Today's epic pre-Winter Meetings mailbag gets into the Dodgers' deferrals, the golden AB idea, traded Padres prospects, the Blue Jays' failure to extend Vladimir Guerrero Jr., Triston Casas and Boston's paths forward, the Cubs' plans, the Giants and draft pick forfeiture, and much more.
Elden asks:
I recently read that the Dodgers now have over $1 billion in deferred salaries on the books even if the sign nobody else. I admit that they have some pretty deep pockets and can weather almost any financial storm but how is this not a manipulation of the CBT rules? Granted that prices go up all them time but their deferred money alone is 4X the first tax threshold How is this good for baseball?
Not to pick on Elden, but fans don't have a seat at the collective bargaining table between owners and players, so "good for baseball" is largely irrelevant. At that table, there is "good for owners," and "good for players."
The players like having the option of deferring money. In February, union leader Tony Clark told Jack Harris of the L.A. Times, "We want the players and their individual representation to have as many tools in the tool bag to work with teams to find common ground."
Plenty of teams like having this option as well. Yes, the Dodgers have deferred a ton of money, more than any club in recent memory. But all kinds of contracts have included significant deferrals, for example Boston's Rafael Devers extension or the Nationals' signing of Max Scherzer. Dodgers president of baseball operations Andrew Friedman correctly said, "I think the Shohei one was just very extreme. But if you set the Shohei contract aside, the rest are all within the norm and standard operating procedure that a lot of teams have done. But I think the Shohei one is just jarring to people because it's so different and I think that the others just unfairly get lumped into that, but I think it's kind of a lazy narrative."
If there's one thing casual fans love, it's a good lazy narrative. But why are the Dodgers doing so much of this? Fabian Ardaya and Ken Rosenthal of The Athletic wrote about it in March, suggesting benefits such as "reducing their short-term cash obligations, enabling them to discount luxury-tax numbers and creating flexibility in negotiations with players."
I am not a finance expert, but I'd say the main benefit is reducing short-term cash obligations. After two years, teams have to put the average annual value in an escrow account, but they can invest all of that and grow it until the player needs to be paid. And of course, if you're only actually paying Shohei Ohtani $2MM right now, you can spend more on players than if you were paying him $46MM.
It's worth considering, too, that the bill eventually comes due. If the Dodgers owe retired players, say, $150MM in 2035, that seems like it could reduce their flexibility even if the money was invested along the way. But what about the Dodgers' competitive balance tax manipulation?
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Elden, your post exaggerates the situation and misrepresents the rules. The Dodgers don’t have “$1 billion in deferred salaries”—that’s unsubstantiated. Deferred salaries are factored into the CBT at their present-day value, so there’s no “manipulation” here. If anything, the Dodgers’ spending benefits the league by raising payroll standards, unlike small-market teams hoarding revenue while fielding mediocre rosters. The real issue isn’t deferred money—it’s owners refusing to invest in winning.
haha, Dodgers fans are so disconnected.
@ItsThatOneGuy
“It’s funny how the best rebuttal you can muster is an empty quip about ‘Dodgers fans.’ If you’re going to dismiss an argument, at least try addressing the facts instead of relying on lazy generalizations. Let me know when you’re ready to talk baseball instead of playing the ‘internet cynic’ card.”
oh i know your type, you are too engrained in your disjointed view to have a real conversation. As far as I’m concerned, trying to logic with a Dodger’s fan is a fool’s errand. It reminds me of that Mark Twain quote “Never argue with stupid people, they will drag you down to their level and then beat you with experience.”. And your comment is a stupid as can be, pretty much beginning to end. FTD.
Huh,
Ohtani signs a 10 year 700 mill contract. Thats 70 mill per year. Defers 680 million of the 700 million.
Magic CBT tax implication formula says 46 mill against CBT for the next 10 years.
So 10 years 700 mill became 10 years 460 mill.
Since Ohtani isnt getting interest on the 680 mill he deferred. Having a hard time seeing how 10 years 460 mill becomes 10 years 680 mill in 10 years which i assume is the presumption as to why theyre charging 46 mil a year in CBT taxes. The handy dandy calculator says 10 years 460 mill (2024-2033) will be 10 years 680 mill (2034-2043)
@Harrison Butker’s Mount Rushmore Worthy Speech
Your math might look clever at first glance, but it’s fundamentally flawed. The CBT calculation isn’t based on when the money is paid—it’s based on the average annual value (AAV) of the contract at the time it’s signed. Deferrals don’t magically reduce the contract’s AAV; they only impact when the player sees the money in their bank account. The team still owes the full amount, and MLB uses the present-day value of that deal for CBT purposes.
At the time it was signed he agreed to a 10 year 700 million contract.
Deferred money does reduce the contracts AAV. Cause deferring money lowers the present day value of the contract. When you push money into the future it lowers the current day value of a contract.
The question is. How does deferring 680 mill result in 46 mill avv. Itd make sense if he deferred 240 mill. 700-240 is 460. I can see how theyd easily come up with 46 mill over the span of 10 years. Not so much when you defer 680 mill with 0 interest payments.
@Harrison Butker’s Mount Rushmore Worthy Speech
Wrong again. Deferred money does not reduce the AAV for CBT purposes. MLB explicitly calculates AAV based on the full value of the contract at the time of signing, regardless of when payments are deferred. The present-day value only matters for financial accounting, not the CBT. This is why teams with deferred-heavy contracts like the Nationals (hello, Scherzer) still faced full CBT hits.
Stop conflating MLB’s CBT rules with basic financial principles—it’s clear you’re misunderstanding both.”
MLB’s Collective Bargaining Agreement (CBA) clearly outlines the calculation of the Average Annual Value (AAV) for the purposes of the Competitive Balance Tax (CBT). Here’s the relevant proof:
CBA Rules on AAV (2022-2026 CBA, Article XXIII, Section E):
The AAV for CBT purposes is calculated by taking the total guaranteed money in the contract at the time of signing and dividing it evenly over the contract’s full length. Deferred payments are included at face value in this calculation, not adjusted for present-day value.
Precedent in Contracts:
When Max Scherzer signed his contract with significant deferrals, the AAV counted the full value ($210 million over 7 years), even though he received much of the money in later years.
Similarly, Mookie Betts’ 12-year, $365 million contract with deferred payments still counted as $30.4 million per year against the CBT.
MLB FAQs and Media Discussions:
Publications like The Athletic and Spotrac have also highlighted that deferred money does not reduce the CBT impact. Deferred payments only help teams with cash flow, not tax avoidance.
In short: the CBA explicitly prevents deferred payments from lowering AAV, so the argument that they reduce CBT implications is factually incorrect. If the other person believes otherwise, they can review the CBA or these case studies. The facts are crystal clear.
– Your Cooked!
You’re*
When you push money into the future it lowers the present day value of the contract.
@Harrison Butker’s Mount Rushmore Worthy Speech
Yes, thank you for correcting my grammar.
Deferred payments do not lower the CBT implications under MLB’s CBA. The AAV is calculated using the full face value of the contract at the time of signing, divided over the length of the contract. Deferred payments help with cash flow but don’t affect the CBT calculation.
This is explicitly stated in MLB’s Collective Bargaining Agreement (Article XXIII, Section E) and supported by contracts like Max Scherzer’s and Mookie Betts’. Deferred money only changes when the player gets paid, not how much counts toward the tax. If you’re claiming otherwise, please cite your source—because the actual rules don’t support this idea.
It’s simple math. Using a 4.45% discount rate and this formula:
68/(1+4.45%)^10 = $44 million + $2 million annual salary = $46 million CBT hit.
You do realize you’re arguing a failing point about deferring money not lowing AAV on an article involving Ohtani
signing for 10 years 700 mill (70 mill AAV)
deferring 680 mill
and now the dodgers have a lower aav of 46 mill instead of 70 mill because ohtani deferred money right?
Thank you someone finally has the formula or a formula they use. Thank you for explaining it so easily. And no im not being snarky or rude. Literally had no clue how they came up with the number.
If I’ve learned one thing for certain about the audience for this site, it’s that any effort to talk in terms of the most basic financial concepts is a lost cause. Even this site has seemingly given up on it.
@vtadave
Using a 4.45% discount rate doesn’t make sense when discussing AAV in the context of MLB’s CBA. The CBT doesn’t adjust for present-day value or “discount” future money. The AAV is based purely on guaranteed money at the time the contract is signed. If you want to keep hiding behind math formulas, you’re missing the point of how the league actually calculates AAV. Go ahead and try applying this formula to other contracts like Scherzer’s or Betts’—the math doesn’t change the fact that the CBT calculation is based on guaranteed money, not time value.
@Harrison Butker’s Mount Rushmore Worthy Speech
You’re still missing the fundamental issue. Deferring money doesn’t change the AAV; it only impacts cash flow for the team. If you think Ohtani’s deferrals somehow make his contract worth $46 million in AAV instead of $70 million, you’re confusing financial strategy with actual league rules. MLB’s CBA doesn’t allow for manipulating the AAV through deferred money. So while you might want to push this “discounted” version of reality, it doesn’t hold up when you look at how the system works in practice.
@BlueSkies_LA
But let’s be clear, the problem isn’t the audience, it’s the people who continuously ignore the actual rules governing the CBT and AAV calculations. Trying to apply accounting tricks where they don’t belong only clouds the conversation. The fact that you’re frustrated speaks volumes about the state of financial understanding here. If only people would focus on the rules, not their own misinterpretations of them.
70 mill a year is higher than 46 mill a year
46 mill a year is lower than 70 mill a year
The difference? Deferred money.
@Harrison Butker’s Mount Rushmore Worthy Speech
You’re not making a valid point—you’re just repeating a basic misunderstanding of how AAV works in MLB. Deferred money doesn’t lower the AAV. It only shifts the cash flow over time. The AAV is based on the actual guaranteed salary at the time of signing, and no amount of deferring changes that. If you think a deferred $680 million magically adjusts Ohtani’s AAV from $70 million to $46 million, you’re confusing accounting with reality. The deferral might help the team manage finances, but it doesn’t manipulate the AAV or impact the CBT calculation in the way you think.
They do lower the AAV though, at least Ohtani’s I am not sure about your other examples as I didnt look them up, because the deferred money is worth a lot less by the time it is paid. The bigger issue I guess is calling it a $700M contract when it is not actually a $700M contract (using the MLB’s same logic regarding AAV) Just call it what it is and no one cares how much you defer, its the fact the MLB and Ohtani’s people are selling it as a $70M/10 year contract but then only counting $46M for CBT that rubs everyone the wrong way.
How come dodgers are paying ohtani 46 mill a year instead of 70 mill? Deferred money lowered their aav obligation.
Isnt it true that deferred money like bobby bonilla paid after the contract is up dont count towards cbt implications currently?
@Digdugler
It seems you’re still misunderstanding how deferred money works. Deferrals don’t lower the AAV—they simply spread out the payments over time, which can influence cash flow, but the AAV remains the same because it’s based on the guaranteed money at the time of signing. This isn’t “manipulation” of the contract value; it’s a standard financial practice in sports and business. Ohtani’s contract is $700M, and the CBT calculation uses the actual present value, taking into account the time value of money. The AAV still reflects what’s guaranteed at the outset, not what’s paid in the future. Your frustration is misplaced because the AAV isn’t meant to reflect the exact cash flow over the life of the deal—it’s a standard metric that helps compare contracts based on guaranteed money, not deferred value.
It’s the entire package of ignorance and imperviousness to learning, really.
You dont seem to understand, when they defer money, you get a discount because you are using the PRESENT DAY VALUE for calculations of CBT. It has nothing to do with cashflow. I believe money is actually paid each year of the “contract” so there should be no change in cashflow as the money is already paid by the time the deferals are due. CBT is using the present value of the $700M that will eventually be paid which is significantly less than $700M.
Again, this means Ohtani is technically getting less than $700M (in present value) which brings me back to my original post that the issue is the wording of the contracts and legal mumbo jumbo. It is not actually a $700M PRESENT DAY contract but the MLB is using PRESENT DAY value for CBT. That is the issue.
Old York, I’m not sure what you’re actually arguing here. For CBT purposes, the value of the contract is the present cash value at the time of signing. For CBT purposes, the league does use a formula similar if not identical to the one posted above to determine the present cash value of the contract. So although the amount actually paid to Ohtani will (eventually) be $700 million, the value of the contract for CBT purposes is $460 million, not $700 million. If the contract called for the $700 million to be paid out entirely during the 10 years of the contract, it would count as an annual average value of $70 million for CBT purposes. Because of the deferred money, the average annual value for CBT purposes is $46 million, which is obviously less than $70 million. Of course, if there was no deferred money, the Dodgers wouldn’t have agreed to pay him $700 million; it’s their ability to fund the deferred $680 million for less than $680 million in present dollars that allows that.
Dig, for the team it has everything to do with casflow. In Ohtani’s case the Dodgers pay him $2 million and put $45 million in an interest earning escrow account each year instead of paying him $70 million. They have better cash flow that way.
But that is missing the bigger point. Until the current CBA when the salary was paid didn’t matter for CBT calculations. $700 million over 10 years was a $70 million AAV.
Strasburg had $80 million of his contract with the Nationals deferred but the AAV for CBT calculations was still $35 million.
Scherzer had $105 million of his deal with the Nationals deferred, 50% of the total, but the AAV was still $30 million for the CBT.
It has only been in the current CBA that it only counted as what the value of those dollars are today.
Looking into this point a little bit:
“Scherzer had $105 million of his deal with the Nationals deferred, 50% of the total, but the AAV was still $30 million for the CBT.”
I found this from the AP:
“Scherzer’s deal counts as $28,689,376 annually for purposes of baseball’s luxury tax, which uses a different methodology.”
usatoday.com/story/sports/mlb/2015/01/22/details-o…
It does seem you’re correct on the point that using the present-day value was introduced in the latest CBA, since otherwise his CBT hit would’ve been $27.34MM given a $191MM present-day value.
However, based on this Scherzer’s AAV for CBT calculations was not $30MM, but $28,689,376.
@Digdugler
You’re missing the point. Deferred money doesn’t mean Ohtani is receiving less; it just changes how the contract is accounted for in present dollars. The league uses a formula based on present value for CBT purposes, which is a widely accepted financial practice, and it’s totally in line with the rules. Saying the contract is “not actually a $700M contract” is misleading—the Dodgers are still on the hook for $700M, just spread out over time. The issue isn’t the contract wording; it’s that teams can use deferrals to reduce their CBT hit without impacting the actual contract value.
@socalbball
You’ve nailed it, but the underlying issue is that people are getting hung up on the word “discount” and misunderstanding how deferred money works for CBT purposes. The CBT formula accounts for deferred money based on its present value, which is why the $700M contract shows a $46M AAV for tax purposes. But that’s a tax calculation, not a reflection of the actual money Ohtani is getting. The Dodgers still owe him $700M; they’re just paying it in the future with the benefit of lower CBT implications. If people really care about fairness, they should look at the deferrals themselves, not misinterpret the present value calculation.
Agree with this.
I happen to think non-Dodgers fans would still be complaining if the team had signed Ohtani for $460MM, Snell for $160MM, Freeman for $148MM, etc. Which would be the classic “big market teams need to be restrained in some way for parity” argument.
But to your point about deferrals and fairness, if the argument is that whichever team Ohtani chose (whether the Dodgers, Giants, or whoever else was willing) was now able to sign extra players such as Yamamoto because paying Ohtani only $2MM is so extreme, well yeah.
Generally speaking I’m guessing most MLB teams don’t want teams to be able to pay a superstar FA $2MM per year so they can sign even more superstars. So maybe they’ll find a way to convince players that only x% can be deferred.
On the other hand, that could reduce overall player compensation. On today’s pod Steve mentioned how the Nats might not have signed Corbin if Scherzer didn’t defer so much money, for example. If the Nats were out, Corbin might have gotten less money, so the players might not want to give that up.
Tim, when the Ohtani contract was first announced, you wrote what I thought was a highly educational piece explaining present value and why $70M ten years from now is not $70M today, and why present value is used for the CBT. And I recall you also pointing out how Ohtani was never going to receive a contract anywhere close to $70M per in current dollars. Maybe because this article generated so many disbelieving comments, or for whatever other reason, this site (and really every other sports reporting site) totally gave up on explaining these concepts. I think this is a shame. Present value has become such a huge part of the money game, to the extent that it’s hard to comprehend baseball financing without understanding it. Fortunately, it doesn’t require an MBA — though you might think so, based on the comments.
I’m going to take the most basic approach to this problem.
How much money does Ohtani expect to get from Dodgers based on the contract that he signed?
I think the amount is $680 million which is the amount that is “deferred” which is what the point was.
The topic is how much is deferred and not what is present day value of that amount. Take your oranges and go home. They are taking about apples!
Now, do the same for Snell and others. And no, I don’t give a rats a$& if they defer or not.
Thank you. But I don’t think we gave up on explaining those concepts. I think we hammer on some of these points fairly regularly.
That said, sometimes with this I reach the limit of my own knowledge of finance, so I am not the best messenger. But I do understand the basic concepts and try to explain them when possible.
I know you try and I appreciate your post, but yeah you’re right there.
Scherzer and Betts’ contracts were signed under a different CBA. The current CBA outlines which rate to use. It’s not a tough concept to understand.
The deferrals are considered deferred compensation given they are paid out after the end of the contract. I’ve read that section of the CBA and it outlines pretty clearly how they are to be treated.
Maybe I’m missing something here.
Dodgers aren’t paying Ohtani 46 million a year.
They are paying $2 million from 2024-2033 and $68 million from 2034-2043.
The cash flow that Ohtani is receiving is the equivalent of receiving $46 million a year from 2024-2033 assuming the 4.45% discount rate.
Sorry for the confusion
By pay I mean pay towards cbt tax implications
Instead of paying ohtani 70 mill against the cbt taxes they pay Ohtani 46 mill against cbt taxes
On paper it says they’re paying Ohtani 46 mill a year when discussing cbt taxes purposes for the next 10 years, that’s his “salary” aav, but in reality the actual number is 70 mill if it was a standard contract no deferrals.
Kind of like how sometimes you get money for services under the table you may not necessarily report to the Feds and pay taxes on which lowers your actual earnings in the eyes of the irs (reported vs actual).
Vts, the Dodgers are required to put $44+ million in an escrow account each year of his 10 year contract. The Dodgers are spending $46+ million each year. Ohtani only receives $2 million.
I think what rubs people the wrong way is deferring money especially such a large sum is a clear circumvention of cbt threshold.
Dodgers agreed to a 10 year 700 mill contract but because of how it’s structured only 460 mill will count for cbt purposes.
The fact they have over a billion dollars in deferrals that’s not going to count against cbt tax purposes is probably what upsets the fans the most esp since they’re not penalized for going over the thresholds despite spending well past them.
They could care less if ohtani signed for 10 years 460 mill and dodgers were taxed at 100% of the contract towards cbt purposes. Same goes for betts freeman edman snell. If 100% of the salary counted against the dodgers cbt or even 90% I think most fans wouldn’t care cause dodgers would be hit with a tax bill and loss of pick slots.
But only being taxed at 65% (460/700) for cbt purposes definitely rubs people the wrong way.
The cbt tax was suppose to serve as salary cap. But when you can circumvent it without future ramifications what’s the point of it?
Now if deferrals weren’t allowed or deferrals counted against cbt tax thresholds then I think people would care less. But it’s circumventing the “salary cap” in such an egregious manner that rubs people the wrong way.
“How come dodgers are paying ohtani 46 mill a year instead of 70 mill? Deferred money lowered their aav obligation.”
You have that backwards. They’re paying $46 million/year, so that’s what their CBT obligation is.
it actually does impact CBT implications in that the extra money that is being paid due to the CBT can be leveraged against money made on the escrow (especially with the dodgers who as a financial corp doesn’t even need to put the money in escrow and just use it in their normal course of business and gain income on it) so that they aren’t taking a financial hit from the additional money paid
The deferred money isn’t held in an escrow (third party) account for any team. I have never seen the exact mechanism described but from what I can tell it’s much more like a custodian account, such as an IRA. It can be invested but not used for any other business purpose. If some sportswriter was really interested in telling us more about how this works they could try talking to some team execs, agents, or ballplayers. Or they could just keep writing that billion dollar headline.
IRA’s have so many eligibility rules and caps that I’m very sure they aren’t using an IRA for this.
Yorky’s been playing with ChatGPT again.
@Ignorant Son-of-a-b
Why would you say that? I thought we were friends…
We are friends and we laughed about this before when you were experimenting with it. Remember you said you might as well get with the times, or something similar. There’s no shame in it if it helps you formulate an argument. This is just a two-bit message board, people can copy pasta whatever they want. It’s not being graded.
If the Dodgers are required to put 44+ million in an escrow account ever year, how does that not affect their cashflow? Instead of giving it to Ohtani they are putting into a lockbox until later. How is that not 44 less million that they can use to sign players, if the point of the massive deferral was to create cash flow to sign players every year? It’s like the $44mill is coming from somewhere else and not being taken out of the slushfund of money used to sign players.
I’m sure it isn’t an IRA also. I am suggesting is a custodian account, of which an IRA is one type.
Dig – Well said. I have to admit it’s disheartening to have to sift through a hundred rushed comments arguing about whether deferrals impact the CBT hit when the MLBTR staff has done an excellent job explaining it over and over again throughout the past year. It’s also clearly spelled out on salary websites like Spotrac.
Come on people, please do a little research before cluttering this place with inaccurate comments.
Tim this is exactly my problem with the situation. The Dodgers as a big market team already has more cash flow then Most all other teams, this was a recipe for disaster from the onset with Ohtani’s contract. I think you should be able to Defer however much you want for personal income tax reasons but deferrals shouldn’t bring an AAV down more than 4-5m against the luxury tax.
Balk – Oh dear God not again. LOL
no, most of us on this site can’t quite conceptualize how to go about paying a billion dollars to a handful of current employees 15 years down the line. Sue us.
But let me try anyway: essentially, “it takes money to make money” and deep pockets allow an individual or organization to utilize the rules of a system in a more directly advantageous way that individuals or orgs without such depth to their pockets cannot feasibly accomplish without short-term burden or liability.
Like I’m annoyed because i already actively dislike the dodgers, but I’m aware no laws, rules, or CBA requirements have been violated. Is that ok to just be annoyed by the dodgers’ financial wherewithal? Because I think that’s the ultimate position most of us non-dodger fan + financial greenhorns on this site are taking.
Los – It’s fair to be annoyed that there’s no hard cap. It’s fair to be annoyed that teams like the Dodgers spend so much. I’m a fan of a team that has spent very little over the past 5 years, so I feel your pain.
But being angry because of a misconception that deferrals help a team circumvent the CBT penalties is just plain wrong.
@Old Yorke – Mookie’s contract counts for 26.1mil AAV (not 30.4mil) because the present day value of the deferrals is less than the number that will be paid out. The term ‘present day value’ is always speculative and you will see a different number for CBT calculations than the number the MLBPA releases.
I’m not sure if the Athletic is useful in any way for learning about these things but I assure you that spotrac, a site that is purely an aggravator, is quite detrimental. Spotrac receives most of their data from bots which attempt to copy it from Cot’s contracts (Baseball Prospectus) which is the best source of contract information.
So just use Cot’s contracts and it will save you (and many many others) from future confusion.
legacy.baseballprospectus.com/compensation/cots/nl…
@WCSoxFan
Thanks for the correction and the link is quite interesting and useful.
@Fevs: Yeah, I think there is still a vocal minority yelling “CHEATERS” at the dodgers in so many words. But I’d venture to guess there’s a silent majority who absolutely thought it was a CBT dodge at first, but then educated themselves about it and are now just annoyed by the dodgers getting better and better right now. Hard to have schadenfreude on something that won’t happen for 15 years, but Bobby Bonilla Day will one day be replaced by 2020s Dodgers Day
Fever, yes here we go again, and I’m glad it annoys you, but I don’t think it’s ok that you take 96% of 700mill and defer it where the team is only paying 2 mill a year and are able to sign away using the same method, That’s complete bs and should be addressed, now weather I’m wrong or right on the tax, is debatable, but I stand by my statement.
Los_leebos…very fair comment.
Present value is not at all speculative. It is calculated in a clearly defined way according to the CBA. I posted the method elsewhere in this discussion. For unknown reasons the numbers arrived at by MLB for CBT purposes and the MLBPA for their purposes can vary a bit, but not because anyone is making up their own method of calculating present value.
Hardly. The Bonilla payouts became such an event for the Mets because Wilpon “invested” the Bonilla deferral with Bernie Madoff. Had the deferral been invested prudently the deferred payments would be business as usual non-events, as they will be for the Dodgers.
Oh cool the Dodgers are already smarter than everyone else in the future too.
Big vote for Cot’s from me as well.
los_leebos, so you’re saying it was smart for Wilpon to give the money to Bernie Madoff? If not, then what are you saying?
@Blue: I referenced nothing related to Wilpon or Madoff. In fact, I just learned from your comment that the Bonilla contract was Madoff-adjacent. You said the dodgers have or will invest the deferred payments prudently and I am remarking that it’s cool to know that none of those investments will prove problematic at any point in the future, and good on you and the dodgers for already knowing that. It’s snark, Blue. That’s what I’m saying.
My posts add information and are based on information. Yours are pure snark and add nothing.
@Blue With whom are your remarks directed ? My phone doesn’t make it simple to follow along, especially on long threads like this one.
ISOB: sorry, the way threading works on these boards stinks, mobile or desktop. I was responding to los_leebos.
@blue: My bad, I come here for community engagement. Sometimes that includes info sometimes it doesnt. And I’m ok with that. I’m not trying to teach or enlighten, mostly trying to learn and have fun, of which I’ve done both on this thread. So thanks, Blue, and take care. Zero snark full sincerity, for the record.
yes but dodger ownership’s business is financial investments.
so I looked it up. apparently the way that it works is that the deferred money is paid in full value at the end of the season (meaning for example last year ohtani only had a cost of 2mm for the year – since you are trailing payments) they are then allowed to draw the money out and use it for investments but must be paid back at the end of the season and accounted for. so for someone like the mets or the dodgers they can pull that money out, use it for their course of business, pay themselves to manage it and return it to the fund. it would oly apply to businesses with financial instruments and not things like real estate
The Dodgers will not pay Ohtani $70 million per year. They will pay him $2 million per year then put $44 million into an investment account. That investment account will grow and then pay Ohtani $68 million per year over 10 years after he retires.
There’s no magic and no cheating. I’m pretty sure this was Ohtani’s idea to spread his income out for tax purposes.
CardsFan57 – pray tell what happens if the investment account fails to accrue the requisite earnings to meet the difference? Or like most such accounts in say, 2020 or 2022, they actually lose money?
I think Ohtani expects his checks to say $68,000,000.
While you supposition works in a vacuum for LAD, it doesn’t change the fax that they have a contractual obligation to him at $68 mil/year when the time comes.
Who pays taxes on the earnings of that account while awaiting payments?
CBT or AAV is not relevant in my point. I’m merely asking what they are obligated to pay him regardless of investment gains or losses.
The odds are just as good that the Dodgers make more money on the investments as the odds they make less than they owe Ohtani. Yes he will get the exact amount either way. Taxes during the deferral period? We don’t have the details to know that. Ohtani will pay taxes on his income. That much I do know.
It’s a calculation based on expectations on the investment income. I’m not a finance guy but I do know they are very good at this.
How about this then. Dodgers are paying Ohtani $68 mil when it’s due. How they come up with it is their business – TV, ticket sales, investments, whatever. That said, they are paying him $68 mil on the due date and he doesn’t care how they got it.
This is the bottom line which means they owe $79 mil/year on due date.
CBT and AAV and CBA be damned – they have 680 billion to pay on a scheduled deferred basis.
The tax question is really interesting. Many seem to assume the deferral is tax dodge, so Ohtani doesn’t have to pay California income taxes on his Dodgers earnings. I have an idea the state of California wouldn’t agree in the slightest.
I haven’t seen much on this since early reports that the state was going to challenge this.
I wish they’d touch on the escrow piece for the deferred money too. (Not MLBTR for this though obviously) I’m mildly surprised they can invest those funds in risk assets for the deferrals. I wonder if there’s a risk parameter the league has/percentage that has to go into risk free assets.
(Not that Guggenheim won’t generate a ROI way higher than the risk free rate of return) but that escrowed cash is technically not “safe” if invested in a risk asset.
Here’s the language straight from the CBA:
Unless the Uniform Player’s Contract provides otherwise, a Club may fund deferred compensation obligations in such manner as it elects, provided that: (a) the funding method used by the Club must be such that the amount(s) funded are exclusively for the uses and purposes of satisfying the deferred compensation obligation(s) being funded; (b) the amount(s) funded are maintained in the form of unencumbered assets comprising cash or cash equivalents and/or registered and unrestricted readily marketable securities, unless a Club obtains the Parties’ prior written authorization of an alternative form; and (c) such amount(s) funded are subject to the claims of the Club’s general creditors. Each Club shall certify quarterly to the Office of the Commissioner by January 31, April 30, July 31, and October 31 of each year (and the Office of the Commissioner shall provide such certifications to the Association within 30 days of their receipt) the manner in which its deferred compensation obligations that were required to be funded by the immediately preceding July 1 have been funded.
Sounds like a lot of flexibility, but with oversight.
Another piece of information I gleaned in the process of learning way too much about this is the number used in the present value calculation is not stated in the CBA. Instead it references a floating number, the “Federal mid-term rate” for the October preceding the contract year. In the case of the Ohtani contract, this rate was 4.43 percent. This year it should be 3.70 percent..
Arguing specifics, whether valid or not, will not alter the overall perception.
The overall perception with MLB is that market size dictates an ownership’s ability to spend.
Fans, league wide, perceive a disparity with MLBs structure.
Of course, and fans have perceived that disparity since at least the 1990s, possibly the 80s. Nothing new there.
Maybe the media just needs to start reporting these contracts based on their present day value. Seems like a lot of this confusion comes from the fact that the first number fans hear conflicts with the CBT number that gets reported later, so they automatically assume something shady is going on.
York – Elden couldn’t write even one sentence correctly. It looks like he’s making errors “all them time”, so I wouldn’t expect him to understand the concept of deferrals.
Unless the Doggers create a dynasty competition appears to be alive and well. Why get upset about something that hasn’t happened?
Getting “pre-upset” is the norm for negative thinkers – of which there is a lot.
In most cases, it’s because their team doesn’t invest and their team doesn’t win. But now, they can just blame the Dodgers for that.
Cam – This from the article is absolutely perfect: “If there’s one thing casual fans love, it’s a good lazy narrative.”
Competition is live and well in part, because of the expanded playoffs. With more teams making the playoffs (or at least staying in contention longer) you can get the 0 World Series win Rangers vs the Diamondbacks, and the result is more fans viewing their team as having a chance to win. Conversely, in the old two division, pre ALDS/NLDS, there were a larger number of teams who were non-competitive for a much larger part of the season, and very little chance of making the playoffs.
As one moderator from Soxprospect put it…’the team with the best regular season record should win the WS’. I could not disagree more. The NCAA basketball tournament is popular, because any team can make deep run in the tournament. It is truly who ever gets hot. The eventual winner generally comes from the 4 seeds or higher, but the tournament is fun and interesting. The same concept has been adopted, in part, for MLB. A more balanced league is more fun for more of the league’s fan base. It at least gives fans of small market teams a reason to stay engaged.
I told friends the Dodgers would win the 2024 WS in January of 2024 before spring training even started, and will make the same prediction will 2025. How can one team be allowed to stock up on so many premium players. Of the 12 playoff team, the top 5 spending teams ALL made the playoffs 100%. The other seven came from the remaining 23 or roughly 30%. The only solution to the huge difference in spending by large and small market teams is to stiffen the penalties for exceeding the caps or have a hard salary cap (it will never happen). The owners want the super teams like the Dodgers as more revenue means more revenue share money for all.
I’m not sure you can say: “good for baseball” is irrelevant, when in fact it is not good for baseball. Seems pretty relevant.
What I mean is, I don’t think owners or players care about “good for baseball” all that much, and those are the two parties who can choose to limit deferrals.
Owners might do it, but I don’t believe they’re driven by fans complaining.
For the owners “good for baseball” is defined entirely by what is good for their bottom lines. How anyone comes to a different conclusion beats me.
Pretty sure the fans are what make the sport function. Last I checked, the TV ratings have been continuously declining for baseball . Owners and MLB want the big market teams (dodgers, yankees, mets, etc) to be good because it increases the cash in their pockets.
Rather than build a sustainable growth strategy, the league just wants big market teams to be successful to drive short term revenue. Too many old head owners.
And again, the success of their “sustainable growth strategy” is measured by their financial statements. If you want to argue the owners should be measuring the success of their business some other way, then I say good luck with that. The sport’s financial model is determined by the 30 owners, so what we see is what they want.
What we see is a combination of what the owners want and what the players want. It’s called collective bargaining.
I think attendance and viewership numbers are in pretty good shape of late. But yes, the way for fans to vote on the issue of deferred money is to not show up. If attendance plummeted and fans of the other 29 teams said it was because the Dodgers deferred a billion dollars, that would increase the owners’ collective desire to disallow that.
TV ratings don’t take into account streaming. The number of people watching baseball is growing worldwide. How we watch has changed. I rarely watch a game on TV and only watched 100 or so live, but I watched more games than ever last year. I am the norm, not the exception.
Yes, the labor side is collectively bargained but the owners have the latitude to make financial plans and commitments outside of the CBA. The primary objective of the players is maintaining their share in the game’s revenue. If the owners wanted to share more of their revenue between the teams, the players would have no objections, so long as the share going to the players isn’t hit. In fact it was the players who asked for changes in the draft to less favor tanking teams.
kscheer
Rather than build a sustainable growth strategy,
===========================
Besides Covid when is the last time MLB revenue has declined?
the way for fans to vote on the issue of deferred money is to not show up.
===============
I’d say there was about a 0% chance of that happening. If someone cares that part of Sale’s salary is deferred, do they really show up for that many games?
Tim – We knew what you meant and you’re 100% correct. “Good for baseball” went away when the last real commissioner, Fay Vincent, was forced out.
Tim – completely agree. Owners and players both want deferred money contracts to continue. The problem is not deferrals, but rather the problem is a concentration of all-star players on one or two teams. The penalties for exceeding the CBT levels gets pretty steep if teams continually do it, but the benefits to have premium free agents coming to your team outweighs the penalties long enough that teams can be in the ALCS/NLCS for many year before teams have to rebuild. It is actually shocking that the Dodgers only had one WS win from 2017 to 2023 considering the numbers of times they were in the NLDS or WS.
The problem is not deferrals, but rather the problem is a concentration of all-star players on one or two teams.
==============================
That’s always been a “problem”. In fact, it is probably less of a problem now than when the RS and NYY were dominating free agency.
And I’d go so far as to suggest that it is might not even be a “problem”. The WS rating were 67% higher than in 2023, and doubled among the 18-34 demographic (sorry, I forgot, BB is dead). That’s a huge revenue gain, and i am not sure if that included Japan.
It is the concentration of star power that drives those numbers.
If I one suggestion, it would be to spread out the Japanese more. The WS set all types of records in Japan, but probably because of Ohtani & YY. But if next years’ WS is Philly v the RS, it would be nice to have a couple more Japanese stars on the RS.
And I am not posting that because of Roki.
Joe – What you say is true, but everyone is different, and i DO NOT like watching the same teams play in the playoffs year after year…you might and that is fine!
He’s saying that when the CBA is negotiated, “good for baseball” is generally not a consideration. The fans don’t have representation in those negotiations. Just the owners and players, so only “good for the owners” and “good for the players” are generally considered.
They have a soft spending cap with somewhat heavy penalties. It is the CBT payroll is what counts. The deferrals are fairly meaningless.
I think the MLB does plenty to help out small-market teams with the draft structure and revenue sharing. It is easier to get into the playoffs than it has ever been in the MLB and I wouldn’t be surprised if they broaden it further..
I don’t see why so many people want parity to be the ultimate goal in American sports. College football seems to be doing alright and I don’t see anyone clamoring for Ohio State to stop signing all of the good players so Toledo will have a chance.
Baseball has always been about the big markets that have more money to spend than everyone else because they have owners who want to win and don’t care about spending whatever it takes
. Better TV deals, full stadia (that’s the plural of stadium), and corporate schmucks with money to spend on luxury boxes and the perks are going to win more games than teams with cheap owners like those in Oakland/Las Vegas, Pittsburgh, Milwaukee, and Miami (among others).
BELDAR –
“Baseball has always been about the big markets.” I beg to differ. There was a time (in my lifetime) where there were 16 teams (11 cities) and every city had a fighting chance to compete—and often did.
Sure, the KC A’s were pretty incompetent and sold or traded their best players to the Yankees. But most everyone else was in the hunt. Which gave all the fans a chance to be optimistic.
I know we can’t roll things back to those days, but it would be nice if every franchise, every season, had a realistic shot at winning the World Series.
The Cubs, White Sox, and Indians never won when it was 16 teams. The Yankees, Giants, and Dodgers did.
ALL teams can do deferrals, a lot of teams have! You just don’t hear much about it until now since the Ohtani signing! But if you do your homework you’ll see that it’s not an uncommon practice! Blame your cheap @ss owner if you check the “mad column”! See Bobby Bonilla! Ha-ha!
Terry, until the current CBA, deferred salaries did not effect the CBT calculation. No matter when a team paid those salaries the AAV was the same. 10/700 was a $70 million AAV as far as the CBT was concerned.
Another hater…god bless you! Call your owner and complain for pocketing their profits instead of reinvesting it! Crocodile tears only go so far, crying towels on sale at Walmart!
Who are you talking to?
There’s no crying in baseball!
I recall a few years back when the Nats were getting killed for offering a small portion of a $300m+ contract to Harper deferred.
I think that was because he didn’t want that. If he was offered $400MM with a present-day value of $330MM, they wouldn’t have gotten killed.
My favorite line ever in this website
“If there’s one thing casual fans love, it’s a good lazy narrative.”
Look at EPL. As a Man City fan winning four titles straight is awesome (the most in any league) but a fifth might mean trouble for the league. City is off to a terrible start.
Lazy casual fans? Watch the lazy fans stop showing up to games or participating in sites like these. You miss the point – bloated salaries = higher ticket prices, loophole in the cbt against the luxury tax, smaller markets still can’t compete financially.
Whoosh!
Lazy narrative, not lazy fans.
I’ve seen a ton of the “Dodgers deferring money is new and the worst thing ever” discourse on social media. They’re not exactly nuanced or well thought-out takes.
But yes, fans could stop showing up and that would probably force changes more quickly.
bloated salaries = higher ticket prices,
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It’s exactly the opposite. Teams charge you exactly what they think you will pay. It is the revenue which drives salaries.
@Joe
Blows my mind people think that big salaries inflate ticket prices. Yankees tickets don’t sell for a penny less last season if Lemahieu, Rizzo, and Stroman were replaced with 3 league minimum players….
I was going to use the RS as an example, but I am a RS fan. A lower payroll the past two years certainly hasn’t reduced the ticket price.
But as one of my favorite asides, I do believe that teams that tank, or trade off, at the trade deadline, should give out large rebates for concessions. It would be fair, since the reduced revenue would offset the reduced payroll. And it would be a nice goodwill gesture.
Dodger Stadium price increases according to sources(not sure what they were last year but maybe this tells a story)
$35 beer
$15 hot dogs
$11 popcorn
$13 soda (in commemorative cup)
$28 pizza
$18 ice cream helmet
Elden, it is a manipulation of CBT rules and one owners are likely to address in the next CBA negotiations, but the explosion of player earnings due to it is something that the MLBPA may push back on major changes unless the owners give up something else.
In the previous 2 CBAs, salaries for the CBT calculations did not take salary deferral into account. $200 million was $200 million regardless of when it was paid. This was something the MLBPA added and the Dodgers took full advantage of it. Bravo to them for reading the CBA closely. Those two sentences allowed them to save huge amounts on their CBT payroll levels.
The MLBPA was asking for a CBT threshold tied to the revenue of the top 5 teams in the last negotiations, so maybe we see the owners allowing a much higher CBT threshold so they can tighten up the deferred salary loophole.
Just guessing based on the revenue we know from the Braves and Bluejays who are not in the top 5, 50% of the revenue of the top 5 teams is probably around $300 million. I could envision the MLBPA asking for something in that range and the owners countering with a starting level in the high $250s and then settling around $270ish with deferred salaries capped for CBT calculations.
I think teams will still be able to defer salaries as much as the player will accept. They just won’t be able to do so for the CBT calculations.
Is it really a manipulation though? There are only two parties at the negotiation table for the CBA – and both of those parties benefit from the system as it is currently designed. Players get money, Owners get flexibility.
It’s more utilization that manipulation.
Exactly!
Based on this:
“Scherzer’s deal counts as $28,689,376 annually for purposes of baseball’s luxury tax, which uses a different methodology.”
usatoday.com/story/sports/mlb/2015/01/22/details-o…
I think the 2017-21 CBA did account for deferred compensation in the CBT calculation, even if differently than now. Correct me if I’m wrong…
Actually that contract was in 2015, so two CBAs ago.
I would guess there is probably some tie-in to interest rates in the formula which have gone up quite a bit since then..
No need to guess. In the current CBA, the present value calculation is based on the Federal mid-term rate for the October preceding the contract year.
“Those two sentences allowed them to save huge amounts on their CBT payroll levels.”
Did it, though? If deferrals weren’t allowed it’s not like the Dodgers were still going to sign him to $700 million over 10 years. He probably still would’ve received roughly $460 million. It’s not that the deferrals allowed the Dodgers to avoid paying $700 million, it’s that they made a $460 million deal look more valuable.
Baseballisthebest
Elden, it is a manipulation of CBT rules
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Seriously, it absolutely is not a manipulation. They have this painfully spelled out in the CBA BECAUSE they expect teams and players to defer salaries.
Hearing am interesting rumor from ESPN. Baty, Clifford, and Tidwell to the Mariners for Castillo.
What do you think of that potential trade Tim?
Got a link for it?
David Schoenfield of ESPN. Heard it being talked about on WFAN.
I wouldn’t really call that an interesting rumor, just one of those trade scenarios a person came up with.
Why are the Mets giving 3 prospects for an overpaid innings eater?
Stearns would never do this trade.
Luis Castillo is mediocre. Get real people.
If I am NYM I don’t do that.
I’d rather hold on to the 3 players for say 2.5 more years and see what they can become in the majors. I am not in a rush to give up on Baty.
He doesn’t have to be a HOF to be a useful player.
Not disparaging Castillo I consider him a B- type starter (He is age 32 rounding up by ST) He should be solid for the next 4 years or so, maybe a few more. As a comp I would say he is slight upgrade to when we had Bassitt (VERY CLOSE). I don’t believe he has any major injury issues. He is generally reliable and an innings eater. Some combination of lesser prospects And I might do it pending a physical, MRIs of shoulder, elbow etc. Not afraid to be accused of “prospect hugging”
Trying to be respectful I say this is just 1 opinion No one should get bent out of shape so to speak. Reasonable Intelligent people can disagree
Have a Good Day. LGM!
I came here because I love reading posts by financially illiterate people who live in mom’s basement. I definitely came to the right place.
Or maybe 2 drunks debating “the Meaning of Life”, their favorite video games, who wins Godzilla VS King Kong? OR whether Camaros are better than Mustangs.
You know serious Life and Death stuff.
Sarcasm intended. ; )
If you really think deferred payments are ruining baseball then protest by no longer supporting baseball. If enough fans do that, they will change if not? Your just pissing in the wind.
Honestly, my opinion on the dodgers deffering money is like….
subscribe to me, to see the rest of my comment.
Read an article from Business Magazine awhile back at an appointment saying out of the big three NBA, NFL and the MLB it is the MLB that is in the most trouble right now as a league. Ranging from outlandish contracts i.e the Ohtani contract plus other with rather large deferment salaries, Then you have two ML teams having to start playing in minor league stadiums for the next few years, where attendance is 15,000 seating capacity, the revenue will not make any visiting team money, and come from out of pocket from the home team owners to cover the loss not only for his team, but for the visiting team. You have really only one super team right now spending wise being the Dodgers, even the Yankees, Mets, and the Cubs are not spending the heavy cash the Dodgers are with all the deferred monies, how long will the other big team owners let this go without getting the MLB Commish getting involved i.e Bowie Kuhn did in the 70’s with the Oakland A’s trying to sell off players.to the Yankees for little of nothing. Finally, how MLB is a league with 26 of 30 teams playing with a controlled tight payroll limit, not so much small market versus large market, you have the Cubs and White Sox along with the Mets, Baltimore, Atlanta, Texas, Houston, and San Francisco can be called large market teams, but rather play tight budget. Is MLB going down the road of a one team at a 90 to 95% winning multiple championships in a row good for MLB overall? While others play with a more controlled payroll. How does MLB fix it?
Last year Oakland averaged about 11,000 per game and Tampa about 16,000 so both could easily fit those in the minor league stadiums they’ll play in this year..
All teams can differ money on contracts and most do.
The owner are happy with differed payments and so are the players. Manfred works for the owners. So good luck getting him to do anything.
Then you have two ML teams having to start playing in minor league stadiums for the next few years, where attendance is 15,000 seating capacity,
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That’s a nothing-burger. The difference in revenue of even 5,000 per game, is about $25M in a league with ~ $12B in revenue.
Baseball Finance & Investments, Grammar classes. I’m so old I remember we used to discuss Baseball. Punctuate that any way you choose.
I started out with defined pension plans and now we’re at defined contribution plans. I started out with Lotus and ended on Excel. Everything changes.
Lotus. A blast from the past.
I must be one of the ignorant ones because 10 years $700 million equals $70 million a year in AAV to me towards the CBT. Why should they get a discount because the player agrees to not get the actual cash for many years after the contract ends? 700 divided by ten is 70 per year. All that other creative accounting and future dollar value nonsense is just a way to circumvent the system. If it is actually 10 years and $460 million then say that. You can make up all the futures you want with creative math equations and I won’t agree. 700/10 is 70 per year. cheating the system is cheating the system. not much different than the cheating east missouri team stealing data from other teams. CHEATING is cheating
(TVM) is Real. Money today is worth more than Money Tomorrow. That’s a Fact
There should be a limit on how much can be deferred IMO. The Dodgers saved 24MM in a LT hit on a deal that was clearly designed to circumvent both the Lux Tax and improve Cash Flow for the Team. It was so far out of the Norm that the Commish should have stepped in not cancel the deal but Limit the amount that could be considered as PV.
It is based on the most straightforward, uncreative math equations imaginable. It is not “cheating,” it is basic finance.
Deferring $$$ does lower the CBT hit in todays $$$.
If the Dodgers paid Ohtani $70MM for 10 years the CBT hit would be $70MM per year. By deferring the $$$ the Present Day Value of those Pay Outs are reduced. (PV) Bringing the Present Day Value including his $2MM salary to $46MM per year.
I don’t agree that this should be allowed but under the agreed upon rules this is how it works.
The real question is should this have been allowed in the Best Intrests of the Game because it is excessive?
No, it does not. Nobody was going to pay Ohtani $70M per in current dollars, so the point is moot.
You are wrong and by trying to start a Straw Man argument does not validate your point.
The Dodgersw did offer the $70MM the way they are paying it is what all the posts are about.
Fact by the lowering of the CBT Hit due to the reduction from total Value to Present Value does change the PV of the CBT Hit.
Completely incorrect, for reasons that have been explained and reexplained in detail dozens of times.
“It’s worth considering, too, that the bill eventually comes due.”
That’s not how you use “too.” It goes at the end of the sentence, without a comma. It’s not just a word you can use to replace “also.”
“It’s also worth considering that the bill eventually comes due” reads correctly.