Shohei Ohtani is Terrific, But ...

[metirish]

Banter

[smg58]

A Boy Named Seo wrote: I just got a buzz on my phone stating that Shohei will earn a $2M salary EACH YEAR of his contract with the Dodgers, deferring the other $68M annually. Interest-free payments on the balance start in 2034. This is fucking incredible to me. He will count against the cap this year the same as our new relief pitcher, Jorge Lopez. LOL

How long will they be paying him until?

[metirish]

The deferred money -- totaling $680 million -- will be paid to Ohtani between 2034 and 2043, a source said.



ESPN

[metirish]

Bob finds with silver lining

[metirish]

Is this true ?

[Edgy MD]

The Dodgers can just dodge all of that?

Thus their name, Dude.



And let's not get bogged down in ancillary issues. The real scandal is that there is a cap at all.

[metsmarathon]

Fucking wow.

[batmagadanleadoff]

Fucking brilliant!

[Frayed Knot]

I'm surprised that deferred money isn't incorporated into the cap in some fashion;

iow, why the contract isn't just figured at AAV for cap/lux-tax purposes even if the

team and player want to configure things in any which manner they want.

[Benjamin Grimm]

I am too. I thought they had closed that loophole.

[metirish]

Former player , still in the booth?

[stevejrogers]

Benjamin Grimm wrote: I am too. I thought they had closed that loophole.

Considering Bobby Bonilla Day has been an annual meme to troll Met fans with for well over a decade now, yeah I thought the more extreme versions of the practice going forward would have been curtailed a bit.

[Edgy MD]

I'm not so surprised. The cap (or the luxury tax threshold, if you will) is anathema to all union members. It penalizes the well-paid vets and it hurts the young guys just getting their first taste.



From the ownership side, though, there isn't that sort of unanimity. They all sort of want it. But they want it to restrain their competition's investments, not their own, so I imagine there isn't much passion for them to sic their lawyers on the deal to search and destroy loopholes. They want to find loopholes, maybe, but so they can be the first ones to exploit them.



Thus is the nature of ownership solidarity in cartel industries — in a constant state of crumbling and being rebuilt. This is why you can always get good dramatic tension out of a gangland summit scene in the movies. "My friends, we're all gentlemen here — surely we can come to an amicable understanding to our mutual benefit that we all intend to violate in spirit as soon as we walk out of the room."

[A Boy Named Seo]

So it is incorporated into the tax. It's still confusing (to me anyway), but Ohtani will count as something like $46M against the CBT despite being paid just two million dollars.



MLBTR attempts to break it down here (in part, to defend their prediction of the contract he would get, it seems) --> https://www.mlbtraderumors.com/2023/12/why-shohei-ohtanis-contract-structure-is-not-a-luxury-tax-dodge.htmlhttps://www.mlbtraderumors.com/2023/12/why-shohei-ohtanis-contract-structure-is-not-a-luxury-tax-dodge.html



A snippet:

Based on what I've seen on social media tonight, a lot of baseball fans think the purpose of these deferrals is for the Dodgers to “dodge” the competitive balance tax (yes, t-shirts are already being drawn up). Here's why that's wrong. The collective bargaining agreement has a section for calculating the CBT hit for a contract that includes deferred money. According to reports, that calculation works out to a $46MM average annual value and accompanying CBT hit for the Dodgers and Ohtani. As you can see here, $46MM tops Max Scherzer's previous AAV record of $43,333,333.33. It's $6MM beyond Aaron Judge's $40MM AAV, which was the highest for a player on a deal of more than three years. Not only is $46MM a record AAV, but it's entirely in line with expectations. MLBTR predicted a $44MM AAV for Ohtani. Most other prognosticators were in that range. In fact, the median Ohtani AAV prediction of the other six outlets we're tracking was $45,984,849. It would be almost impossible for Ohtani's luxury tax AAV to have met expectations any harder.

[A Boy Named Seo]

I just read this in an MLB dot com article and this clicked with me --> https://www.mlb.com/news/shohei-ohtani-dodgers-deal-deferrals-explainedhttps://www.mlb.com/news/shohei-ohtani-dodgers-deal-deferrals-explained

Because the value of a dollar decreases over time, the contract has a present-day value of roughly $460 million for the purposes of the CBT, given that so much of it is deferred for more than a decade. Therefore, the Dodgers will have a CBT payroll hit of roughly $46 million per year for the next 10 years from Ohtani's contract. Essentially, Ohtani offered to defer this much money in order for the Dodgers to have payroll flexibility to continue building a winning team.

[metirish]

What does that mean in the simplest terms , it's very confusing

[Chad ochoseis]

If I give you a dollar today, and you invest it in US Government bonds (which are considered to be 100% safe) at today's interest rates, which are close to 5% annually, in 10 years you'd have 1.05^10, or $1.63.



So $1.63 paid 10 years from now is considered to be more or less the same as $1 today.



Without getting into all the twists and turns and subtleties of how it's handled tax-wise and what's considered to be risk-free, that's the basic idea.

[A Boy Named Seo]

And Shohei's not getting that buck sixty-three in 10 years, he's just getting a buck. So even though the actual money is $700M, the value of that stack in 2023 bucks is $460M, so the CBT hit is 460/10 years = $46M (I think I understood that right).



It's pretty unique and creative as hell on the Dodgers and Ohtani's part.

[metirish]

This is what I'm not understanding, why for CBT purposes is this viewed at $460 million?

[smg58]

So the money is not as ludicrous as it originally looked. I was kind of figuring 10 and 500 would be necessary to get it done, although I still don't think I would have gone that far while doubting he'll pitch for more than half those seasons.

[A Boy Named Seo]

This is what I'm not understanding, why for CBT purposes is this viewed at $460 million?

Basically, the calculation they used said that the $680M Shohei will be owed starting in 2034 is worth about $460M in 2023. Think of it in a bigger window of time maybe. If they deferred Shohei's $68M per year for 100 years instead of 10 years, that $68M will be worth waaaay less in the year 2124 than $68M is today. In a hundred years, maybe Shohei's descendants could only afford a used Honda Civic with that paltry $68M bucks so his contract would be worth a much smaller amount today for CBT purposes. So deferring for 10 years is not such a stark difference, but it's still a difference.



Or even weirder, if I gave you $20 today, sent you to the supermarket and told you to buy as much as you could and then put you in the DeLorean and sent you to the year 2034 and told you to buy as much as you could at the same supermarket with another $20, you'd be able to buy less because of inflation, etc. Your $20 in 2034 might be valued today at like $13 or whatever.



So why do all this shit? Why not just sign him to 10 years/$460? I think cause the Dodgers will still be paying him only $2M actual dollars per year instead of $46M, leaving them a lot of real bucks to spend up to and over the CBT if they choose to, and it sounds like they are gonna do just that.



This has been "Dumb Guy Explains Something He Barely Understands Himself." We hope you enjoyed it.



PS - I found this article at Fangraphs that breaks down the math, but I don't know if that will make things necessarily easier to digest.



https://blogs.fangraphs.com/shohei-ohani-is-deferring-97-of-his-contract/https://blogs.fangraphs.com/shohei-ohani-is-deferring-97-of-his-contract/

[metirish]

Great explanation, thanks man

[smg58]

It might take longer than normal to figure out how good of a deal this is. Team budgets may be so big in ten years that the deferments are simply shrugged off. Or there is a crunch at some point, and every dollar counts. And that's before factoring in Ohtani's play.

[nymr83]

The Dodgers are making a few bets here, including that the continued growth of revenues will make this less painful down the road. Think about what the largest contract ever was 20 years ago and then put it on today's payroll - doesn't look quite as big anymore does it?



Yes inflation over time is real - but the growth of MLB revenues have likely far outpaced it.

[batmagadanleadoff]

=nymr83 post_id=142808 time=1702426819 user_id=54]
The Dodgers are making a few bets here, including that the continued growth of revenues will make this less painful down the road. Think about what the largest contract ever was 20 years ago and then put it on today's payroll - doesn't look quite as big anymore does it?



Yes inflation over time is real - but the growth of MLB revenues have likely far outpaced it.

[Edgy MD]

When those contacts were signed, revenues from uniform advertising and gambling partnerships were but a dream. Presumably, the Dodgers anticipate further revenue streams being born over the decades that will offset the long-term investment here.



If the republic holds and Dodger Stadium doesn't fall into the ocean, they're probably right.

[MFS62]

(Channeling FK)

If Ohtani had waited one more day to sign, ESPN wouldn't have covered it. All of their shows would have been filled with stories about the first college basketball game for LaBron James' son.



Later

[Frayed Knot]

A couple of further notes on Ohtani's deal



From the NY Post: The Athletic's Ken Rosenthal reports that Ohtani has a clause in the deal which states, “if specific change in

Dodger personnel, player may opt out of contract at end of season the change occurs.”

It is unknown at this time which individual's exit from the Dodgers' organization would enable Ohtani to opt out.

The report is raising eyebrows, as ESPN previously reported that Ohtani's contract did not contain any opt-out clauses.



-- if accurate, this is the first clause of this kind I can think of since Henry 'Arthur' Wiggen tied his continued employment

on the NY Mammoths to that of part-time catcher Bruce Pearson.







Also: Earlier this week, it was astonishingly revealed that $68 million of Ohtani's annual $70 million compensation would

be deferred until after his deal is up. Ohtani reportedly earns $50 million in endorsement revenue each year, and felt that

the deferrals would help the Dodgers be able to afford more elite players around him.

For Competitive Baseball Tax purposes, Ohtani's contract is worth $46 million per year[/i].



Again, if accurate, that last statement is a lot different from having only $2mil/yr count towards the cap during the active

years of his contract and would be more along the lines of the way I thought the lux tax thing worked.







And finally: Buster Posey, who works in some capacity with SFG since his retirement, says that he thinks SF's current rep of

high crime and rampant public drug use may have hurt them in the Ohtani-apalooza stakes. He didn't seem to provide any

evidence of that coming up in negotiations but did say that those topics have been talked about among players and more

specifically among player wives.

[metirish]

Apparently these are the key people, this is dumb

[Edgy MD]

Bill Murray was able to opt of any future Ghostbusters sequels he signed for if they didn't rehire Rick Moranis.



He ultimately opted not to exercise this right, but it was known as "the Keymaster clause."