The Fifth-Year Option, Explained — Part 1: What Teams Are Buying

Joe Burrow and Justin Herbert both signed massive extensions this year. The expectation was that two young franchise QBs would be primed for Super Bowl runs — instead, Burrow finished the season on IR and the Chargers never got going under Brandon Staley. Not ideal.

This piece is partly a consolation for fans of both teams, because the fifth-year option both teams used in structuring those extensions is actually a significant structural advantage — one worth understanding regardless of how 2023 went.

1. When Do Teams Extend Rookie Deals?

1.1. Veteran Contracts Can Always Be Renegotiated

In the NFL, contracts signed after a rookie deal expires — commonly called "veteran contracts" — can be restructured at any time. Mahomes and Aaron Donald both received significant raises on existing contracts after Super Bowl runs. On the flip side, players like Michael Thomas (NO) and Aaron Jones (GB) have taken pay cuts. The market corrects.

The key principle: if a veteran contract gets far enough from fair market value — either too high or too low — it gets fixed. Players can demand more; teams can cut, trade, or restructure.

1.2. Rookie Contracts Are Locked In for Three Years

Rookie contracts work completely differently. The salary is set by draft slot, the length is fixed at four years (three for undrafted free agents), and the deal cannot be changed for the first three years — period.

That's why Micah Parsons, a back-to-back All-Pro, was playing for $4.2M per year while Nick Bosa earned $34M. Parsons knew the rules. He didn't hold out. He waited.

The more extreme case: Brock Purdy. He signed a four-year, $3.7M deal as the final pick of the 2022 draft, and no matter what he does — win a Super Bowl, win MVP — the 49ers are on the hook for under $1M per year through 2024. For context, his signing bonus was less than a postdoc's annual salary in California. He has a roommate.

1.3. Teams Want to Extend Early — But Can't

Here's the tension: while teams want to lock up franchise players early (before the market moves), the rules say they can't touch a rookie contract until after Year 3.

By then, there's only one year left. The team is negotiating with a gun to their head — the player can threaten a holdout, the market has moved, and other quarterbacks at the position have already set new highs. The result is predictable: maximum leverage, maximum cost.

2. The Fifth-Year Option: An Escape Valve for First-Round Picks

2.1. How It Works

The fifth-year option is a mechanism that applies exclusively to first-round picks. Here's the structure:

• Teams can add a fifth season to a first-round pick's rookie deal
• The option must be exercised or declined at the end of Year 3 — right around draft season each April
• The player has no say in whether the option is picked up
• The Year 5 salary is fully guaranteed once exercised, and the amount is determined by a formula (see Appendix 1)

For the 2020 draft class, that decision window was April 2023. The NFL's tracker has the full list. Notable outcomes:

• Exercised: #1 Joe Burrow (CIN), #5 Tua Tagovailoa (MIA), #10 Justin Herbert (LAC), #22 Justin Jefferson (MIN)
• Declined: #2 Chase Young (WAS), #8 Isaiah Simmons (ARI), #28 Patrick Queen (BAL)

2.2. What's the Salary?

The Year 5 salary is determined by the player's position and which of four performance tiers they fall into through their first three seasons:

1. Pro Bowl ×2: Top 5 at position (franchise tag equivalent)
2. Pro Bowl ×1: Top 10 at position (transition tag equivalent)
3. Playtime: 75%+ snap share for 2 seasons, or 50%+ for all 3 — top 3–20 at position
4. Basic: Everyone else — top 3–25 at position

(First-ballot Pro Bowl selections only — alternate selections don't count.)

Fifth-year option projections for the 2021 draft class — OverTheCap.com

For the 2020 class: Burrow and Herbert landed in Tier 2 (one Pro Bowl) at $29.5M; Tua hit Tier 3 (starter, no Pro Bowl) at $23.2M. Trevor Lawrence's $23M looked like a value — Zach Wilson and Trey Lance at the same tier felt uncomfortable.

The general pattern:

• Pro Bowl player: cheaper than a market extension
• High-playtime starter at QB: still relatively cheap
• Basic: expensive for what you get

3. The "Exercise Then Extend" Method

3.1. Two Years of Runway Instead of One

Here's the strategic insight that makes this more than just a one-year buffer: by exercising the option, the team now has two years left on the contract at the point when Year 3 negotiations open. That's fundamentally different from the one-year cliff that a second-round pick faces.

With two years left, there's no gun to either side's head. The team can negotiate at a measured pace. The player can't credibly hold out and miss meaningful time without massive risk. The result: more leverage for the team, more competitive pricing for both sides.

3.2. The 2023 QB Extension Comparison

This "two years later" structure has a second, less-obvious benefit: it lets you lock in future contract value at today's prices.

The four big QB extensions of 2023 offseason:

• Hurts (PHI): 5 years / $255M — $51M/yr
• Jackson (BAL): 5 years / $260M — $52M/yr
• Herbert (LAC): 5 years / $262.5M — $52.5M/yr
• Burrow (CIN): 5 years / $275M — $55M/yr

The average annual values look similar. They're not.

• Jackson had no remaining rookie deal — his 5-year extension started in 2023
• Hurts was a second-round pick with one year left — his extension starts in 2024
• Burrow and Herbert had their fifth-year option year still ahead — their extensions start in 2025

The highlighted cells represent each player's new contract period. Burrow and Herbert's deals don't start until 2025 — two years after Jackson's.

Here's why that matters: Burrow's $275M/$55M-per-year headline looks like the most expensive deal. In terms of actual cap impact over the next several years, it almost certainly isn't.

3.3. The Cap Is About to Inflate — Fast

NFL salary cap growth has historically tracked at around 8% per year. That's changing. The league's new TV rights deals — totaling roughly $10 billion per year through 2033 — will drive cap growth to 10–15% annually for the foreseeable future.

OverTheCap projects $256M in 2024, $282M in 2025, $308M in 2026 — roughly 30% growth over three years. The top QB market will grow at least proportionally.

If the cap hits $308M in 2026 and top QBs are still eating ~17–18% of it, the new "market setter" extension signed in 2026 could easily land at $70M+ per year. The contract an elite QB signs in 2026 will make Burrow's 2023 deal look like a steal — which is exactly what happened to Mahomes after his then-historic extension.

This is the real value of the fifth-year option: it lets a team lock in a 2025 or 2026 start date at 2023 prices. Burrow and Herbert effectively signed contracts that become market-cheap almost immediately. Lamar Jackson and Jalen Hurts, despite lower average salaries on paper, will consume more cap space in the near term.

The headline "$55M per year" is less important than when the clock starts.

3.4. The Option Year Also Inflates the "Guaranteed Money" Figure

One more wrinkle worth knowing: NFL contracts are reported with a "fully guaranteed" figure that includes existing guarantees already on the books — not just new money.

Burrow's deal: 5 years / $275M, $146.5M fully guaranteed. That $146.5M breaks down as:

• $11.5M: Year 4 salary (already guaranteed before the extension)
• $29.5M: Fifth-year option (already guaranteed upon exercise)
• $105M: Actual new money guaranteed in the extension

Lamar Jackson's deal: 5 years / $260M, $135M fully guaranteed — and he had no remaining contract, so that entire $135M was newly guaranteed.

Burrow's "fully guaranteed" number is bigger in the headline. Jackson actually secured far more in new guarantees. The fifth-year option makes the accounting look better than it is — and teams know it.

4. The QB Option Scenarios

4.1. Clear Franchise QB: Exercise and Extend Immediately

If you have a franchise quarterback through Year 3, exercise the option and sign the extension. It's the dominant strategy. You get two years of buffer, you time the big deal to start when the cap is higher, and you lock in competitive "fully guaranteed" numbers that include the option year.

Players who followed this path: Patrick Mahomes, Josh Allen, Kyler Murray, Justin Herbert, Joe Burrow.

4.2. Talented but Uncertain: Exercise and Wait

Sometimes there's genuine uncertainty. Maybe the player missed time with injury (Tua and the concussion questions), maybe Year 3 was inconsistent. In that case, exercising the option while delaying the extension gives the team a fourth year to evaluate without losing the player to free agency.

Players in this category: Tua Tagovailoa (MIA), Lamar Jackson (BAL).

4.3. Not Working Out: Decline

The option salary is fully guaranteed the moment it's exercised. Declining is painful optics, but the right call for busts. It also applies when a team has already moved on mentally — if you're going to move the player before Year 5 anyway, why add a guaranteed year to trade value negotiations?

Players who saw their options declined: Daniel Jones (NYG), Zach Wilson (NYJ), Trey Lance (DAL).

5. Coming Up: The Failures

This piece covered the upside scenarios — franchise quarterbacks, clean decisions, structural advantages. The more interesting cases are the ones in the gray zone, where the timing works against you.

Part 2 covers the stumbles:

• Baker Mayfield — option exercised, then traded before Year 5
• Daniel Jones — option declined, then extended anyway... then cut
• Jordan Love — the path that doesn't fit either template

Continue to Part 2

Appendix

Appendix 1. How the Year 5 Salary Is Calculated

The option salary is based on position and performance tier through Year 3 (Pro Bowl selections on first ballot only — alternates don't count):

1. 2+ Pro Bowls: Average of top 5 at position (same as franchise tag)
2. 1 Pro Bowl: Average of top 10 at position (same as transition tag)
3. Playtime: 75%+ snap share for 2 seasons, or 50%+ for all 3 — average of positions 3–20
4. Basic: Everything else — average of positions 3–25

One important nuance: the calculation uses cap hits, not average annual values. Most contracts are restructured or have void years that reduce cap hits well below AAV. The top "cap hit" QB salary in a recent year was Ryan Tannehill at $38.6M — making the Tier 1 average around $32.4M, not the $50M+ you might expect.

Which is why you end up with Kenny Golladay's contract helping determine Justin Jefferson's fifth-year salary. The NFL's accounting is its own genre of fiction.

Appendix 2. Differences from the Franchise Tag

Both the franchise tag and the fifth-year option let teams retain players beyond their rookie contract. The key difference: the franchise tag is applied in the year you need it; the option must be decided 18 months in advance.

That timing gap is precisely what created the Baker Mayfield situation:

2020: Playoffs appearance and a win
→ Option exercised in April 2021
→ 2021 season collapses
→ Traded before the guaranteed 2022 option year

Other differences from the franchise tag:

• Signing a long-term extension voids a franchise tag year, but not a fifth-year option
• Franchise tags are limited to one player per team; options apply to all first-round picks simultaneously
• There's no signing process — once the team exercises it, it's binding, no player consent required