbitration, Atlanta had better have some strong default language in the contract with Vick if it hopes to recoup much of the $22 million dollars the Falcons believe Vick has received but not yet earned.

The bonus money in question has to be broken down into a number of categories to understand why each segment of dollars received by Vick may fall under different interpretations:

Rookie Option Bonus: Vick had an $8 million "option bonus" to extend his rookie contract, which was triggered in early 2002. That bonus was prorated at $1.142 million per year through the 2008 season. There are two years left on that bonus charge. If the Falcons can establish that the option bonus was for future services that Vick won't render, then they should expect to recoup $2.284 million.

2004 Renegotiation: Vick and the Falcons renegotiated his original rookie contract on Dec. 23, 2004, and Vick received a $7.5 million signing bonus. The club took advantage of some salary cap management tools and prorated this bonus over six future years at a charge of $1.25 million per year. Three years are left on that bonus amount, a total of $3.75 million, that the team asserts Vick hasn't earned. Atlanta may have a good chance to recoup this portion because it was a signing bonus, which is traditionally recognized as being paid for future services.

2005 Renegotiation: Vick and the Falcons executed another renegotiation on Feb. 28, 2005. This is where things get into a gray area and where agents, the NFLPA and the entire NFL will be watching with great interest.

This transaction was probably executed on this date to clear cap space for the upcoming free agency period due to start on March 1. The Falcons guaranteed a roster bonus of $22.5 million, and designated it for salary cap purposes as an OATSB item -- "Other Amount Treated as Signing Bonus." This conversion gave the club the right to prorate the $22.5 million over five years at a rate of $4.5 million per year, as if it were a signing bonus. Roster bonuses are fully charged against the cap in the year they are received. The Falcons saved $18 million in salary cap space in 2005 with this maneuver, since the roster bonus would have counted $22.5 million against the cap if not for the OATSB conversion. At the time, this renegotiation resulted in no change to Vick; he got his $22.5 million.

Vick played in 2005 and 2006, so the Falcons are not asserting a claim for the portion of the money allocated to those years. Since it appears he will not play in 2007-09, the Falcons want to recoup $16.5 million of this bonus. In the original contract, prior to conversion of this roster bonus to an OATSB amount, the roster bonus became guaranteed on the fifth day of the 2005 league year, approximately March 6, and Vick was protected against football and non-football injury. This will be a very tough hurdle for the Falcons to clear, as they must prove that this bonus was for future services and not earned through past performance, if they hope to recoup the $16 million they allege is unearned.

Contract restructuring: In Vick's original rookie deal, he was scheduled for a $7 million roster bonus in 2006. The club elected to convert $3.4 million to an OATSB amount by guaranteeing it. For salary cap purposes, $680,000 per year is prorated annually for 2006 through 2010. The Falcons agree '06 is earned, but assert the remaining years will not be met and wants the $2.62 million back ($680,000 a year for four years). Again, the Falcons are going to have to prove the money was for future services and not past services.

This is complicated, to say the least. The issues in play here are:

  1. Is there adequate default language in the contract Vick signed for the Falcons to support their claims?
  1. Does the Ashley Lelie case apply here? If so, to which of the four bonuses? In the Lelie case, the arbitrator said Lelie did not have to pay back the roster bonus money to the Broncos because he earned that money from past performances.
  1. Does the salary cap management technique of OATSB, where bonus money is treated like a signing bonus, automatically mean it is a signing bonus?
  1. What is the ripple effect to other clubs and players who may have similar language in their contracts?

Finally, I would take an educated guess here that the Falcons could recover the money in points 1 and 2 for a total of $6.034 million, but struggle to ever see the money in points 3 and 4. Which leads me to my last point -- terminating Vick's contract.

The Falcons could announce on March 1, 2008, that Vick is a June 1 cut. That means they could then spread out the remaining bonus salary cap charges over two seasons (2008-09). If they get relief from points 1 and 2, then the cap hit for 2008 would be $5.18 million and another $5.18 million in '09. By then, the salary cap will be upwards of $130 million and the charge will be of little significance. If the club fails on all points, it still isn't that painful of a cap charge over two years at $7.57 million in 2008 and $7.32 million in 2009.

Regardless of the cap consequences, this is still a battle for the owner's cash, lots of it.

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