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I think there are two options that would be fair to both sides:
Give him a one year contract at about the level of Gonzo.
Or give him a multi-year deal with a signing bonus at a level significantly better than he is now, but around the #3 slot in the league.
Either option would balance the reward/risk on for the player and team. The current contract makes Gates bear all the risk. A huge multi-year contract is not warranted based on one good year because it puts too much risk on the Chargers.
Why everyone can't see this and get a deal done is beyond me, but I sure am happy about it.
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