As we continue to sit in the thick of the NFL’s Free Agency period, where “free agent” players (those who have expiring contracts or no contract with a team) engage in negotiations with NFL teams in order to secure a contract for the upcoming season(s), it’s important to note that the most we normally hear about the negotiations for these multi-million dollar contracts is the final terms. We are told the amount paid, the years signed, any special clauses, but we tend to not truly understand the most important part: How they got to those crucial final terms.

How does the negotiation process change the ways in which sports contracts are developed? Let’s find out.

Although some contracts have been negotiated by players themselves, many athletes in the Big 4 of American sports leagues have an independent agent/team which manage negotiations with teams.

Before any negotiations start, an athlete’s agent(s) and support staff analyzes what a fair valuation for their player may be. For example, a football agent researching a fair player value for a young, starting quarterback will normally return a higher valuation than a player who is older, at a lower skill level, or a less expensive position for teams to fill.

On the other hand, the team which intends to sign or re-sign a player undergoes an analysis to understand the value in which a player provides to their organization, and how much would be reasonable to offer to sign a player for given their ability to help assist their team in success, in the short and/or long term.

Once the athlete’s representative(s) and prospecting team are able to start, negotiations begin. For the NFL’s Free Agency period for example, teams make the initial offers to players. This normally begins an arduous process where both the team and their prospective player’s agency parries offers back and forth, normally being backed with logical reasoning (such as citing potential performance metrics, player value, etc.) until both parties are able to reach a fair compromise.

Additionally, there are many factors past simply pay and length of contract that can change if both parties are more or less inclined to accept an offer. For example, a common term is in regards to how much of a contract is “guaranteed,” referring to how much of a contract is guaranteed to a player, even if certain situations arise that affect their ability to play or perform at their maximum capacity. Even if they are released for poor play, injured, or other factors interfere with their normal actions as an athlete. In some cases, for example, Deshaun Watson’s 5 year, $230M contract, are “fully guaranteed,” which means that the athlete is guaranteed to receive the pay, unless extreme circumstances occur.

In summary, although the process of negotiating a pro athlete’s contract can be quite lengthy, complicated, and secretive, it is an important process to understand, and it is a process that allows for teams to most effectively manage and secure players while also allowing for players to receive at least feasible compensation for their services.