01/24/2012 10:27 am ET Updated Mar 25, 2012

The Peyton Predicament

While Eli Manning will be one of the starting quarterbacks next week in the Super Bowl in Indianapolis, the biggest decision in the NFL this offseason will involve his older brother and the team that plays in Indianapolis. The Colts will have to decide if their future includes one Peyton Manning, the signature player and face of the franchise for the past 13 years.

As for the Colts' other big decision in 2012 -- who to take with the top pick in the 2012 Draft -- they have plenty of time, but that's an easy decision: select Andrew Luck, with or without Peyton Manning.

Six weeks before that decision, for Colts owner Jim Irsay and new general manager Ryan Grigson, there is this little matter of Peyton Manning and his contract.

There are several layers to this decision that need to be peeled away, and Irsay and the Colts must be both prudent and sensitive to Manning.

The 2011 contract

Soon after the 2011 lockout ended, the Colts negotiated a new contract for Manning. And, like the two previous Manning contracts, it once again set a new standard for top compensation in the NFL.

Looking at the traditional markers for contracts, the deal had a couple twists. The total value of $90 million over five years, an Average Per Year (APY) of $18 million is identical to the APY achieved by Tom Brady a year prior. It was important to Manning at the time to not surpass Brady's APY.

The three-year value of the contract, however, tells a different story. Manning is scheduled to earn -- if a Colt for the next two seasons (more below) -- a total of $70.2 million over the first three years of the deal, a staggering $23.4 million APY that shatters any existing three-year value for all NFL contracts.

Beyond the five-year and three-year values, the crux of the deal centers on a decision to be made in the next two months that determines the true value of this deal.

Ominous option

The Colts must affirmatively exercise an option clause to continue to have Manning's services for 2012 through 2015. The window of time for which that option must be exercised is between "two days following the Super Bowl until five days prior to the 2012 League Year." In calendar terms, the Super Bowl is February 5th; the start of the 2012 League Year is March 13th. Thus, the Colts must exercise the option to keep Manning -- or not -- in a one month period between February 7th and March 8th.

This option is the crucial clause of Manning's $90 million contract. And it will shape the Colts (or another franchise) for 2012 and beyond.

Why the option?

The structure of Manning's contract shows a clear intent by Condon and Manning: they wanted the Colts to commit to Manning -- or allow him his freedom -- beyond 2011.

Manning and Condon have forced the Colts to essentially choose between two contracts for Manning: (1) a one-year, $26.4 million deal for 2011, or (2) a five-year, $90 million deal with $70 million in the first three years.

Manning and Condon were determined to not allow the Colts a structure that allowed them an exit after Manning reached a certain age of expected decline, a fate experienced by accomplished NFL players every year.

What happens if the Colts exercise the option?

If the Colts inform Manning during that window of time that they will pick up the option, they will continue to have him as their quarterback -- assuming he is healthy -- and will move forward with him as their leader.

That decision will cost the Colts the following:

Option bonus: $28 million

Salaries (in millions):

  • 2012: 7.4
  • 2013: 8.4
  • 2014: 9.4
  • 2015: 10.4

Thus, in 2012 alone, if the option is exercised, Manning will make $35.4 million. As to those suggesting the Colts could exercise the option, putting them on the hook for $28 million, and then trade Manning, I would highly doubt that scenario. Irsay may be a bit eccentric, but he is not going to spend $28 million to then have another team receive that value. He does not want to trade Peyton Manning, and will certainly not do so after paying him $28 million!

Thus, if the option is exercised, on top of the $26.4 million Manning made in 2011, Manning's earnings for the two-year period of 2011-12 will be almost $62 million. He will be a Colt for the life of his career and be paid more than any player in the NFL for such career.

Manning + Luck = $50 million for 2012

If the Colts exercise the option and also select Luck with the top pick in the Draft, they will be committing over $50 million for the quarterback position in 2012. While Luck's overall compensation will "only" be approximately $23 million over four years, he will receive a signing bonus and salary of more than $15 million in the first year of his deal. That is an untenable amount of money for that position, especially when the Colts paid over $32 million at quarterback in 2011.

Where things get interesting with the Peyton Manning decision, however, is if the Colts do not exercise the option. I'll address that, and the confusing issue of whether the option date can be moved or not, in Part 2 later this week. Stay tuned.