Two-way superstar Shohei Ohtani rocked the baseball world yesterday by agreeing to a ten-year, $700MM deal with the Dodgers. That record-setting contract, taken at face value, would have unparalleled impact on the club’s payroll as calculated for luxury tax purposes. If Ohtani’s contract indeed counted as a $70MM hit to the club’s tax payroll, it would single-handedly push the Dodgers across the first level of the luxury tax even as the club sat at just $174MM in payroll for tax purposes prior to the deal with Ohtani. While the big market Dodgers have never shied away from the tax in the past, paying into the tax during each of the past three seasons, the Ohtani deal would all but guarantee they would continue to do so for the next decade, leaving them vulnerable to escalating penalties.
As reported by Jeff Passan of ESPN, however, the reported deferrals in Ohtani’s deal could lessen the tax burden on LA considerably. Passan notes that Major League Baseball applies a discount to deferrals in luxury tax calculations to determine the present-day value of contracts. Given the fact that “most of” Ohtani’s contract is expected to be deferred, Passan suggests that Ohtani’s deal, for luxury tax purposes, is expected to settle in the range of $40MM to $50MM when all is said and done. While those numbers aren’t final and won’t figure to become exact until the contract is properly finalized and announced, that range substantially alters the impact Ohtani will have on LA’s luxury tax bill over his decade-long tenure with the club.
After all, if Ohtani’s luxury tax hit for the 2024 season were to shrink from the $70MM his on-paper AAV would suggest to a figure in the range of $45MM, that would put the club’s luxury tax payroll at roughly $219MM using the numbers supplied by RosterResource. For a Dodgers club that saw its luxury tax payroll land at $267MM last year after peaking at a whopping $293MM in 2022 (per Cot’s Baseball Contracts), that would leave the Dodgers with the ability to add upwards of $50MM before even matching their 2023 payroll for luxury tax purposes, and just under $75MM in room before their hit their all-time high.
That’s great news for Dodgers fans, as the club has plenty of work to do in improving its roster even after adding a once-in-a-lifetime talent like Ohtani. Their new DH should complement Mookie Betts and Freddie Freeman well at the top of the lineup, but offense was never the primary concern of the Dodgers this winter. The club’s pitching staff was essentially middle-of-the-pack in 2023, with a 4.06 ERA that ranked 13th in the majors and a 4.23 FIP that ranked 15th. Looking ahead to 2024, the club’s only locked in starting pitcher is sophomore right-hander Bobby Miller. While he figures to be joined in the rotation by a veteran presence in the form Walker Buehler, Buehler hasn’t pitched in the majors since early 2022 due to the second Tommy John surgery of his career, casting doubt on his ability to be the durable, front-of-the-rotation arm that the Dodgers need.
While the Dodgers have been connected to plenty of top arms on the trade market this offseason such as Tyler Glasnow, Dylan Cease, and Corbin Burnes, Ohtani’s relatively reasonable luxury tax hit should allow the club to be more aggressive when it comes to top-of-the-market options in free agency. The free agent starting pitching market is of course headlined by NPB star Yoshinobu Yamamoto, for whom the Dodgers are considered to be a likely finalist. Looking beyond Yamamoto, the likes of 2023 NL Cy Young award winner Blake Snell and World Series champion Jordan Montgomery are still available. The market’s second tier of starting pitchers, meanwhile, includes interesting arms like Shota Imanaga, Marcus Stroman, and Lucas Giolito. The addition of any of these arms would surely bolster the club’s rotation headed into 2024, and is made all the more feasible by the deferrals reportedly built into Ohtani’s contract.
Small market teams with low payrolls, should be allowed to carry 27-28 players on the roster.
I know it was within the rules but if you sign a player for 10/700 million it should count as 70 million against the cap
Ownership starting to feel the frustrations of all of the regular season success/postseason failures. Supposedly they want Yamamoto too soo thats going to push them even higher into tax penalties.
I imagine the seats under Friedman and Roberts must be starting to get warm
I’d put a whole lot of money on Friedman’s seat being ice cold. His job is not in danger and if he were let go, he’d have his pick of any open executive position in MLB
Nope because apparently they can just pay Yamamoto until he’s 75 and stay under the luxury tax.
If they plan to go after top market arms like Yamamoto for any significant amount of years, wouldn’t that handicap them for a foreseeable future? Tricky situation I’m thinking
Nah! I guess they can just pay Yamamoto $1 mil per year for three centuries to lower their tax burden! What a joke! Should be simple – 10/700 = $70 mil/yr tax burden. Otherwise, why even do this?
Every elite player could just sign for insane money, and the team could just defer a portion over dozens of years (placing deferments in a trust), significantly eliminating any use for the CBT in controlling annual payroll, and incentivizing players to go this route? This has a major potential for abuse, and for chaos. You’d think the owners would resist allowing this, as it transfers leverage to the players?
Most players wouldn’t agree to this as they also understand that far away money isn’t worth the nearer money. That’s why this is rare.
A bag of money now is worth two bags of money in the bush
True to an extent. Some players don’t mind deferrals for when they are living in a more tax advantageous state or when their tax rate is much smaller given the deferral amount being their only revenue.
There’s also the benefit of guaranteed stream of money for later in life. Lots of celebs and athletes have gone through money issues later due to bad investments early on.
They would if they were worth 400 and offered 700.
Both sides understand how interest works even if it’s a mystery here in the comment section.
The real downside is mortgaging the teams future.
Well, unless and until they add two solid rotation pieces there won’t be much success in 2024.
Imagine our pitching gurus getting their hands on Blake Snell
I have no doubt he would be even better than last season. There is a connection with Andrew Friedman too. They seem to have a mutual respect for each other
I may be in the minority, but I don’t want Blake Snell on the Dodgers. He has an electric arm, but that Cy Young covers up some problems underneath. A guy shouldn’t have a career high walk rate (13.3%). in his 8th season. His K and BB rates last year were almost identical to his 2021 season, where he put up a 4.20 ERA – the difference is, in 2021, he didn’t strand 86% of runners.
Someone’s going to give him 6 years and that’s a scary thought.
I see discounts mentioned nowhere in the rules. Article 13 section E is pretty clear that all deferrals count.
Where is Pessan getting this from???
I’m looking at the 2022-2026 agreement on the MLB Players page and Article 13(E) relates to Certified Athletic Trainers
I believe it is the rules section, but I don’t remember. I have given up trying to understand this lol.
Article XXIII Section E 2 and 6. Article 13 starts at the bottom of page 115. Section E starts on page 131
Here is a link to the PDF.
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
Subsection E (ii) is where you need to look. It mentions that the deferred amount is reduced to its ‘Present Value,’ which is an economic term that refers to ‘what someone should be willing to exchange in money right now for that money later,’ basically inverse interest calculation. That’s the calculation Passan and Fangraphs are referring to.
So, it’s a negative amount added to the AAV?
So, it is a negative amount added to the CBT?
Ignore my 2nd comment above.
That is ONLY if the deferred payments is being paid with interest and even then its attributed to one of the guaranteed years of the contract.
(ii) If the Deferred Compensation is to be paid with interest at
an effective rate that is within one and one-half percentage points
of the Imputed Loan Interest Rate for the first Contract Year cov-
ered by the Contract, then the Deferred Compensation shall be
included at its stated value. Otherwise, the Deferred Compensa-
tion shall be included at its present value in the season TO WHICH IT IS ATTRIBUTED, said present value to be calculated by increasing
any such payments by the Contract’s stated interest rate, if any,
and then reducing such payments back to their present value by
applying as a discount rate the Imputed Loan Interest Rate for the
first Contract Year covered by the Contract. If the terms of a Con-
tract are confirmed by the Association and the Office of the Com-
missioner before the Imputed Loan Interest Rate for the first
Contract Year covered by the contract is available, the Imputed
Loan Interest Rate shall be the annual “Federal mid-term rate” as
defined in section 1274(d) of the Internal Revenue Code for the
month preceding the month in which terms are confirmed. If a
Uniform Player’s Contract uses the date or year in which a Player
retires as a triggering event for the commencement of payment of
the Deferred Compensation, it will be assumed for purposes of
calculating Salary under this Article only that the Player retires
on the day that he reaches age 40 or at the end of the Contract,
whichever is later.
Emphasis mine.
Eff me if they go out and get Yamamoto too.
Dodgers starting to resemble Mr. Burns’ softball team.
Top 3 episode – if not, the best ever.
Not eff you, eff the dodgers!
Will MLB approve a contract that clearly manipulates the luxury tax in a big way? Then every Mets, Phillies, Yankees, Braves, big spender team contract will be deferred to drop salaries and allow the rich to get richer by signing all the star free agents.
This isn’t new. The Mariners did this with Ichiro more than 10 years ago.
Yeah but what’s the largest deferred payments prior to this?
Passan is saying he’s getting 40 to 50 mill against CBT so he’s pushing 300 mill 200 mill into future payments over how many years?
Personally we either get rid of deferred payments
Or
We cap the years and totals you can defer.
Bobby Bonilla doesn’t seem to care he gets 1.5 mill or whatever it is every year despite ot being “worth less” over time. When you’re talking millions added up over time in addition to what you earned as a player they’re not exactly living in the slums
The only way to manipulate a contract for CBT purposes is to increase the length to lower the AAV as the Padres did with Bogaerts and the Phillies did with Harper and Turner
Yankees should do the same exact thing with Soto’s money.
Every big market club should do it until MLB makes the small market teams spend money and not pocket the tax money.
Bingo rest assured Yamamoto and Soto’s contracts are going to be deferred to maximize their total contract amount as they are rich beyond their imagination and dont need the money right away. Yamamoto and Soto is not an issue how much they get paid, its where do they want to play!
The Nats did this with Scherzer years ago! Deferring money is not a new thing!
The player has to want the deal. Soto already turned down a huge, heavily deferred deal
valid in theory, but what about the other squad that offers a non-deferred contract at a higher annual value for the same money? If Soto wants the money now and not later, deferring the money just backfired. It’s a case by case basis, and more to the point, team by team basis, and no one wants to play in SF or TB regardless of money.
Thank you for saying this. Not sure why nobody gets why this isn’t a new thing that will suddenly become popular.
Deferring money isn’t free just like credit cards have to be repaid.
Why would this loophole even exist? Doesn’t that completely defeat the purpose of the luxury tax? MLB needs a hard salary cap in the next CBA at whatever cost to achieve one.
The one thing that would ruin baseball faster than any other.
The Dodgers just decided to buy the whole entire league, make their own rules, and abolish the luxury tax
Yeah, that happened.
What happened? Lol
The bad news is fangraphs did actual analysis on this, with a reasonable example of 400 million deferred over 40 years. They got it down to 60 million AAV.
Fangraphs is a data driven site, I’m not sure Passan is.
I don’t know who is likely to be more accurate, but if I were a Dodger fan,I wouldn’t get my hopes up it’s only 45 million.
True. In not getting their hopes up in it being only 45 million. They have to put all that money to good use too! And win it all too.
How many championships did all that spending get them the last couple of years? As well, how did the Mets do this last year too with all the spending they did last year too.
Good thing Dodgers stadium is filled with a lot of Hollywood stars who will be able to afford ticket prices and such to see the games. Because no one else will be able.
aueah…you assume raising ticket prices is one of the first strap that will be done. Considering the Unicornature of Ohtani’s skills and marketability, ticket prices will likely not increase at any greater rate than they have in the recent past .
I’m not assuming. It has been a known fact ticket prices and all other costs…parking, food and streaming packages have gone up to pay for the players outrageous salaries.
How else would teams pay the players salaries? Sure not from money falling from trees.
No player no matter how much a unicorn or superhero they may appear are worth anywhere upwards of 1 million dollars a year.
Are any one of them saving lives? Risking their lives being shot or stabbed every single day of their working hour on the job? Or are risking all of our lives with the ability to take us all to war?
Absolutely not!
So, why should any one of them be allowed to demand these ridiculous contract salaries?
Because of fans who believe there is nothing wrong in paying a supposedly deserving player what they, their agent, the owners and spoiled fans feel they are worth to be paid. No matter how much it is causing the sport to die because the affordability to enjoy the sport anymore is becoming out of reach for fans.
MLBTR
Please do an article on how business works so your readers don’t embarrass themselves like this
Ayeah
“I’m not assuming. It has been a known fact ticket prices and all other costs…parking, food and streaming packages have gone up to pay for the players outrageous salaries.”
Where did you hear this?
You have it exactly backwards
Player salaries are high because people spend a lot of money on baseball.
Do you think owners see that fans are willing to pay $150 to go to a game and just decide, “well, out of the goodness of my heart I’m only going to charge $100”. And then, they sign a huge contract then decide to raise prices to pay for it? That’s what you think? Have you thought? Really? You don’t think owners will charge $150 from the get go so they can keep that extra $50 for themselves?
“How else would teams pay the players salaries? Sure not from money falling from trees.”
Teams would rather not pay them at all if that were possible. They’d keep the whole $150 for themselves.
“No player no matter how much a unicorn or superhero they may appear are worth anywhere upwards of 1 million dollars a year.”
Why do you think the owners are worth all that money? If it doesn’t go to the players, it’s going to the owners.
“Are any one of them saving lives? Risking their lives being shot or stabbed every single day of their working hour on the job? Or are risking all of our lives with the ability to take us all to war?
Absolutely not!”
How do you think this works. Again, people are VOLUNTARILY giving billions to baseball. Yet nearly everyone complains about how much they have to pay for doctors to save lives (insurance) and for police, firefighters and the military (taxes).
The only way to get what you’re asking for it to tax people more to pay doctors, police and the military and have less to spend on baseball. Is that what you meant?
“Because of fans who believe there is nothing wrong in paying a supposedly deserving player what they, their agent, the owners and spoiled fans feel they are worth to be paid. No matter how much it is causing the sport to die because the affordability to enjoy the sport anymore is becoming out of reach for fans.”
Always the dumbest argument. Look at all the money baseball is bringing in! It’s dying!
It got em a halfass ring that nobody respects, or recognizes as being legit.
You’re thinking of the Astros win in 2017
@ayeah: only one team can win the championship each year, yet many spend through the teeth to try. So citing examples of high-spending teams not winning the championship as proof that spending doesn’t work isn’t really accurate. If it was, teams wouldn’t still be spending like crazy.
And to counter your examples, take a look at how much money the current world champion Texas Rangers have passed out over the past couple of years.
Teams spend like crazy because their fans insist the teams need to spend whatever the team can to get the player.
Your example of the Rangers highlights my point exactly. Look back at the A-Rod signing. How many rings did the Rangers win with that contract? Exactly!
Now Fangraphs wrote an apology. What is going on with the media today?
They got it down to 42.5 million. So 45 million is a reasonable take.
Hate mistakes or corrections?
Blame Bobby Bonilla on the deferrals program.
If Dodgers do get the Yamamoto – its truly a shame because small market to mid market in the NL have so little chance now. Dodgers are building up their Japan to MLB route with this.
Dodgers reloaded last year, they will sign at least 2 top end starters either through trade or free agency. They have been connected to Yamamoto and Cease, I can see them landing both now!
Just glad to read that there is plenty of money leftover for the Dodgers to sign a top tier starting pitcher. Hopefully, Yamamoto wants to play the next decade side by side with Ohtani.. That would be great for the Dodgers, MLB, Japan, and the rest of the world…
“Great for MLB” Blow me
That would make NL non-competitive, and may even have issues with smaller market teams to have such a lopsided team filled with obnoxiously paid all-star squad – it may even hurt fan bases knowing one team is so stacked
Still gotta win the games.
So the Braves have an artificially high tax number because the averages on all of their extensions get weighed into the tax, so a functional $210 million payroll becomes a $260 million dollar payroll but these guys are allowed to defer money to avoid a bigger tax burden? Absolutely ridiculous. Especially when you consider Freeman and now Ohtani have large deferred money amounts.
My brother in Christ trust me when I say, nobody except Dodgers fans want that.
Betts too. His contract is only like a 24 million hit. It’s ridiculous. Defeats the entire purpose of the CBT.
don’t forget Mookie! He deferred a ton, too.
I didn’t forget him, I just didn’t know it. Thanks for the info though!
The brave prepay expenses and the dodgers live on credit.
Think about how that plays out long term and stop crying.
who gets the tax money?
Divided by the small market teams .
The Dodgers are legit.
Gavin Lux is an absolute stud.
Mookie 2nd, Lux ss? That’s a top 3 middle infield in baseball
I’ll get back to ya on the pitching.
Anyone heard from Farhan?
He’s cackling it up with his former boss Friedman. No one can convince me he’s not on the dodgers payroll.
Huh? That was Bernie Madeoff and the Mets owner.
Seems like a bald faced attempt at circumventing the luxury tax. The dude is contracted to play 10 years for $700M in compensation. AAV should be considered $70M regardless of the amount or length of deferred payments. Why is MLB allowing this?
They went as far too. Say in the rules that they average the salary over the years so you can’t back load why can you defer. If ever the “in the best interest of baseball” clause was to be used it’s how
MLB won’t get in the way. They got what they wanted. Another superstar in LA. League is a sham
It is considered to be $70 million annually for the CBT.
Take it to Vegas and lose.
Why allow financing, why allow players to make more than minimum wage or why allow business owners to invest in their businesses?
Just want to clarify your pain.
Why does MLB let the Dodgers manipulate the Luxury Tax all the time? The did it with Betts & Freeman, and now Ohtani! It is not fair to other teams & especially to the teams that have to pay more in Luxury Tax fees! L.A. needs to work with Arizona D-Backs about a name swap because the Dodgers are the REAL “SNAKES” IN MLB!
cry louder
The Dodgers DON’T get to manipulate the CBT just by deferring money. No team does.
Its exactly why the Padres extended Bogaerts deal to 11 years and the Phillies extended Harper and Turner’s deals. The ONLY way to get the AAV for CBT purposes down, is to sign the player for more years.
If Ohtani’s deal is 10 years and $700 million then it counts as $70 milloin towards the CBT payroll, regardless of how much of it is deferred.
Deferring money helps the Dodgers with their annual out of pocket costs, but it doesn’t change how the CBT payroll is calculated.
si.com/mlb/2015/01/19/max-scherzer-washington-nati…
I don’t care what a sportswriter said. I care what the CBA says.
I posted the full thing below and several other times on here. Go read it in the CBA.
Will you be back when you figure out you’re wrong?
It you are talking to me, I am correct. 100%.
If you think I am wrong, then quote where it says in Article XXIII something that contradicts what I said.
Otherwise, I am correct.
I don’t think it’s fair in the least to allow deferred money to not count now. Clearly it circumvents the “soft cap”
ibinoc
“I don’t think it’s fair in the least to allow deferred money to not count now. ”
You’re in luck. Since deferred money absolutely counts
See, MLBTR, see now little your readership understands about this situation? You could change that. Just write a decent article explaining how present value works, and how it works with regards to AAV.
Back to the dude who misspelled their user name.
The deferred money still counts. It’s not just erased. It just counts less. Which is perfectly reasonable. You wouldn’t say that me paying you $100 today is equal to me paying you $100 in 10 years. So, why should player salaries in 10 years be considered equal to today’s?
How is it that people do not understand the time value of money? I can buy a 10-year bond with a 4% coupon. So if you lend me $1M for ten years, with no interest, you just lost $200k or so.
Same thing with Ohtani’s contract. If I don’t have to pay $100M for ten years, I just made $20M or so.
The Nationals have been doing this for years. They’re paying upwards of 30 million yearly over the next decade to a handful of players for deferrals.
You can do this but it will affect the teams budget eventually.
That being said, I imagine an “Ohtani Rule” is going in the next CBA that limits how deferrals impact the luxury tax
Right it needs to be stopped for the good of competition. Look this may blow the F up on th e dodgers if he continues the trend of breaking down and it stops them from winning. They then have to pay for him hurt ans later when he is gone.
Dodgers have an endless money tree, so doubt they are hurting. Easiest bet to make Dodgers vs Yankees in the 2024 WS
winning the off-season does not mean a thing
Didn’t the league office step in to avoid a 14 year contract the Padres were tabling for Judge last year on the basis that it was clearly tax shenanigans? If that’s a manipulation of the tax rules, why isn’t this?
Because they can bend the rules to benefit LAD and NYY. Then all the talking heads like Passan spin the narrative that this is some common occurrence. 95% of fans won’t blink an eye to this nonsense.
They CAN’T bend the rules. Its not governed by MLB and they don’t have the ability to bend the rules. Its written into a collectively bargained agreement, the CBA between MLB and the MLBPA so its governed by labor law.
Ohtani’s 10 year, $700 million contract will add $70 million per season to the Dodgers CBT payroll.
Pretty good point Kamkid!
One thing being illegal doesn’t make everything illegal. SMH.
You can defer money under the cba rules. That doesn’t mean you can do anything you want.
You need to separate two distinct concepts: one of duration and one of discounting.
1-Duration-If I sign Ohtani to a $700M, 35-year deal, then he won’t even be in the country for the final 25 years. So the MLB will not allow you to call the a $20M a year deal.
2-Discount-If the player is willing to take the same deal over 35 years of payments, then he is effectively getting less than if he took $700M over ten years. The team, the player, and the union all recognize that $700M paid over 35 years is worth a whole lot less than $700M paid over ten years, and will discount that.
The sad part of this signing is the players and owners are destroying baseball for good.
Because who is going to be able to afford to go to a game or pay a streaming service to watch another game?
Ok, maybe a rich, family-less NFL football, NBA basketball or NHL hockey player, but that’s about it.
No average working family with any kids will be able to pay for parking, tickets, and meals or drinks at the games anymore.
MLBTR
Again. Thank you for attempting to clear up the confusion regarding deferred money and AAV for CBT purposes
“The sad part of this signing is the players and owners are destroying baseball for good.
Because who is going to be able to afford to go to a game or pay a streaming service to watch another game?”
Maybe an article on basic economics to further inform your readers so you don’t have so many uninformed readers like this
Oh
And Present Value. Please. Look how many people commenting here do not have the slightest understanding of it.
As usual, you are wrong and won’t admit it.
Here is the link to the CBA
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
You can find the relevant rules in Article XXIII Section E numbers 2 and 6
Article XXIII starts on page 115 and Section E on page 131
Number 2 is on page 131. Number 6 on page 136
ARTICLE XXIII—Competitive Balance Tax
(2) Average Annual Value of Guaranteed Multi-Year Contracts
A Uniform Player’s Contract with a term of more than one (1) championship season (“Multi-Year Contract”) shall be deemed to have a Salary in each Guaranteed Year equal to the “Average Annual Value” (“AAV”) of the Contract (plus any bonuses subsequently included by operation of Section E(4) below).
The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other payment that this Article deems to be a Signing Bonus) attributed to a Guaranteed Year in accordance with Section E(3) below plus (c) any deferred compensation or annuity compensation costs attributed
to a Guaranteed Year in accordance with Section E(6) below shall be divided by the number of Guaranteed Years.”
——————————————————-
(6) Deferred Compensation
(a) Definition
“Deferred Compensation” shall mean any Salary payable to a Player pursuant to a Uniform Player’s Contract in a Contract Year after the last championship season for which the Contract
requires services as a baseball player to be rendered.
(b) Attribution
(i) Deferred Compensation shall be included in a Player’s Salary as if paid in the championship season to which it is attributed under a Uniform Player’s Contract. If a Contract does not
attribute Deferred Compensation, the Contract shall be treated as if the Deferred Compensation was attributed equally to each of the Guaranteed Years in the Contract.
It doesn’t matter what Passan said or that the writers here referenced him on this and the previous article. The ONLY thing that matters is what is written in the CBA. Its not something MLB can bypass or allow some teams to adhere to or not adhere to. Its governed by Labor Law!
Ohtani’s 10 year, $700 million contract will count as $70 million towards the Dodger’s CBT payroll in each of the 10 seasons the contract covers.
As the CBA states clearly, deferred money counts in the year that the Dodger’s were required to designate it for within those 10 years.
Let me repeat for clarity.
Ohtani is a $70 million hit to the Dodgers CBT Payroll from 2024 to 2033.
This is exactly what I thought, and very poor reporting by both writers here and others suggesting otherwise.
Fillhok and Pads Fans seem to have a disagreement on this, and are very outspoken. I think a wager is in order. The loser disappears until opening day.
Othani playing for the dodgers doesn’t ruin baseball. players like him floundering on bad clubs like the Angels does.
It will in a year or two when his arm gives out again and can’t pitch anymore for the remaining X? years on the contract and the Dodgers are stuck with a contract that looked feasible at the signing and made all their fans chest pump and loving their owners for giving way too much money for him.
For there WILL be upcoming players who feel their contracts command more than Ohtani’s did. So, contracts will keep getting astronomically higher and higher and players will continue not to be able to fulfill their contracts because they will breakdown with injuries.
It’s ruining baseball because the unGodly salaries, will not be affordable for fans. Players will get hurt and not be able to play through their complete contract obligation. I.e. Ryan Howard. Because players have no remorse in giving a cent back to the team and fans who were willing to pay them that salary for X amount of years to only have them play a fraction of the contract.
True, it’s not him playing “for” the Dodgers, but the contract he demanded and the Dodgers and any other team willing to offer that much “is” what is ruining the game.
Hope the dodgers wind up paying out billions of dollars in luxury taxes over the next couple decades.
I just hope a few 1/2 billion dollar investments produce nothing and they stink for a decade to pay it all off.
If they can skirt the luxury tax like that, why even have it then? Isn’t this defeating the whole purpose of having one in the first place?
I guess this should allow the Dodgers to add Yamamoto & Snell for the rotation, Hader for the pen and maybe Bellinger for center field. Ha.
That would be awesome. And then they can choke and not go all the way again too.
Go Cubs Go!!!
Oh, discount on present value! I was wondering about that! Thanks Nick!
What no one mentions is that the number of dollars the Dodgers do NOT spend. They let more free agents go than just about any other team, preferring to consolidate their money to pay truly great players rather. Just this offseason, they are likely to not resign (or already haven’t) Martinez, Kershaw, Peralta, Hernandez, Hudson, Shelby Miller, Urias, Syndergaard, and Lynn, to the tune of $88.25 million in savings. After 22, they let Trea Turner, Justin Turner, Bellinger, Heaney, Kimbrel, and Tyler Anderson walk. After 21, it was Seager, Scherzer, and Jansen. The Dodgers do not just gobble up the best players willy-nilly – they let some of the best/most expensive players in the league go each year as free agents. They have been saving their nickels and dimes for Ohtani for years and should not be begrudged for spending their well-planned savings on him.
Ahh yes. Let’s have a discussion about dollars the dodgers don’t spend!
You sound like fun!
Emac
I’ve been with you most of this thread but
“Ahh yes. Let’s have a discussion about dollars the dodgers don’t spend!”
This is kinda dumb. Talking about the players the Dodgers didn’t resign makes perfect sense in response to “The Dodgers just sign everyone”
And this
“You sound like fun!”
Us the lamest internet trope
The Dodgers did not invent the use of deferred payments. They just use the system the way it is. Other organizations have used the deferred payment system to lower the luxury tax hit. Washington comes to mind.
The way the league treats FA salaries and extension salaries is a crime. Extensions rarely include deferred unless they’re buying out FA years. Like Betts.
Very few owners use their own money for team salaries. Cohen is an exception, not the rule. I’d love to see owners be fans first and business people second but it rarely happens.
What a crock of stuff. So they get to pay him $700m and only count $450m against the tax number.
Total BS
After 10 years, the Dodgers will still take a hit on CBT for maybe the next 20 years of some amount like $10-15 million based on the deferrals so it’s not like they just avoid it all together.
After 10 years Ohtani’s hit to the Dodger’s CBT payroll is ZERO. For the next 10 years its $70 million per year.
Pads – With all due respect, that is not right.
Because most of the contract is deferred, only the Present Day Value will go against the CBT.
Want proof? Scherzer’s 7-year $210M contract with the Nats had 50% deferred which meant the annual CBT hit was only around $26.4M.
It’s been stated many times Ohtani agreed to defer most of the contract because he wanted more CBT space used for other players to improve the team. Obviously if the full $70M annually went against the CBT, that additional CBT space wouldn’t happen.
We don’t know the specific details of the deferrals yet, but most likely Ohtani’s contract has a Present Day Value of between $550-$600M. The $700M is very deceiving.
I can almost taste your tears.
VSS
“After 10 years, the Dodgers will still take a hit on CBT for maybe the next 20 years of some amount like $10-15 million based on the deferrals so it’s not like they just avoid it all together.”
This is not correct
MLBTR should do an article on present value and deferred money contacts because their readers do not understand them
VSS
The Dodgers are not just counting the non-deferred part now and paying the deferred part later. That’s not at all how it works.
It’s based on the present value of the deferred money
Present value is like the opposite of interest
$100 with 5% interest is $105 after a year
In the same way, the Present Value of $105 at a 5% discount rate is $100.
The deferred money has a present value
That’s what’s counted for the AAV
How is it bs? The extreme deferral of this money means it is less valuable to both Ohtani and the Dodgers in the present day. It makes complete economic sense that the luxury tax hit would adjusted accordingly
RE: robuste
“How is it bs? The extreme deferral of this money means it is less valuable to both Ohtani and the Dodgers in the present day. It makes complete economic sense that the luxury tax hit would adjusted accordingly”
One of the few MLBTR readers who understands
only count $450m against the tax number.
=====================
I’d bet serious money that the $450M is wrong. The heavily-discounted Betts deal was discounted by about $58M. In order for Ohtani’s deal to be discounted $250M, they’d have to defer half the deal over 20 years.
Love all the complaining about the deferred money here. Fact is, every team has the opportunity to make deals using this tool, so don’t blame the Dodgers because the FO of your favorite team isn’t smart enough to take advantage of this. You’d think the lower-revenue teams would be all over this because it might enable them to snag a free agent that might otherwise be out of their price range.
Fact is, the Dodgers front office is playing by the same rules as everyone else…they’re just better at it than your favorite team.
The Dodgers are making a ton, maybe as much as 20%, of Ohtani’s contract back in additional marketing revenue and increased ticket sales.
What they cannot do is skirt the CBT rules. He will cost them the full $70 million per season for the next 10 years against the CBT payroll.
That means they are unlikely to dip under the CBT as long as Ohtani is a Dodger.
And they’re not skirting the rules, but the CBT number will be less than $70 million per year. Passan may not be correct about the final number, but his analysis is spot-on. This Fangraphs article back it up: blogs.fangraphs.com/the-dodgers-have-signed-shohei…
You can believe Fangrqaphs or you can read the actual legal definitions that are in the CBA. This is ruled by labor law, not people that write about sports.
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
Article 13. Section E2.
Ohtani adds $70 million to the Dodgers CBT payroll.
“The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other
payment that this Article deems to be a Signing Bonus) attributed to
a Guaranteed Year in accordance with Section E(3) below plus (c)
any deferred compensation or annuity compensation costs attributed
to a Guaranteed Year in accordance with Section E(6) below shall
be divided by the number of Guaranteed Years.”
Ohtani adds $70 million to the Dodgers CBT payroll each and every one of the 10 years of the deal.
More from Article 13 of the CBA.
(6) Deferred Compensation
(a) Definition
“Deferred Compensation” shall mean any Salary payable to a
Player pursuant to a Uniform Player’s Contract in a Contract Year
after the last championship season for which the Contract
requires services as a baseball player to be rendered.
(b) Attribution
(i) Deferred Compensation shall be included in a Player’s
Salary as if paid in the championship season to which it is attrib-
uted under a Uniform Player’s Contract. If a Contract does not
attribute Deferred Compensation, the Contract shall be treated as
if the Deferred Compensation was attributed equally to each of
the Guaranteed Years in the Contract.
Ohtani adds $70 million to the Dodgers CBT payroll each and every one of the 10 years of the deal.
Passan is wrong.
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
Article 13. Section E.
Ohtani adds $70 million to the Dodgers CBT payroll.
He’s not wrong. First, it’s article 23, not 13. (6)(b)(ii)
You are correct. XXIII. That is why I corrected on other posts. Thank you.
The fact that luxury tax implications only count against net present value of contract is BS and a clear loophole that shouldn’t exist. And assuming MLB approves the deal is even worse. I bet they wouldnt if he signed w Toronto instead of a major media MLB market. It should be a $70m payroll hit, case closed.
There is no loophole. Ohtani is a $70 million hit against the Dodgers CBT payroll. Every year.
@pads Not from what is being reported and detailed on MLB radio.
I don’t CARE what some radio jock thinks. READ the fing CBA. I even included the page numbers.
You can believe what they say or you can read it yourself. The choice is yours. It won’t change the fact that the CBT hit for the Dodgers of a 10 year, $700 million contract is $70 million per year.
No one cares if you care or get hysterical.
You’re wrong and making g a fool of yourself.
Enjoy but get some Prozac for the morning.
Seems… unfair
Makes me wonder if the Dodgers will spend the rest of the money it’s gonna take in order to put a better pitching staff out there. Otherwise Ohtani is gonna be on another team that’s not gonna win the World Series while he’s there.
If they use this same loophole to sign Yamamoto the rest of the league should just forfeit all games against the Dodgers. If they don’t want to play fair don’t let them play at all. Maybe they end up with a second ring that nobody respects, just like their one from 2020.
How is it not fair if any team can do the exact same thing?
Anyone else have a feeling that Yamamoto will have a locker next to Ohtani’s next season?
Probably at the all-star game.
I believe 70 million should count against the Dodgers payroll for each of the next 10 years. Deferred money is irrelevant to the fact that they are paying somebody 700 million for playing 10 years. Allowing teams to defer money and not have it count against their annual payroll sets a dangerous president that teams will be in debt forever just to compete.
Should we tax your house based on the total of all of your mortgage payments or the purchase price of the house?
Hint – one is about twice the cost of the house.
It’s not a loophole. MLB is adjusting for the devaluation of the dollar. It works the exact same way as an annuity – lower cash value today versus a higher total dollar number in the future. MLB and the MLBPU negotiated and agreed to this adjustment in the CBA precisely to allow for huge deals exactly like this one. If this MLB/Players Union-negotiated adjustment was not allowed, then Ohtani would have signed for his net $45-$50 million per year (which is what he essentially agreed to with this contract) and the contract would not look like such an outlier.
la
“If this MLB/Players Union-negotiated adjustment was not allowed, then Ohtani would have signed for his net $45-$50 million per year (which is what he essentially agreed to with this contract) and the contract would not look like such an outlier.”
100.
Too bad your explanation will have gone over the heads of 90% of the readers here.
fili – why do you insult nearly everyone in nearly every comment you post?
CM
Do you think most people commenting here understand anything about finance?
Do you think they understand that counting a deal that’s worth around $500 million as being worth $700 million dollars is an effort to drive down player salaries?
Or that they are doing present value calculations to analyze contracts?
Do you think their reactions to 10/$700 with defferels and 10/$500 would be the same since the two contacts are basically equal?
I don’t
So, I said say so
Because people need to learn and stupid people are loud.
They CAN’T adjust it. The CBA doesn’t allow it in terms of the CBT payroll.
It’s a loophole to avoid cbt tax hit.
I get it. Dodgers don’t want to pay taxes. Billionaires use all kinds of tax loop holes to avoid paying taxes. Nothing new.
The sad part is the mlb allows them to do such. We can barely get living wages and conditions for minor leaguers but dodgers can avoid tax penalties by deferring 40% of ohtanis contract.
Mlb is a joke till they figure out how to have an appropriate salary cap and floor.
MLBTR
“dodgers can avoid tax penalties by deferring 40% of ohtanis contract”
I’m begging you
Please explain contacts and present and future value to your readers. They are clueless
Jobu
If the the Dodgers weren’t deferring so much money they wouldn’t have given him $700 million. They would have given him like 500 million and, HERE’S THE KICKER, it would have had the same value.
Devaluation of the dollar is absolutely the wrong phrase but the annuitycomparison I’d good.
Ohtani is going to show us what a humanitarian he is and buy up sections of skid row in Los Angeles to put in shelters and soup kitchens.
See MLBTR
See how little your readers understand about Present Value.? Look at the absolutely ignorant comments here.
You guys have thr opportunity to change that.
A simple article – a primer on present value.
Then you start reporting all contracts with the total payout and the PV (10/$300 million $206 million PV).
Then your readers will be better informed citizens of the world through something that you did. Wouldn’t that be awesome?!
This whole Dodger deferred money deal is not unlike a ponzi scheme. At some point the deferred money owed to players will have to be met and the whole house of cards will fall.
It’s my understanding that teams create annuities to fund the future outlays. They aren’t ignoring the expense, they’re just delaying the payment.
Is your mortgage a Ponzi scheme?
For everyone here who thinks this is a “loophole” or whatever
1) you think that because you don’t understand finance or present value
2) players almost certainly lobied for contracts to be accounted for this way.
3) counting Ohtani’s deal as 10/$70 vastly overstates how much money he will get. Using an 8% discount rate, a 10/$70 deal has a present va,ue of about $508 million. Why should the Dodgers be taxed on $70 million per year, for a contract that is worth about $50 million per year? Owners want the CBT to drive down player salaries and taxing them at the nominal (10/$70) rate does that, ALL multi-year deals should be taxed at the present value rate. That’s the most reasonable way to do it. If you then wanted to say that deferred payments had to be treated as occurring during the contract terms, that might make some sense. Using PV would favor the p,ayers and counting defferments as occurring during the contract would favor owners.
Said more simply, a 10/$70 million deal is not worth $700 million and should not be taxed as such. If you had money, you wouldn’t want it taxed that way,
We’ve mentioned Bonilla, but that was a bad example. Bonilla’s contract didn’t contain any deferrals.
Bonilla was cut by the Mets in 1999 and still had 5.9M guaranteed money remaining. Mets and Bonilla agreed to defer money until 2011. From 2011-2035, Mets would pay 1.19M each year. That amounted to 29.75 total, which was the future value of 5.9M deferred at 8% interest for like 36 years (11 years of no payments and 25 years of payments).
$45M is still a ton of money for a DH even if he hits as well as he did this past year. DH’s generally start wit ha negative dWAR of -1.0 or lower. That means you are paying $45M for a DH that will pretty much max out at 6.0 WAR but more likely 3.5- 5.0 WAR. Lotta money….as I said before better hope that elbow holds up. I have my doubts….
I am off for dinner, so let me post the bottom line and the facts to support it.
Here is the link to the PDF of the CBA on the MLBPA website
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
You can find the relevant rules in Article XXIII Section E numbers 2 and 6
Article XXIII starts on page 115 and Section E on page 131
Number 2 is on page 131. Number 6 on page 136
ARTICLE XXIII—Competitive Balance Tax
(2) Average Annual Value of Guaranteed Multi-Year Contracts
A Uniform Player’s Contract with a term of more than one (1) championship season (“Multi-Year Contract”) shall be deemed to have a Salary in each Guaranteed Year equal to the “Average Annual Value” (“AAV”) of the Contract (plus any bonuses subsequently included by operation of Section E(4) below).
The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other payment that this Article deems to be a Signing Bonus) attributed to a Guaranteed Year in accordance with Section E(3) below plus (c) any deferred compensation or annuity compensation costs attributed
to a Guaranteed Year in accordance with Section E(6) below shall be divided by the number of Guaranteed Years.”
——————————————————-
(6) Deferred Compensation
(a) Definition
“Deferred Compensation” shall mean any Salary payable to a Player pursuant to a Uniform Player’s Contract in a Contract Year after the last championship season for which the Contract
requires services as a baseball player to be rendered.
(b) Attribution
(i) Deferred Compensation shall be included in a Player’s Salary as if paid in the championship season to which it is attributed under a Uniform Player’s Contract. If a Contract does not attribute Deferred Compensation, the Contract shall be treated as if the Deferred Compensation was attributed equally to each of the Guaranteed Years in the Contract.
—————————————————————-
It doesn’t matter what Passan said or that the writers here referenced him on this and the previous article. The ONLY thing that matters is what is written in the CBA. Its not something MLB can bypass or allow some teams to adhere to or not adhere to. Its governed by Labor Law!
Ohtani’s 10 year, $700 million contract will count as $70 million towards the Dodger’s CBT payroll in each of the 10 seasons the contract covers or 2024 to 2033.
As the CBA states clearly, deferred money counts in the year that the Dodger’s were required to designate it for within those 10 years.
Tough week for Padres fans.
Looks like we need to send some mental health professionals down there for an intervention.
It’s not a tough week until the off-season is over (as I like to tell the RS fans). That said, I’ve never seen so many fans of any team screaming like they did prior to Soto being dumped.
Pads yet I hope you’re right as I’m not a dodger fan but Im sure did their due diligence on this before the signing and the cbt will be lowered
What’s for dinner?
Homemade beef stew.
That sounds really good. Going slow cooker, pressure cooker?
Slow cooker. We put it in last night.
I’ll be over in an hour
Glad to have you.
Am I not understanding this correctly? It seems like circumvention of the luxury tax.
imhh
You’re not understanding it. Or basic finance.
The Present Value of this deal is going to be something like 450 to 500 million.
If it was you, you wouldn’t want to be taxed on $700 million of value for something that was worth $500 million. Why would a team?
Deferred value is now basic finance or was that just an additional insult by someone who thinks they’re smart because they understand basic finance and kids don’t.
emacc
“Deferred value is now basic finance ”
Yes
No. You’re just an jerk.
It’s retty simple but it has nothing to do with the finances most people deal with and getting upset when someone doesn’t know and asks nicely is just you being a jerk.
Not everyone has a job or education in finance and basic finance doesn’t refer to one year of economics in college or a career in finance.
Not everyone has a job or education in finance and basic finance
=======================
But the idea of money being worth less next year relative to this year, is not complicated.
But that’s not the important part. Some fans are screaming about how wrong this process is, without knowing that there is nothing wrong with the process. That’s the issue for me.
@JB Thats true.
Its also not what I was asking. I was referencing MLB and its CBA.
Cope and seeth, if it was any other team, you guys would be praising the fo for figuring this out.
Nothing was figured out.
Nothing is new.
Nothing is wrong.
They made the headline number look bigger by giving him a deal worth 500 mil and calling it a 700 mil deal.
They probably wouldn’t have if they realized how many people it would damage.
Don’t want to read through all the arguing in the comments above, so just going to state the fact that deferrals don’t impact CBT calculations in any way. Ohtani will cost the Dodgers $70 million per year towards their CBT payroll. Not ACTUAL payroll, CBT payroll.
Please don’t believe me. Read the CBA. I saw several people that have posted the areas you need to read.
How much wood would Ohtani Chuck if Ohtani could Chuck Norris? That is the real quandary
Article VI section B talks about calculating deffered at a discounted true rate.
(ii) Deferred Compensation Adjustment. If any deferred
compensation is included in the Base Salary, the Base Salary
shall be adjusted to reflect the discounted present value of the
deferred amount.
100!
Seems like MLBTR could have included this in their article. They must be aware that their readers don’t understand anything about how these contacts work.
Half the other thread is ignorant blowhards insisting that the Dodgers would have $70 million a year counted against them for the CBT. You’d think the site would want to help to inform their readers. But, maybe they just want clicks
Because you can’t PV the payments when you don’t know the amortization of the deferred deal.
Seriously?
Does an internet sports business want clicks or educated readers?
You’re no longer allowed to call people stupid.
emac
Muted
It’s not that the small market teams can’t afford to pay 150 million in salaries…. it’s that they can’t survive to eat a 300 million dollar bust.
Or have 50 mil per year in deferred salaries added to payroll for a decade.
You gotta be a real wanna be baseball nerd to give a damn about a teams luxury tax impact… oh wait, thats all mlbtr commenters are I forgot
dg
I know, right
Damn nerds wanting to understand things. Losers.
Understand things that have nothing to do with them and on a economic level they’ll never be close to. Yeah, losers.
dg
Spoken like someone who topped out ineffectually around middle school
Spoken like someone who is butt hurt cuz what I said hit home
You forgot to block with your second burner account. I see you haven’t learned baseball since the first burner account, fili-cheez.
Why didn’t they let the Padres take advantage of this loophole trying to sign Judge for 14 years?
Why is it hard to understand rules allow some things and not others?
There is a legal way to pay deferred money. The Padres tried to push the boundaries too far.
Does a conspiracy theory have to lie at the root of everything?
Imagine thinking something your [unintelligent donkey] said has any impact on me
Muted
No point in a luxury tax if teams are allowed to circumvent the system with deferred salary. Argue for it all you want, it’s bogus. Deferred money or not, Shohei’s cap hit every season should be $70-mil the next 10 years.
CBT is a scam.
Terry
“CBT is a scam.”
It is
It’s just a way to drive down salaries.
Deferrals are a way to bring them back up.
If the Dodgers were stuck counting $70 million against the CBT they might spend less on players this year. Since they can defer the payments and reduce the CBT value they can spend more
That means more total money going to players in 2024
That’s what players want
And owners hate
You know. The Dodgers are in a great place with pitching if they sit tight and let Miller, Sheehan, Pepiot, Stone, and May? Just develop into top of rotation-#3 pitchers who won’t be available for meaningful playoff starts in 2024. But 2025 now brings back Ohtani, and all of those pitchers are capable playoff starters if healthy 2024 were had. Ohtani added what 60? Runs expectation to the Dodgers offense. What’s the rush to improvement if all they need to do is settle on ohtani year 1 not bringing their WS appearance chances come playoffs at say 30pct but enjoy a 60pct WS chance each of the next 5 seasons+ afterword? Those 4 would be a cheaper compliment for the team at least the next 3 seasons. Take a break, win 100games sleeping. Lose in a series and then dominate the baseball world for 5seasons vs searching for 1-2 SPs again come 2025 because you traded away 1-2 of those 4.
Btw Fangraphs shows Ohtani was worth 70m value each of last 2 seasons. Ones that add 0 playoff game appearances. He’s going to get opportunity for at least 9 seasons of guaranteed playoff appearances to add to the value he’s just shown for a regular season. Dodgers got off light.
I am going to post this at the end of the chat so I don’t have to post this 400 times above:
We are all right, and we are all wrong.
I read elsewhere that it is actually a 600+ mil contract, not a 700…. the reported 7oo includes interest on the deferred payments.
Congrats everyone! We just spent 2 days arguing the same point from 2 different directions!
Thanks for that reporters!!! You effs!!!
“Meanwhile” can’t be inserted mid-sentence, separated by commas. It needs to START the sentence.
Shohei Ohtani Contract
10 Years 700 Million
Luxury Tax should be 70 Million a year
Anything less than 70 Million is total BS
I’m ready for a real salary cap with Upper & Lower floors.
Also No contracts over 10 Years to lower Cap Numbers!