Shohei Ohtani is an LA Dodger: 10 years/$700 million

simplicio

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Wow, I'm so curious about how that came to pass. I know Friedman's been there for a long time now, but I've never heard of a contract being tied to executive tenure like that, has that happened before?
 

VORP Speed

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Wow, I'm so curious about how that came to pass. I know Friedman's been there for a long time now, but I've never heard of a contract being tied to executive tenure like that, has that happened before?
Joe Maddon had a clause that he could opt out if Friedman left TB
 

nvalvo

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There's nothing wrong with tax planning. Every wealthy person does it every day. This is a unique situation because the player has so much outside income that he doesn't need his salary to still be incredibly wealthy. But deferring income and tax, reducing total liabilities, etc., isn't inherently shady.

Again, if the market says he's worth 450m then it doesn't matter how he gets it or when he gets it. The only issue would be if he's actually worth a lot more and took a huge discount because his agent is stupid and Ohtani didn't understand what he was signing.
I wonder how the agents’ fee is structured.
 

strek1

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When you account for the deferrals and current interest rates, I would bet the present day value of this contract is under 400M. Strong work by LA
I'm late to the party on this but doesn't this really put the Dodgers in a bind years from now? That's a massive payday to defer. And sure. they can build a juggernaut right now if the employ this tactic and sign a couple more "Buy now pay later" talents but where will they be 10 years or 20 years from now? Sounds like a recipe for big organizational trouble down the line.
 

radsoxfan

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I'm late to the party on this but doesn't this really put the Dodgers in a bind years from now? That's a massive payday to defer. And sure. they can build a juggernaut right now if the employ this tactic and sign a couple more "Buy now pay later" talents but where will they be 10 years or 20 years from now? Sounds like a recipe for big organizational trouble down the line.
Unless this was done because of immediate cash flow issues for the Dodgers (doesn’t seem like it), they can just put the money aside and let it grow with interest over time. I’m sure they will be fine.

Alternatively, Ohtani can cash in the 680M when he retires for a piece of the franchise if all parties prefer.
 

axx

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I'm late to the party on this but doesn't this really put the Dodgers in a bind years from now? That's a massive payday to defer.
The Dodgers have to put like $44M per year in escrow. With interest they could get close to 68.
 

Ale Xander

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Asking for a friend, how does one get all of the Dodgers games out of market?

Extra Innings enough or do they still have blackout?
 

radsoxfan

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The potential ownership angle was hypothesized in an article I linked earlier. Maybe a little far fetched and of course hard to predict things 10 years away.

But the odd clause about the option to void if 2 high level people are gone does make you wonder if all parties have this in their sights down the line.

If Ohtani is making 50M on endorsements per year and doesn’t need the money, could be a win-win for everyone. He may never see the 68M per year x 10, just trade it for a piece of the team.

Maybe even larger tax avoidance strategies here?!
 

Ale Xander

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I'm late to the party on this but doesn't this really put the Dodgers in a bind years from now? That's a massive payday to defer. And sure. they can build a juggernaut right now if the employ this tactic and sign a couple more "Buy now pay later" talents but where will they be 10 years or 20 years from now? Sounds like a recipe for big organizational trouble down the line.
Big stadium
Expensive seats
Large media market / large tv deal
Large advertising sales
Large concession / merchandise sales
 

Max Power

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I read something recently that said the Dodgers have a TV contract that pays them around $350 million a year. It's iron clad since the entire giant Spectrum corporation would have to go bankrupt to for them to get out of it, unlike the smaller Diamond Sports spin-off that caused problems for the other teams. They could run a payroll like the Mets every single year before they even dip into a single dollar of their ticket sales or merchandise.

It took about 70 years since being their yearly whipping boys, but the Dodgers have finally surpassed the Yankees as the top franchise in baseball.
 

jon abbey

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It took about 70 years since being their yearly whipping boys, but the Dodgers have finally surpassed the Yankees as the top franchise in baseball.
Houston and their seven straight ALCS appearances I think have this currently locked up, but if you mean team valuations, NY was still ahead by a bunch earlier this year:

https://www.forbes.com/sites/mikeozanian/2023/03/23/baseballs-most-valuable-teams-2023-price-tags-are-up-12-despite-regional-tv-woes/?sh=4ca43aec6501
 

Max Power

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Houston and their seven straight ALCS appearances I think have this currently locked up, but if you mean team valuations, NY was still ahead by a bunch earlier this year:

https://www.forbes.com/sites/mikeozanian/2023/03/23/baseballs-most-valuable-teams-2023-price-tags-are-up-12-despite-regional-tv-woes/?sh=4ca43aec6501
Since no team actually opens their books (outside of the Braves), those numbers aren't based on much concrete data. They have the Red Sox and Dodgers as very close in value, but I have a hard time believing that would play out if both teams were up for sale at the same time.
 

trekfan55

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Asking for a friend, how does one get all of the Dodgers games out of market?

Extra Innings enough or do they still have blackout?
MLBTV should work. Certain games would be blacked out (if the Dodgers are playing against a team in your location or market as they define it) but otherwise you should be fine. And I think they have a "single team" option, not sure if it still is valid.
 

Petagine in a Bottle

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I read something recently that said the Dodgers have a TV contract that pays them around $350 million a year. It's iron clad since the entire giant Spectrum corporation would have to go bankrupt to for them to get out of it, unlike the smaller Diamond Sports spin-off that caused problems for the other teams. They could run a payroll like the Mets every single year before they even dip into a single dollar of their ticket sales or merchandise.

It took about 70 years since being their yearly whipping boys, but the Dodgers have finally surpassed the Yankees as the top franchise in baseball.
Yep, I posted that here and it certainly suggests that they aren’t having any kind of cash flow problems.
 

epraz

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I'm late to the party on this but doesn't this really put the Dodgers in a bind years from now? That's a massive payday to defer. And sure. they can build a juggernaut right now if the employ this tactic and sign a couple more "Buy now pay later" talents but where will they be 10 years or 20 years from now? Sounds like a recipe for big organizational trouble down the line.
Would you ask the same question if it were a straight 10/$460 deal? Financially, it's more or less equivalent. It's not like they're not going to account for the future payments and just hope their cash flow allows them to cut the checks.
 

DJnVa

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Shohei Ohtani turned down Giants’ $700M offer. Buster Posey reflects on team’s ‘free-agent slump’

“Something I think is noteworthy, something that unfortunately keeps popping up from players and even the players’ wives is there’s a bit of an uneasiness with the city itself, as far as the state of the city, with crime, with drugs,” Posey said. “Whether that’s all completely fair or not, perception is reality. It’s a frustrating cycle, I think, and not just with baseball. Baseball is secondary to life and the important things in life. But as far as a free-agent pursuit goes, I have seen that it does affect things.”

And yes, Posey said, it affected the Ohtani pursuit.

Posey made it clear that Ohtani never said or did anything to express concerns about San Francisco. But within his camp, “there was some reservation with the state of the city right now.” Two offseasons ago, similar reservations were a factor that steered former Hiroshima Carp star outfielder Seiya Suzuki away from the Giants to sign with the Chicago Cubs.

Without painting too broad a brush, the cultural expectations for cleanliness among Japanese players in particular, and perhaps a greater preference for urban living as opposed to renting a 3,500-square-foot house in a leafy suburb like Lafayette or Blackhawk, could make those negative perceptions of San Francisco a significant impediment in the recruitment of those players. It could be a factor the Giants are also working to overcome as they are in the final stages of an aggressive competition with most of the big-market franchises for Orix Buffaloes ace right-hander Yoshinobu Yamamoto.
 

strek1

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Would you ask the same question if it were a straight 10/$460 deal? Financially, it's more or less equivalent. It's not like they're not going to account for the future payments and just hope their cash flow allows them to cut the checks.
My point was - what if they do this again and again and again? Not with the same amount but it will all add up. It seems like this could be a temptation that could cause the Dodgers and (And other competeing teams) to spend for today and discover down the road that they overdid it.
 

simplicio

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That scenario sounds so weirdly negligent that I have a hard time imagining imagining how it would occur. I mean there's always a risk of long-term contracts getting a team in trouble if revenue streams dry up or markets crash or whatever, but I don't see how these deferrals (which seem to exist primarily as tax dodges for the players and maybe to stroke their egos a bit) would exacerbate the likelihood of that.
 

Harry Hooper

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The deferred money goes into an escrow account. That money presumably earns interest. Do the Dodgers keep the interest earned?
 

Jace II

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Right now businesses can get a risk free 5%, but that may not be the case over the next 10 years (in fact it probably won't later next year). Not that this would happen or matter for the Dodgers, but I wonder if the escrow account's investment asset options include ones with higher risk that could be mismanaged and result in the Dodgers having to make up for an investment loss. It's not guaranteed that $44M today will equal $68M in 10 years if you take zero risk.

Plus can the Dodgers write off the interest income or would they need to pay taxes on it, in addition to the usual payroll taxes when they distribute it as income to Ohtani? If so they'd need to way exceed $68M to not need to spend additional money.

These burning accounting questions are where Ohtani's cute state tax dodge contract has gotten us
 
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epraz

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My point was - what if they do this again and again and again? Not with the same amount but it will all add up. It seems like this could be a temptation that could cause the Dodgers and (And other competeing teams) to spend for today and discover down the road that they overdid it.
Financial mismanagement is a risk (the Dodgers would know), but they could do this with all of their contracts and it wouldn't be some kind of unthinkable existential risk that couldn't be managed.
 

Harry Hooper

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Right now businesses can get a risk free 5%, but that may not be the case over the next 10 years (in fact it probably won't later next year). Not that this would happen or matter for the Dodgers, but I wonder if the escrow account's investment asset options include ones with higher risk that could be mismanaged and result in the Dodgers having to make up for an investment loss. It's not guaranteed that $44M today will equal $68M in 10 years if you take zero risk.

Plus can the Dodgers write off the interest income or would they need to pay taxes on it, in addition to the usual payroll taxes when they distribute it as income to Ohtani? If so they'd need to way exceed $68M to not need to spend additional money.

These burning accounting questions are where Ohtani's cute state tax dodge contract has gotten us
I doubt the MLBPA has signed off on a process where there is any risk that the pot of money in escrow might not be sufficient when the payout occurs.
 

santadevil

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The potential ownership angle was hypothesized in an article I linked earlier. Maybe a little far fetched and of course hard to predict things 10 years away.

But the odd clause about the option to void if 2 high level people are gone does make you wonder if all parties have this in their sights down the line.

If Ohtani is making 50M on endorsements per year and doesn’t need the money, could be a win-win for everyone. He may never see the 68M per year x 10, just trade it for a piece of the team.

Maybe even larger tax avoidance strategies here?!
I don't know mu US tax law at all, but I would assume this is still compensation when received, even if "traded" for a piece of the team
 

Jace II

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I doubt the MLBPA has signed off on a process where there is any risk that the pot of money in escrow might not be sufficient when the payout occurs.
10 year treasury yield is 4% (and that's going to fall next year as interest rates fall), which won't get you from $44M to $68M in 10 years. There may not be a zero-risk strategy would be that would guarantee that return. This is getting far from baseball, so I'll stop.
 

Harry Hooper

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10 year treasury yield is 4% (and that's going to fall next year as interest rates fall), which won't get you from $44M to $68M in 10 years. There may not be a zero-risk strategy would be that would guarantee that return. This is getting far from baseball, so I'll stop.
Per a thread on reddit, the Dodgers each year will be sending a payment into escrow that is the net present value of a deferred $68 million. It will start at something around $44M, but as time goes on the annual escrow payment will creep higher over the ten years, [unless interest rates increase]. So the money in escrow doesn't have to grow at all. The full deferred amount (discounted to today's dollars) is put in there for the player each year.

It's reddit as the source, but that makes sense as I cannot imagine the MLBPA opening the door to a risk of players not getting their contracted money.
 

mikcou

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10 year treasury yield is 4% (and that's going to fall next year as interest rates fall), which won't get you from $44M to $68M in 10 years. There may not be a zero-risk strategy would be that would guarantee that return. This is getting far from baseball, so I'll stop.
They almost certainly will not be using a risk free strategy with the escrow money. Just as no employer's pension plan is fully invested in risk-free assets. To the extent there are investment losses, they will just need to fund more.

Edit: This is about the cheapest financing a team is going to find in this market so I'm sure they are happy to continue to defer as much as possible.
 

axx

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The Dodgers apparently had a short recruitment video that was recorded by Bryant, speaking directly to Ohtani, back in 2017. They never got to show it to him then because the NL had no DH, but they got to show it to him this time around.
Pretty soon you'd be able to do that video with AI.
 

radsoxfan

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https://www.espn.com/mlb/insider/story/_/id/39105636/inside-shohei-ohtani-700-million-contract-los-angeles-dodgers

"The structure triggered a quick approval from the Dodgers. Unbeknownst to them, Balelo then proposed the same deal to at least three other teams. The San Francisco Giants and Toronto Blue Jays agreed to the terms. The Angels, Ohtani's original major league team, were also given a chance, but sources said they ultimately declined."



Funny the Angels declined this contract, seems quite reasonable. Below market in fact.

I don't really know why Ohtani and his agent didn't press for more if 3 teams said yes to it. Maybe he just didn't care about getting top dollar in the end. All 3 teams were probably happy to pay 10/460M and would have gone higher. Kind of a strange outcome.

Almost like the agent thought it was some outlandish ask and didn't know what to do when a bunch of teams happily accepted the terms.
 

Rovin Romine

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Like, yeah. They genuinely are, as has been statistically proven many times. A board filled with posters who pull more muscles than Jose Canseco patting themselves on the back for being smarter baseball fans than everyone else should probably understand that?
We discussed this point before and you were not able to cite studies that statistically proved that.

Do you have any others?
 

Marciano490

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If the playoffs are a crapshoot, isn’t it still best to maximize your odds of making them? 1-2 championships isn’t a dynasty but it’s about as good as any team ever does.
 
Mar 30, 2023
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We discussed this point before and you were not able to cite studies that statistically proved that.

Do you have any others?
I provided three, one of which was literally titled "Yes,, The Playoffs are Still A Crapshoot." If you can point out some flaws in their methodology, or if you've uncovered evidence that contradicts the broadly held consensus of the sabremetric community, feel free to provide it!
 
Mar 30, 2023
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If the playoffs are a crapshoot, isn’t it still best to maximize your odds of making them? 1-2 championships isn’t a dynasty but it’s about as good as any team ever does.
Of course it is! My point in the earlier conversation was simply to note that looking at postseason results is a god awful way to judge the actual quality of a baseball team or the intelligence of the front office that put it together.