Shohei Ohtani Is Deferring 97% of His Contract
By now, you’ve probably heard that Shohei Ohtani’s $700 million contract will pay him through 2043, with Ohtani deferring an unprecedented $680 million (over 97% of his contract). The structure calls for Ohtani to earn just $2 million each year of the contract, and then $68 million a year for the 10 years following the deal.
Ohtani will inarguably be taking home $700 million via this deal, and I disagree with the notion that the contract should be described as anything other than that big number from a bottom-line perspective. But what matters, especially with regards to the Competitive Balance Tax (CBT), is the present value of the contract.
Article XXIII of the CBA concerns the CBT, and the key component for determining payrolls for CBT purposes is the average annual value (AAV) of contracts. If Ohtani’s contract didn’t contain any deferrals, his AAV would be $70 million, calculated by simply dividing $700 million by the 10 years of his contract. Where things get complicated is with deferrals. When money is deferred in a contract, the value of that money depreciates over time, and it is the depreciated value of the contract that is used as the numerator, or replacement for the $700 million, in the AAV calculation. Ohtani’s deferrals will be paid without interest, which is key for depreciating the value of the payment; interest would have increased the present value of the contract, and as such, the AAV and corresponding CBT hit.
So, how is the AAV calculated? The key numbers here are $68 million, 10, and 4.43%. The $68 million is the money deferred each year. The 10 refers to how many years each contract year is deferred for (i.e., year one gets deferred 10 years to year 11, year two gets deferred 10 years to year 12, etc.). The 4.43% is the yearly discount rate, which is the Imputed Loan Interest Rate (ILIR) referred to in Article XXIII(6)(c). The ILIR is synonymous with the federal midterm rate, and the CBA calls for using the federal midterm rate reported by Internal Revenue Service for the October prior to the contract year (i.e., October 2023 in this case); since we have no ILIR data beyond October 2023, the league uses that rate for the entirety of the contract. The 4.43% is a yearly rate, which as such is applied to each successive year, or put another way, 10 times.
This leaves the overall formula for the value of the $68 million deferred each year as:
That outputs a value of $44,081,476.50. The final step is to add back the $2 million paid each year that is not subject to a discount, giving us a final value of $46,081,476.50, which applies to the CBT each year, and an overall present value for the whole contract of $460,814,764.97. That $46 million(ish) hit to the CBT still sets a contractual record, beating the $43,333,333 that Max Scherzer and Justin Verlander’s shorter-term contracts called for, but not to the cartoonish degree that $70 million would have.
Deferrals are not uncommon; famously, Bobby Bonilla and his representatives deferred $5.9 million of his Mets contract upon his release in 1999, converting it into a $1.19 million payment every July 1 from 2011 to 2035, with the negotiated interest bringing his total payout to $29.8 million. Deferrals without interest are more common these days; Scherzer’s Nationals contract deferred half of his salary and brought the present value down from $210 million to $185 million. Current Dodgers Mookie Betts and Freddie Freeman also have large chunks of their contracts deferred, but no contract has ever been deferred to anywhere near this degree. (With Ohtani now in the fold, the Dodgers owe the trio a combined $852 million in deferrals.) While the CBA explicitly states that there are no limits on how much of a contract can be deferred or for how long, Lindsey Adler and Richard Rubin of the Wall Street Journal report that MLB has proposed limits in the past, but the union has thus far rejected those overtures. Adler and Rubin’s article also includes some further detail on how Ohtani’s income tax filing will be affected by the deferrals; Rob Mains of Baseball Prospectus also considered the tax implications in his analysis this morning.
Amazingly, the deferrals mean that, as of now, the Dodgers’ 2024 luxury tax payroll is just under $220 million, a figure that is still $17 million below the first tax line and $57 million below the threshold that would force their first draft pick back 10 spots if crossed. Having the flexibility to continue to add talent to the roster was reportedly a significant motivator for Ohtani when he and his representatives broached this contract structure with teams, with these sorts of massive deferrals factoring into all of their negotiations.
Jon Becker manages RosterResource's team payroll pages, assists with all other aspects of RosterResource, and also dabbles in creating new features as a Junior Developer. Follow him at your own peril: @jonbecker_ on Twitter and @jon-becker.com on Bluesky.
No chance this contract structure isn’t addressed in the next CBA
Agree, there needs to be clear rules in place about deferrals. It’s interesting that due to the interest rate spike they got a much bigger discount that in previous years.
It seems like there are clear rules in place about deferrals, and those are the rules under which this contract is being implemented. I get that people may not like it, but the rules are pretty clear and well defined.
I would say both you and JV19 are correct here. Definitely allowed under the rules…for as long as those are the rules.
I don’t understand why people think the existing rules are such a big issue here. The discount formula to account for value of deferrals is pretty fair, and spreading the payroll hit over the 10 years of the contract for a 29-year-old Ohtani seems like a fairly standard contract term. This is not like the NHL where teams were tacking on very obviously fake years onto the term of contracts to game the cap.
I doubt other teams are fussed about the CBT angle. The bigger problem is that LA now gets ten years of a free superstar on top of all their other advantages, which is not great for other teams that were hoping to maybe win a World Series at some point.
Then, after that, LA has ten years of massive dead money on their payroll. If revenues and salaries keep growing at historic rates, then by the late 2030s $68mil won’t be a huge amount of money for a large market MLB team and LA will be fine. But if the league as a whole isn’t doing well (say, because cable TV revenues have dried up), then LA could be in real financial trouble, and might even require a bailout from other teams. And if other teams are forced to follow LA’s example to remain competitive in the short term, then the league as a whole could be set up for disaster the next time pro baseball goes through a lean period.
No idea why this has been downvoted. I think players should get paid when they play and these crazy deferrals are a Ponzi scheme hugely beneficial to owners but gift-wrapped as Shohei being a “team player.” $70 million today is worth a lot more than $2 million today and $44 million later, beyond even the discount rate factor. LA can afford it (CBT be damned) and Shohei is worth it. Why did he have to be the gracious one to save the poor owner here? I don’t like it.
This was a negotiated contract with financially sophisticated parties on both sides. Ohtani’s agents and other representatives certainly understand this structure, and if Ohtanit doesn’t than those people aren’t doing their jobs.
There’s a very important and obvious point: from the Dodgers’ perspective, $700 million paid under the terms of this contact are are absolutely *not* the same as paying Ohtani $70 million per year for the next 10 years. The notion of applying a discount rate to future payments is business/finance 101.
You have a point, but I bet that barring a massive crash the Dodgers’ worst case scenario is “$68 million of dead money means a cash crunch where the league forces them to do some salary dumps” instead of “$68 million of dead money means they don’t make payroll.” If the LA team isn’t making enough money to cover the $68 million, then the rest of the league is going to be in bad enough shape that they probably couldn’t put a bailout together.
What is payroll going to be when this hits anyway? Assuming things go about as they have it should easily clear 500m for large market team. This would be akin to having a Chris Davis under salary for Orioles, probably. Maybe slightly exaggerated but unlikely by much. Certainly wouldn’t be as damaging as the Angels paying Pujols/JHam a few years ago.
It’s not free in any sense: They will be putting something like $400m in escrow for Ohtani over the next decade, while also taking CBT hit of $46m/yr. And then it won’t be anywhere near that much dead money, if any, because again all that paid into escrow.
That’s a good point- I wrote the comment above before I read elsewhere that most of Ohtani’s salary is going into escrow. And formerly matt w is also right that “Dodgers fail to make payroll” is such an extreme worst-case scenario that’s it’s not really plausible. Ohtani’s contract isn’t going to any damage to team/league finances on its own. I think it only becomes dangerous if other teams start copying it, and race each other to the bottom in deferring expenses to boost short-term contention.
Who says the Dodgers are setting aside most of the deferral money in advance? If that were true, then why do they need to make such massive deferrals in the first place to help the team spend more this offseason (and the next 9 to come) rather than just signing him to a conventional 10-year deal for around $460M?
The CBA says:
ARTICLE XVI (p89)
“Deferred compensation obligations incurred in a Contract executed on or after September 30, 2002 must be fully funded by the Club, in an amount equal to the present value of the total deferred compensation obligation, on or before the second July 1 following the championship season in which the deferred compensation is earned.”
https://www.mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de973e37de62484da5.pdf
This is fair!
“LA now gets ten years of a free superstar”
Uh, no. He is getting paid $2MM a year with the rest deferred but the cap hit is closer to $46MM a year. Not even sort of close to “free”.
Because the Dodgers and Ohtani are mutually incentivized to help each other avoid taxes (luxury tax and state income tax, specifically).
Otherwise, they’d sign a 10/$460M deal and Ohtani would get more cash flow sooner.
Ohtani is definitely avoiding state/federal taxes, but that’s something all MLB owners also love to do! And in no really meaningful way are the Dodgers actually avoiding luxury tax: the $46m/yr it’ll count against their payroll for CBT purposes is a very fair present value calculation of what they’ll eventually pay Ohtani. When they pay him the $68m in 20 years, it will be worth less. And the money in escrow will have accumulated returns.
I was wondering if anybody would bring up the tax angle.
California taxes 13.3% so Ohtani is saving $6M in ’24 and probably more in ’25 and beyond. (That $68B deficit isn’t going away at just 13%.) Over ten years that adds up to $60M. Not peanuts.
Neither is the $60M+ Ohtani makes each year outside the ballpark. The $2M he will be reporting (minus the state and 37% federal tax bite) will leave him with with a million “walking around money”.
(“It’s good to be King.” Better to be Ohtani and a free agent.)
Deferring the contract money until he stops playing and the “other” income goes away is simply good financial sense. He doesn’t need it now and deferring is smart money management. He has people for that and the tax savings will just about cover them. Because as the politician said, “a million here, a million there, pretty soon it adds up to real money.”
Ohtani earned what he gets. I won’t begrudge him a penny.
He didn’t make the rules for the game, either game. He just plays it as best he can.
End of story.
He’s earning economic value in California and likely paying taxes on almost none of it while benefitting from taxpayer funded infrastructure and living in an expensive state he wants to live in. It’s “smart”, but I think baseball would be smart to prevent this kind of incentive structure.
The fact that rich people like to avoid taxes in my opinion doesn’t mean baseball should permit them extra avenues to do so. Ohtani is rich enough already to essentially just opt out of paying state taxes. Great for him, not as great for those that have to pay normal CA taxes on non-deferred income.
The Dodgers ARE avoiding luxury tax, because they are enabling Ohtani to derive the economic benefit of a larger contract through this tax avoidance strategy (this is like a 10/$550M contract for Ohtani in terms of post-tax dollars), while they only pay luxury tax for the $460M contract.
likely this massive deferral means than he took less money to play for the dodgers, since it was reported he had multiple 500+ million offers.
as for the legal tax dodge, I’m not a fan.
This was a reported 700+ million offer.
The ‘reported offers’ are always raw dollar figures and not accounting for inflation/deferrals they’d’ve been there too, just in different proportions.
There ARE clear rules! The clear rule is “There is no limit on how much compensation may be deferred under a uniform player contract”. This is verbatim from the CBA. If ownership wants to change it, they’re gonna have to bargain something back.
Ownership has no interest in changing that.
(Remember Bonilla.)
Does the union?
Care to back that up? The article you’re commenting on includes a link about how the owners have tried to change it several times
And after “trying” they give it up.
What makes you think they care enough about it to trade something for it?
In negotiations you often ask for stuff you don’t care about to give the other side a “win”.
Don’t need to go further than this year’s UAW negotiations: they asked for 40 hour pay for a 4 day;32 hour workweek, a 20% pay raise *plus* a 20% increase in hiring.
A non starter and they knew it. The pay raise was a stretch–they eventually settled for 16% over several years. For 40 hours work.
Ford management could thus go to stockholders with a %win” in “saving” the 40 hour work week and thus sell the 16% pay raise.
Why? Which side would object to it?
As Jon says in this article, Lindsey Adler and others have reported that ownership has tried to cap deferrals in previous CBA negotiations but the union has declined because the ability to do this gives players significant flexibility.
They have *actively protected this*.
Thanks, I didn’t see that part.
I also don’t think it makes sense on the players’ part, except as future income potential like an annuity? Aren’t there very good financial managers these guys can hire to take care of that problem without relying on team owners to do it for them? are as low as they’ll ever be…
Bobby Bonilla would disagree.
An annuity it is.
Money they can’t (easily) lose.
When you have big money everybody wants a piece of you and a lot of them are very clever. Safer to put it where even you can’t get to it. Bet MC Hammer wishes he did that.
good info, thanks!
Were the owners serious or just posturing to give the union a “win”?
Exactly. Why wouldn’t both the players and the teams want the option of structuring deals this way if it appealed to both sides?
As for the CBT, the Dodgers are paying the equivalent of a 10/460 deal and getting taxed for a 10/460. No problem there either.
Players would definitely object to it. A player like Ohtani, currently in his theoretical prime, can earn a significant amount of additional income via local, regional, and national endorsement deals. So, for him, it makes sense to defer significant portions of his MLB salary during a period where he can easily compensate for it with alternative revenue streams. Right around the time those endorsement deals begin to decline in both quantity and value, he moves back an MLB salary generally reserved for players at the peak of their free agency value. Its really a win/win for Ohtani.
cry more
1) the CBT is a tool to reduce player salaries
2) IMO, the CBT should be based on present value for all multi year deals.
3) The reason that they aren’t is that that would decrease the CBT value and make it a less effective tool
4) good for the players for keeping the PV factor for deferred money.
I understand that it’s Ohtani’s impetus to do this, but deferrals without interest like this really just leave a bad taste in my mouth. There’s just a lot not to like about this.
Curious why it leaves such a bad taste? Dodgers get a bigger annual luxury tax hit from one player as any team ever. Ohtani will still make enough to live very comfortably before cashing in the megamillion ticket. It’s unlikely Ohtani was ever going to get that much more than the estimated 46 million per year over a ten year period. In the way, the deferrals have the interest baker into them already.
The extreme limits I could see are when the deferrals stretch into over a player’s lifetime to help pay for their family, causing the AAV to be much lower than what they would get otherwise. But again, if a player doesn’t trust that they can invest at a better rate than the deferral calculation that’s their prerogative.
I’m curious too. It just seems like a complicated financial agreement between the Dodgers and Ohtani. I don’t see how other teams are getting screwed over.
A lot of complicated financial agreements result in negative externalities. Obviously in this case baseball competitiveness is a pretty small externality in the grand scheme, but Ohtani seems like he’s also avoiding $50M+ in CA state taxes despite clearly deriving revenue in CA, so that’s an externality of some kind.
Is the privilege of living in California worth an extra $50M+?
It’s not as if he isn’t paying anything likeva lot of silivalley companies.
I believe “Interest Baker” was Home Run Baker’s younger brother.
Because it seems like a mutual mechanism for Ohtani to avoid CA state taxes and the Dodgers to avoid some baseball luxury tax $, to the detriment of CA taxpayers and other MLB teams that now need to do this to keep up?
And? You see a downside in either?
I would argue that this is a deferral without interest in name only, so that Ohtani’s team gets to “claim” $700M. In reality, this is more like a 10-year, $460M contract, with him deferring $44M/year for 10-years and getting $24M of interest for each year’s deferred salary.
Yeah, that’s exactly what this is. The topline number is for sticker shock only.
This whole thing exposes how few people understand the time value of money in any way, shape or form.
The value of his $68mm deferrals will go down over time. That’s kind of my point
Do you think he or his agent were unaware of this?
Time value of money seems so obvious to many people to the point that it is difficult to accept that so many people are clueless about it.
As Heinlein was fond of saying “never underestimate the power of human stupidity.”
Or economic illiterates. You find them all over, most commonly in political circles.
I mean, I have trouble with the time value of $48,500, let alone $700,000,000…
The rules are clear, and this deal makes sense. People are upset about it because it once again underscores the total lack of competitive balance in MLB.
It’s a pretty bad look for MLB at a time when helf the league is cutting payroll because their RSN went belly up.
Great, the Dodgers got a superstar on a deal that lets them sign another one too. Super. I hate to root against Ohtani’s success, but I think now I have to.
I make this point below, but it isn’t fair to benchmark this to an equivalent 10/460 deal without also discounting those cash flows.
A level payment 10 year deal would have to be for $582m to get to the same 460m NPV as this deal.
So for the same NPV, the Dodgers are hit for 46m in lux tax value instead of 58m. Someone please correct me if I’m misunderstanding how the league is doing this, because it seems like a huge loophole.
The way it works is the NPV of Ohtani’s contract that pays $2M from 2024-33 and $68M from 2034-43 is NOT $460M, but rather equivalent to the NPV of a contract that pays $46M from 2024-23. (The actual NPV is ~$380M using 4.45% interest rate)
Ergo $46M according to the CBT calculation.
When Judge signed 9 year $360M deal, MLB did not calculate the NPV of the contract and divide it by 9, but rather used the AAV for luxury tax purposes.
Not a loophole and working as intended.
One way to cheat the system that is allowed by the letter of the law (but probably not in practice) is to sign Ohtani to a 10 year contract that pays $371M in the first year and $1M for the next nine as it is a contract that should effectively count as $46M for 10 years, but will only be $38M by CBT calculations.
Padres did a mild version of this with Darvish extension.
Well that’s a dumb way to do the accounting, but you’re right. It would make a lot more sense to just NPV everything to current year dollars if you’re going to have to go through this anyway.
I suspect some of this is the historical rarity of 10-year deals. Most 4-8 year deals increase year-on-year in part to account for this on the player’s side.
If such long contracts continue to become more common, I think you’ll see the idea of nondeferred money to be discounted in the CBT after a certain number of years (7? 8? 10?) advanced in the CBA negotiations.
Why is it a bad look for MLB? “We’re so mf’ing strong that our teams can invest on a global stage” is a pretty good retort to the RSN mess (which is only partially MLB’s fault, unlike most things which are *mostly* MLB’s fault).
I’ve got no love for how baseball is operated, and if Manfred weren’t a shill for the owners, he’d either force out the Nutting/Manfort/Angeloses or move towards expansion and relegation. So from my pov, even after Manfred’s McKinsey’ing of baseball, if this kind of money gets thrown around, it must be pretty effing resilient.
The Dodgers and Yankees can invest on a global stage, and the bottom half of the league is on life support (whether due to inability to spend or refusal to spend is something of an open question). I consider that a bad look.
Because their owners would prefer to use MLB teams as leverage for real estate deals and other investments rather than investing in the team to win. No one has ever explained to me how Miami is somehow a small media market when it functions as a “big market” team in football, basketball, etc. Boston and Chicago can’t afford good players? The Mets are a small market team until they’re bought by someone who wants to win? Cmon now; they can all spend; they just don’t all care about winning more than profiting as much as possible.
BUT–that’s a choice that these owners get to make and they pay Manfred a lot of money to justify it. I despise it, but there’s no reason to think it will deflate money or interest (both of which have climbed in recent years). As a Dodger fan, I am resigned to essentially never being able to afford to park and attend a ballgame again, but I’m not sure that experience is as vital as it used to be for me.
Local media market size is not a huge driver for NFL team economics, by the way. The broadcast money is basically all in the league-wide national TV deals. (I think teams have their own radio contracts). Even for attendance, the NFL schedule – 1 game per week, usually on Sundays – is a different dynamic than baseball attendance. Green Bay is the classic example of how an outlier small market can generate strong NFL revenue from the combination of the national TV contact and drawing from a fanbase driving up to a few hours to home games.
No one’s on life support.
The Brewers are indisputably “small market”, maybe the smallest, but the team valuation has increased sixfold (by a literal billion dollars) over 20 years.
If they raised their OD player salary by $35-40M they’d be absolutely fine (in 2023 dollars it wouldn’t even be a historical high for the team).
No U.S. major professional sports league is going to have relegation. It requires completely ignoring the economics and history of MLB, NFL, NBA, and NHL to think that it’s any sort of plausible possibility.
I don’t get this argument. A 10×$46M (at cost) contract is why more competitively balanced than a 10×$70M.
There are at least 2-3 times as many teams that could, under the right circumstances, swing the latter than the former.
Yeah, I agree here. It seems like he got more in total guarantee for deferring than he would have otherwise.
Maybe I used the word interest incorrectly?
My point was that his deferral payments are a flat $68mm every year with no interest or adjustments, meaning that it’s actually worth less than $68mm by the time he’s getting it.
The same is true of the Mookie and Freeman deals, I believe. And that’s what makes them so different than Bobby Bonilla, who negotiated interest into his deferral so he ended up walking away with larger payments and more overall money than his original contract
This reads like you think the players are fooled into signing these contracts.
Only Ozzie Albies
These are the original contracts, the topline reported numbers were never what they were actually getting. The Bobby Bonilla deal was the Mets having a contractual obligation to pay him in 1999 that they negotiated a deferral of and now they are paying him the money. The Betts, Freeman, Ohtani, Scherzer, Strasburg, Pujols, etc deals were all originally negotiated to have these payment structures.
The negotiation wasn’t $700M now or $700M later. It was $460M now or $700M later. The real value of that $68M in 10 years is about $44M next year. It’s functionally the same as lottery winners getting the lump sum or annuity options. The sign in the store might say the jackpot is $500M, but that is only if you take the annuity, the lump sum is a much smaller payout.
The payments are $68M because that is what the (proprietary, secret, negotiated!) interest rate they baked in added up to. They didn’t pull the numbers out of BINGO ball.
The baked-in rate only matters to them.
Because nobody out here knows what the fate is going to be over the next 20 years. Not that there is a single number everybody can agree on.
Their negotiated number is as high as the Dodgers were willing to go and as low as Ohtani’s folks were willing to accept. Just cause they *report* it as interest free doesn’t mean it is interest free. They just report it that way because they can and it’s nobody’s business to know exactly what it is.
I should have read this before posting my less articulate version of it. 🙂
I suspect why the top line number ($700 M) was so high was because of the deferrals. He probably would have gotten somewhere in the $45-50M AAV on a “straight” contract (no deferrals).
They are functionally paying interest, they just announce the totals with the interest included because a bigger number is better for the headlines.
The interest is included, just in the headline $680 million number instead of being calculated in addition to the underlying principle owed. It’s basically a zero-coupon bond with an odd complicated maturity structure (presumably for tax reasons).
To answer everyone: the bad taste is because we’ve gone from “deferrals are bad and we need higher CBT penalties” to “actually it’s good that 98% of his contract is deferred til retirement” over the course of like 11 months.
Regarding interest, he’s not getting a Bonilla deal here. My understanding is he’s getting the same flat amount of money each year after the deferrals kick in.
In other words, the $68 million each year is actually worth significantly less by the time he’s receiving it. That shouldn’t be considered a good thing, imo, but maybe I’m misunderstanding how the deferrals pay out
The point is you could literally just describe the arrangement as “$46m per year with all but $2m deferred but with interest” and it would functionally be the exact same deal. It’s not like the Dodgers agreed to pay Ohtani $70m/year but then they later went back and changed things around to defer (which is what happened with Bonilla, which is why the $5.9m still owed to Bonilla turned into a much larger nominal figure but paid much later). It’s safe to assume Ohtani was never offered $70m/year up front.
I’m aware he wasn’t offered the 70mm up front but that’s not the point.
I guess I’m confused as to why you can say “44mm per year with interest” is the same as “68mm per year flat” when you don’t know what the interest would be?
The dodgers get to mitigate a lot of financial risk right now and also get to pay him in 2023 dollars for the duration of the deferment. Is that an incorrect interpretation?
I see your point about not knowing what the interest will be, but here you DO know what the interest will be…..about 4.5%.
I think you are saying that you don’t know how that will compare to market rates over the next 10 years, but that’s true in a lot of things. My mortgage rate is fixed, but that doesn’t mean I’m not paying interest. It just means I’m paying an interest rate agreed to back in 2020, not the current market rate.
Well sure but mortgage rates can go both ways and you can refinance.
That’s not true with inflation. It’s not as if there’s a real chance his $68mm is worth more in 20 years
I just don’t get how you can look at this in any way other than the Dodgers getting to have their cake and eat it, too. And thats why I’m not a fan of the structure.
And I guess I have to point out that this is a mutually exclusive thought to the idea that he deserves the money, because obviously he does
I’m not sure what you think the Dodger’s “cake” is in this situation and how they have it both ways.
The cake is Ohtani. They get to have Ohtani for $2m/year of actual cash outlay during his time playing for them, so they can also sign another superstar. Yes, the lux tax hit is more, but so what.
See various comments here noting that the Dodgers will be putting large amounts in escrow over the 10 years. Their cash outlay is many multiples of $2 million per year.
Not unless you live in 2023 China.
(Or 90’s Japan.)
Deflation is real but far worse than inflation.
You are right in the sense that the ~4.5% imputed rate is only useful for contract valuation purposes. If inflation runs much hotter (say 7-9% annually) then the real value of the money he receives starting in ten years will be less than $44MM per. If inflation is more tame (to the tune of ~2% annually) then the real value of his deferred money will be greater than $44MM per.
So yes there is some element of risk in this that (although I don’t think Ohtani will exactly be hurting for money, or the Dodgers for that matter)
Nailed it.
They negotiated a number with a level of risk they *both* can live with. What the actual number and risk is only matters to them.
I feel like you skimmed the definition for what interest is on financial topics, then retained like 10 percent of it.
If you were to sign a contract imposing interest on the deferred money, you would likely agree on a fixed interest rate. The current market rate is roughly 4.5%. So that is the best rate to use to reverse-engineer the thing. It’s possible that they could have tried to do something more exotic like some sort of floating rate, but it seems unlikely. And they get to pay him more later, rather than less now, which is the nature of deferred payments. The dollars they pay him in 2040 will be 2040 dollars, but there will be more of them than there would have been in 2023.
Exactly.
There is no universally accepted interest rate so they *negotiated* their best guess. Which works for them but probably nobody else.
So why report it?
The calculated AAV with discout is 46 million, the crowd source median estimate was ten years, 45 million a year.
He’s doing better than we (collectively) expected him to even after discouting for interest. I also do not see a problem here.
It is good now because the salaries are so high .
Somebody living paycheck to paycheck can’t tolerate deferals, somebody making so much they have no safe place to put it (other than 200 banks) prefers the annuities. Especially if they’re going to move back to Japan in 10 years.
I think there is interest, in a sense, but it’s not spelled out. Look at the predictions for Ohtani’s contract before the announcement: generally 10-12 years, $400 mil to $500 mil. He got 10 years/$460 mil, but because it’s so heavily deferred they’ll end up paying out $700 mil. That extra $240 mil is the interest–it’s just not called that.
It’s hard to value Ohtani, full stop, but this feels like an undervaluation (especially if we take like a 5% discount rate).
Which Ohtani?
The two way star or the slugging DH/OF?
This isn’t a “deferral without interest” in any real sense. It’s not as if the two sides negotiated 10/$700m and then decided to defer it. The “interest” for all intents and purposes, is baked into the contract.
I dislike it because it’s a multimillionaire getting out of paying taxes.
The interest is in there.
How do you think they ended up with $700M and 97%?
And is it a coincidencevhe ends up with a million take home?
It’s all codly calculated to maximize his *net*.
He is literally getting all the market will bear in the *way* that maximizes its value to him.
Change my mind: People who hate this contract structure don’t understand the difference between present value and future value.
Or at least don’t understand that the Dodgers are still getting a luxury tax hit approximately equivalent to the yearly present value.
They also have to put the 44M in escrow every year. So the dodgers are seeing zero benefit in this over a 460/10 contract.
Some small benefit (they don’t have to start socking the money away for two years) but yeah. In all but that respect they basically just gave him the crowdsourced contract here.
Tax benefits for Ohtani, and idk why would escrow be such big downsdie for Dodgers? Means the deferrals shouldn’t weigh on payroll or operations beyond the contract term. If the team didn’t then it seems like a kinda big gamble on revenues two decades out…
You’re missing the benefit that they get to sign Ohtani by agreeing to the terms he wanted
Kinda funny something so obvious is being overlooked.
Isn’t that how all free agent contracts work?
Yeah but Ohtani is getting significantly less than $68mm by the time he’s actually receiving his $68mm
Well….yeah. That’s kind of the point? (i.e., neither the Dodgers nor anyone else was offering $68MM annually in 2023 dollars)
Anyone ever see Blue Jays final offer?
It would have had to be close to a billion CANADIAN, nominal.
(36% exchange rate today.)
Imagine you’re Shohei Ohtani. Eight years from now, you’re playing in a celebrity basketball game and tear your ACL. The Dodgers cancel your contract because you were performing a forbidden activity, and now you only received $16 million for your 8 years of time with the team.
I trust that there is language in the contract or laws that would forbid the team from voiding that much money. At the very least, I trust that Ohtani has people in his life would know exactly what is and isn’t permissible to ensure his contract pays out (or at least what they think they can argue for in court). It seems also that Ohtani’s team is mainly interested in setting precedent and winning so I doubt he is worried much about his additional uncounted millions.
Then again, we’ve seen athletes lose money by chasing boars so fair point.
Ohtani is not some uneducated ghetto kid. I’m sure he got the right lawyers.
The man made $30M in ’23.
He can pay for Nobel Prize economists to negotiate his contract. 😁
I believe Ohtani would have earned the $68 million deferred money in each of the first 8 years. Therefore they could try to void the last 2 years of the deal, but he already earned the $544 million deferred, so they owe it to him no matter what.
IANAL, but this scans with what I’ve read of how MLB defines deferred money. Ohtani has a 10-year contract. All of the money is attributed to one of those ten years, regardless of which year payment is deferred until.
“(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.”
I suppose you can think of it as just good business – team helps player avoid paying state taxes in expensive state, player helps team avoid paying some amount of luxury tax.
I personally think that kind of loophole should be closed.
Some folks believe there should be more such loopholes.
On both sides of the next Collective Bargaining negotiation.
There was a general assumption when he injured his arm that it hurt his value and he was more likely to get a contract in the 450-500M range than 550-600M. That seems to be exactly what happened. Ohtani and his camp wanted a really big number for the headlines, so they deferred a ton of it. This is no different than Max Scherzer really wanting to be the first $200M pitcher a decade ago and taking a contract that was 50% deferred to make it happen.
That is not true.
[Ardaya] The previously unreported deferrals were said to be suggested by Ohtani himself as the negotiations vaulted the figure towards $700 million, the person briefed on the terms told The Athletic.
[Passan] when he finally agrees to a deal, the number, sources said, will surge well beyond $500 million. One source said he believes Ohtani will receive a contract for at least $550 million. Another said the bidding could reach $600 million.
[Baggarly] Giants president Farhan Zaidi confirms Shohei Ohtani visited SF. He was offered what would have been the biggest contract in MLB history early in the process. Giants then took their feedback and boosted offer to match what they wanted.
[Slusser] The Giants were all-in. Zaidi said that the team jumped out immediately with what would have been the biggest deal in the history of the sport, and in every subsequent discussion, acceded to Ohtani’s wishes.
So, the starting offer was already at around $450M with the 5 known suitors.
In other words, Ohtani could’ve gotten a contract worth much more than $460M (without deferrals) if he wanted.
“In other words, Ohtani could’ve gotten a contract worth much more than $460M (without deferrals) if he wanted.”
In other words is doing a lot of heavy lifting here. Bold of you to assume he left a bunch of money on the table.
Judge’s contract has a higher NPV than Ohtani’s. Should we really consider Ohtani’s as the largest contract?
Uh, what? Judge got 360m over 9 years, and if you wanted to do this apples to apples you’d discount those cash flows at the same rate. Back of the napkin, that would give Judge about 290M NPV when he signed (depending a little bit on the specific timing of the payments, but it’s right around there).
Does anyone know if it’s only deferred payments (ie payments that occur following the end of the contractual period) that are discounted to NPV for the lux tax?
Seems like if you’re going to do that it should apply to all contract cash flows. Otherwise there’s a clear team advantage to deferring like this, and in that sense the Dodgers are indeed gaming the luxury tax.
Any reasonable NPV calculation is going to use a more aggressive return rate than the CBA one. At 8% (which is still way worse than historic stock returns) Judge has a better contract.
I like how this contract is perfectly designed so that every single person predicting Ohtani’s free agent deal can claim victory.
Prediction 1: Ohtani will take home over $600M when this is all done. Fact check: True.
Prediction 2: Ohtani’s contract “value” will be somewhere between $400M and $600M. Fact check: True.
Prediction 3: Ohtani will take the largest contract offered. Fact check: True.
Prediction 4: Ohtani will stay on the west coast: Fact check: True.
Prediction 5: Ohtani cares the a lot about winning, money may not be the main factor. Fact check: Quite possibly true.
If you made a prediction looks like you win! Unless your prediction was that he would take a short-term deal to maximize earnings, then you lose.
He’s still just a DH. A well compensated DH.
He is also a pitcher
Ohtani is taking deferred salary, and the Dodgers are getting deferred pitching!
He is the best player that has ever lived! He dhs cause no one in baseball wants a bad hop to take him out of the game.
“He is the best player that has ever lived!”*
*Citation missing, badly needed
I love this. I have been wondering how Ohtani could possibly square his oft-stated desire to win at all costs with the fact that he was going to get the largest contract in history and it would make it so the accountants wouldn’t okay any additional large free agent expenditures. And then he just suggests that they give him nearly all the money after he retires, but a good 50% more of it. The man gets everything he ever wanted. He doesn’t even have to move if he doesn’t want to.
I hate that teams like the Dodgers have so much more money than other teams and can do stuff like this that throws competitive balance way off, but at least I think we’re going to get to see Ohtani play in October baseball.
I feel like your last paragraph is why everyone is mad at this. All the conversation about the tax and interest and inflation and all that is irrelevant and not why people are mad – people are mad because something like five franchises can do what the Dodgers did here. And that sucks for baseball fans, especially since baseball is such a regional sport. In other sports, LeBron going to LA or Brady going to Tampa makes for compelling TV. In baseball? This just means that my team has an even harder hill to climb. I’m not watching the Dodgers as a Reds fan; I’m watching the Reds every day. And that sucks real, REAL bad.
These things were always true. This contract, though, shoves the reality we try not to think about in our face in the most dramatic possible way.
I suppose so. There are only about 10-12 teams that would have been able to give out $460M or whatever this thing would be in “today value” without it totally blowing things up. That’s the thing to be mad about. The deferral thing is irrelevant to that.
I don’t disagree. But I think that’s where the anger is coming from, and why articles like this one (and the others all over the internet explaining this) don’t move the needle.
I think the haves vs have nots conversation is reaching a boiling point. And I think the reaction to Ohtani isn’t about economics – it’s about that.
The Dodgers don’t necessarily have more money than other teams/owners. They just use it with care. Like managing their luxury tax exposure, not spending big in 21 or 22, and maintaining a productive farm.
The Dodgers are what you’d get if the FO staff of Tampa had a $350M budget cap for a decade.
Just have to vent. Something stinks. Really stinks. Ohtani is living on $2M a year for ten years? Give me a break. Evidently CBA legal. Still REEKS. Absolutely not good for MLB.
I saw somewhere that he has endorsements worth about $40M-$50M a year, so no I don’t think $2M a year is what he’s going to be living on.
He also made $30M this year. Even after taxes he could stick that in a regular savings account right now and make over $500k a year.
I saw $65M.
A lot of it from Japan.
A lot of folks forget he played for league minimum his first year to be able to come early. And hit FA young enough to get this deal.
He trusted his skill and made all the right moves to maximize its worth.
He’s got other sources of income than his baseball contract.
Seriously. How could anyone possibly live on a mere $2M per year?
Tbf it is LA
As pointed out multiple times, it still is the highest “cap number” contract in baseball history. The Dodgers still have to hold a bunch of cash in escrow to comply.
If he’d taken the approximately $46 mil straight up, as it functionally works out to based on the CBA calculations, there would have been minimal agitation over the contract, except for the “greedy player” hot take artists.
Guy gets record-breaking contract: “Greedy” and “doesn’t care about winning”
Guy only takes a tiny fraction of that in current value: “bad for competitive balance” and it “REEKS”
The only winning move is to play and laugh the long way to the bank.
Any accountants in the group who can weigh in on the tax implications for Ohtani?
If he goes back to Japan after his playing days are over, can he avoid paying California state income tax on the $68M payments?
I think it is in the Baseball Prospectus link, but I don’t have a subscription anymore. https://www.baseballprospectus.com/news/article/87140/veteran-presence-the-three-weird-tricks-of-the-ohtani-contract-npv-discounting-taxes-deferrals-exchange-rates/
If I know anything about California tax law (I don’t really), it’s that California will figure out how to get their share.
My understanding is it based on where the income was earned. So he will pay taxes on it. I could be wrong, I have been twice before.
I’m certain CA will consider the income earned from work performed in CA and tax it as CA sourced. It doesn’t matter where you are when you get paid, it is where you are when you earn the income (in Ohtani’s case, playing the games). If he is no longer a CA resident, he might be able to only have the proportion that was for games played in CA as CA sourced though.
unser california law allows certain non-qualified deferred compensation (which this seems to be) is exempt from state taxation for people who are no longer residents.
That’s interesting, but he’s paying taxes on the money regardless. Japan has taxes too.
Top marginal income tax rate in the US is 37%.
In Japan, it is 45%.
If Ohtani retires to Japan, the state tax he saved would be more or less cancelled out by the higher tax rate in Japan.
(Ohtani would not have been paying the whole 14.4% California tax rate for all his earnings due to how jock tax works.)
yes, but it’s a potentially big difference in how much he pays in taxes. and how much time and money his accounting team has to prepare for how to further reduce his taxes.
Even reading every word of this article and many others like it, I just simply can’t understand how this is allowed. it feels like it destroys the entire point of having the competitive balance tax in place if you can simply just defer it completely to get around it. I understand that’s naïve but this is dealing with a lot of stuff that is just well outside my understanding 🙃
They are not completely getting around it. And the hit to the competitive balance tax calculation is not being deferred, it starts right away in 2024.
He wasn’t going to sign fro 70MM AAV with no deferrals. With no deferrals he would have probably signed for something like 10/460MM. The Dodgers aren’t “getting around” the CBT; it’s basically neutral.
Now with respect to cash flow, that’s where the real differences are.
Barely moves the needle on cash flow as they need to escrow almost all the money for the deferal.
It makes for a bigger initial number, it shoves the risk of hyperinflation 10 years from now onto Ohtani, it adds some risk from low interest rates onto the Dodgers. And it let’s Ohtani dodge CA income taxes on the money, which is a big deal.
There are benefits and costs to both parties, but it’s basically a $46M a year contract, which is why that’s the luxury tax hit. Both the players and the owners had plenty of lawyers, accountants, actuaries, and quite possibly a lawyer who’s also an accountant and actuary on staff at the CBA talks and they made sure it was mostly neutral.
The Dodgers are not getting around it in any way. There is very specific language in the CBA that addresses precisely this question. The Dodgers are paying Ohtani $2 million per year but, for purposes of the Competitive Balance Tax, Ohtani’s annual pay is calculated as $46 million per year to account for the deferrals. That is imho a very fair valuation of the deferred payments, since getting (or giving!) $68 million in 20 years is a lot less valuable than $68 million today.
The CBT was a rule wanted and imposed by the owners. Now, certain owners are finding ways to skirt rules they imposed on themselves. This is just infighting between the rich and poor owners. MLBPA shouldn’t touch this with a 10 foot pole, and it’s a great tool to sow disunity, which has been very solid amongst ownership in recent CBAs.
The best way to think about it is that 10/700 is, more or less, a lie. Had they wanted to call it a 10/210 contract in 1940 dollars it would have meant the same thing. Money has a time value, which is the part that people have difficulty with
Although if he were getting paid in 1940 dollars he could get paid in McKinleys ($500 bills), Clevelands ($1000 bills), Madisons ($5000 bills), or Chases ($10000 bills) – all last printed in 1945.
I think approximately 100% of the fan anger over this is based on the timing and framing of the reporting. “10/700!!!” followed a day later by “well actually it’s 97% deferred” just hits most people very differently than “10/460, though he’ll be taking most of the payments far in the future, with modest interest after the dodgers set it aside in a designated fund; it’ll add up to 700 by the time it’s actually all paid out.”
I don’t really fault people who don’t work in accounting/finance/law for not immediately picking up on how these things are actually the same thing. They feel different! If there’s a villain here (which I don’t think there is, but we’re on the internet so let’s posit a villain), I think it’s reporters who are so anxious to be the first to tweet stuff that they didn’t wait for (or seek?) some HIGHLY relevant details before rushing to report it. But that’s the business these days, I suppose.
And because it’s the Dodgers
yeah like 10/460 but deferred with interest is a much more palatable way to call this contract
At least so far, the comments on this article are way way more sensible than anywhere else on the internet.
There’s no loophole. They are paying Ohtani $46M per year, and paying the expected taxes on it. The rest of it is a just a market-ish rate loan.
I think a lot of the histrionics stem from the fact that for a couple days we all thought Ohtani had blown away expectations (he even beat Messi!), and then we learned that he actually landed on the low end of reasonable. If this had been announced all at once, I think the discussion would have been more tempered.
I am curious, though, about where the surplus value comes from — like the team has to put the money into escrow anyway, so it doesn’t even help cashflow. And I can’t believe there’s actually much daylight between everyone’s inflation expectations. I honestly have a hard time seeing why teams or players would bother with these shenanigans.
My best guess is that the motivation is to provoke these histrionics. Most fans and commentators (and probably some players and god forbid some agents) don’t understand this and now will forever think Ohtani got a $700M deal. I’m not certain why that has value, or to whom, but that’s the only material effect I can see, so it’s hard not to think that was the goal.
I think your last paragraph is it. Ohtani or his agent wanted the $700M headline and were willing to take less to get it. It wouldn’t stun me if there was an equivalent or higher present value contract on the table that would have made for far less interesting headlines. If he signed for $460M, they wouldn’t be doing news hits about it in countries that don’t follow baseball, but the BBC had to cover $700M and try to quickly explain why Ohtani is so special to people who have no clue what baseball is.
I think there are a few possibilities:
1. The income tax arbitrage stuff (or at least the possibility of it) for the player is a real incentive
2. There is a real cash flow benefit to the team for the first two years, when they don’t have to start setting money aside yet (and years 11-12 are a future GM’s problem)
3. Players do have advisors, but the players ultimately drive these decisions, they’re not necessarily very sophisticated, and they may simply overrate the effects. So here, Ohtani may have thought it was a huge benefit to the Dodgers competitively to do this, even though it’s only a small (maybe even negligible) benefit.
The escrow money doesn’t have to go in right away. There’s massive cash flow bonuses for the team immediately
This is true but i think it’s worth pumping the brakes on what it will really mean in terms of their competitive situation, which is all fans really care about (I don’t care at all about the Guggenheim investors’ 2024-25 K1’s, do you? They do, but we don’t.).
I don’t think the Dodgers’ decision about whether to spend a marginal $45M in 2024 or 2025 is going to be based on whether they have that much cash available to spend in their bank accounts if they want it. They have it if they want it. It’s going to be about where they are in the overall payroll picture, including with respect to the CBT thresholds.
Short story, the first two years of deferrals will produce a temporary cash windfall for ownership, which it may or may not decide to bank or take out as profits. But it’s pretty unlikely to show up as a spike in their payroll.
Yeah I think it’s reasonable to suspect that Ohtani’s potential tax savings are the main benefit here, although the Dodgers effectively shifting something like $90m in actual expenditures from 2024-5 to 2034-35 (bc of the delayed payment into escrow) has both short-term benefits and also reduces the effective cost quite a big (b/c presumably $90m will be worth much less in a decade).
Also 68m a year wouldn’t even cause a member of their ownership group to go bankrupt let alone the team
What will happen if the Dodgers file for bankruptcy in 10 years? Will the league pay Ohtani’s contract then?
Did Ohtani receive any securities from the Dodgers for granting them a loan over 680 millions?
The 4.4% imputed rate is slightly higher than the current 10-year yield, so that pretty much makes sense in terms of compensating Ohtani for some tiny default risk.
If the Dodgers were to go bust, Ohtani (and the other employees under contract) would be treated as creditors and it’s impossible to know how much of a haircut they’d receive without specifics.
Edit – It might even be more secure than that if the default happens after the 10-year period of the contract since the money is sitting in escrow. I don’t know that rules around whether / when a judge would claw money back to distribute to other creditors.
Ohtani would likely get a piece of ownership if the Dodgers go bankrupt, much like Lemiuex did
Realistically, the league will not permit a team to go all the way through a bankruptcy, because a team bankruptcy would be such a massive mess. The league has debt service rules and the power to force the sale of a team if the finances get concerning enough. In fact, that’s how the Dodgers’ current ownership group acquired the team from the McCourts.
That’s only true if the solvency issue is localized to a single team or owner, and the league itself remains financially secure.
It’s extremely unlikely, but if you squint and imagine a worst case scenario for the sport (TV revenue plummeting, maybe another pandemic with a lost year or two etc), you might end up with some teams wanting to declare bankruptcy and the league being unable to prevent it.
What will happen if inflation turns into deflation?
A lot of bad things that push Ohtani off the front page
Ask Tom Brady
“Ohtani will inarguably be taking home $700 million via this deal, and I disagree with the notion that the contract should be described as anything other than that big number from a bottom-line perspective. But what matters, especially with regards to the Competitive Balance Tax (CBT), is the present value of the contract.”
Report contacts like 10/$700 million $460 PV.
And a triple slash line of OBP/ISO/wRC+
Those are the most relevant pieces of information
No one cares about ISO.
Very little advantage over just doing OBP/SLG/wRC+ if you really must
Yeah, if you’re going to do NPV everything needs to be NPV, because the discounting at this rate on all those other decade long superstar deals is definitely material if you’re trying to compare them.
Thanks for the links to websites with insights on them
This is straight contract manipulation/collusion between player and LAD. Maybe CBA legal. Not ethical. Not good for MLB. Not good for the fans.
Collusion between a player and a team. I’m not sure how that can even be a thing when doing contracts. Now, if they had a secret off the books deal it would be a problem. But that’s not what is happening here.
Not that I think they have a secret off the books deal, but if they did, how would you know about it? Secret deals don’t have Fangraphs articles.
have some dignity, dude
I mean, every free agent contract signed is collusion between a player and a team. (And I think this is far less egregious than the Braves’ contract with Albies, for example)
I don’t get how this isn’t good for MLB – “look how great baseball is – a player just signed for $700 million!” If Rob Manfred isn’t excited by baseball making the frontpage of the BBC website (for good reasons, rather than star player under investigation for…), then the owners need to find another commissioner who is actually interested in getting people excited about the sport.
I assume its only not good for non-Dodger fans because their team didn’t sign Ohtani. Or they went from “hahaha $700 million is a ridiculous overpay, the Dodgers are going to regret this.” to “oh, this deal was right in line with projections and it us annoying the Dodgers still can spend some money to fill the glaring needs in their roster”.
I know it’s not, but it feels so wrong lol
The idea that this somehow gives the Dodgers more flexibility to sign players only makes sense if we think they were willing to give Ohtani 10/700 with no deferrals. If they viewed this as 10/460 deal (which sounds just about right), then they’re getting a normal amount of flexibility.
No, they aren’t, because their actual cash outlay is only $2m/year during the life of the contract.
Only the first two yeras.
After that $2M goes to Ohtani direct, $44M goes to the escrow acount.
Total expense? $46M.
But cutting actual expenditures by $88m over the next two years (and deferring the nominal $88m in expense by a full decade) is … not nothing, even for the Dodgers!
Sacramento will be coming for this contract long before MLB/MLBPA will change any CBA rules.
97% deferred is absolutely unreal. This contract may turn out to be one of the best deals for a team in history! Amazing to this Finance professor, that’s not hyperbole!
interest rates are going to fall soon.
Lots of arguments here over Ohtani’s money. I don’t think this structure is “fair” moving forward, because a lot of teams might not be able to structure something like this, and it will likely get changed.
However a lot of people seem to be missing the point that it was Ohtani’s idea. He wants to win and is giving his team the best chance he can possibly do. He will also be making 40m+ outside of actually playing the game. He wasn’t worried about finances in the slightest. He will be the first billionaire from baseball from contracts and endorsements. He obviously realizes his current deal is worth a lot less than the number attached, he doesn’t care.
It’s fair for Ohtani and obviously great for the Dodgers. It hoses the league’s competitive balance.
While it’s true that many teams wouldn’t be able to structure something like this, that is mostly irrelevant since the ones that can’t were never going to sign a player of Ohtani’s caliber. 13 teams have never signed a player to a contract worth $200M in guaranteed money. Many teams would not be able to structure something like the Harper, Judge, Turner, Machado, Trout, Betts, Lindor, Tatis, Seager, Cole, or Stanton contracts because they are all very long deals for a lot of money.
If he just wanted to win, he’d likely have taken 10/$460M conventionally. He’s get the same economic value, the Dodgers get the same CBT hit, and he’d get his cash flow sooner.
The clear benefit of this contract structure to him is saving $50M+ in CA state taxes. There’s no way he’s just lucking into that. He’s reducing his tax burden, this isn’t some magical non-financial winning motive.
If the $20-$40 million in additional revenue per year that I’ve seen thrown around that Ohtani brings the Dodgers is correct, he is going to go a long way in paying for himself.
Question here, of the two risks on Ohtani’s side one would be almost zero the other though would be real.
Risk #1: Dodgers go bankrupt (ala Pitt Penguins with Lemiuex), risk here is as close to 0% as possible I would think
Risk #2: Ohtani dies before end of deferral. In the worst case, lets say Ohtani dies in 2033, can his estate lay a claim to the deferred money? I assume the money gets paid even if he dies, but it is not 100% clear to me. Any attorney comments?
I would have assumed that risk #2 is covered in the contract, that any deferred money for seasons he played in would be part of his estate.
The biggest loser in this deal is the state of California (and other states, to a lesser extent) since they won’t be getting any state income tax on the deferrals if Ohtani moves to an income tax-free state or Japan after the deal is over
Agreed. I’m mostly surprised this doesn’t bother anyone at all. He’s benefitting from CA infrastructure and using his already-wealthy status to essentially opt out of paying taxes there.
Rich people use their unique leverage to avoid taxes, it’s not a new story or unique to Ohtani. I just think baseball shouldn’t incentivize teams and players to do this (and this defer-unlimited-funds rule DOES incentivize this mutual tax avoidance).
“I’m mostly surprised this doesn’t bother anyone at all.”
I mean, I only have so much bandwidth. Worrying about California’s tax receipts is about 8,992nd on my worry list for today.
(However if I knock out those other 8,991 then I am ALL OVER IT!)
I think Ohtani and or his agents really screwed himself on this contract. The discount rate for the CBT is from last year. One year CDs at a bank are over 5%. That’s the true discount factor that should be used judging this deal. Using a discount rate of 5% the present value of the deal is only $331M. He was supposed to get $500M easy perhaps even $600M. That’s a huge loss in value. Makes the Albies agents look smart.
WOW, the Dodgers sure stuck it to the Union!!! Imagine paying 4 CENTS on the dollar to get work done. And “promising” to pay later. Can I buy my car like that? Pay 20 CENTS today and pay the rest ten years from now.
Holy cow this is just a breathtaking misunderstanding of the way this contract works. Kudos
Even apart from that — yes, of course you can buy your car like that. Most people do!
In another comment he’s describing earning wages for work, and here it’s car loans. Who knows what other mysteries of finance he will discover!
Your car cost $5?
Actually, the Ohtani contract is a Ponzi scheme. So all players (ponzi victims) contribute work (ponzi dollars) to get untold wealth from the owners (ponzi) at the end. Unfortunately, the end comes. All the work (ponzi contributions are exhausted) and, no more ponzi suckers can be found, and the scheme (the MLB Industry) collapses. Sooner or later, one ponzi victim to be will wise up and ask for their labor earnings to be paid to put food on the table.
those certainly are words
Not sensible words, but words nonetheless!