A second answer to this...
I'm definitely not saying it about the NBA playoffs, and I'm a lifelong Knicks fan.
Shohei Ohtani is an LA Dodger: 10 years/$700 million
- Thread starter RedOctober3829
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Yeah, it's definitely different with rates as they are. And I agree in some ways it would make sense to normalize everything to present value and tax based on that. Accounting for the deferrals and normalizing to the length of the contract (i.e. 10 years for Ohtani) only partially addresses the true value of the contract and is still substantially different than present day value with these rates.
I'm sure the Dodgers are all over this and expect Ohtani's deal to be some version of Mookie's on steroids. Mookie got "365M" but 120M was deferred AND he got a massive signing bonus of 65M (from a player's perspective this somewhat mitigates the deferrals since this is actually more money than getting 65M spread out equally into the contract length).
I bet Ohtani gets a huge signing bonus along with the big time deferrals.
As playoff formats go, I like the KBO Korean Series, where the fewer games you win in the regular season, the more games you have to win in the postseason:
I was just pointing out the asymmetry that I thought @radsoxfan was getting at with their hypothetical.
Imagine two different 5/100 contracts -- 96/1/1/1/1 and traditional 20/20/20/20/20. The present value of the first contract -- especially in today's rate environment -- is much higher. Both are less than $100 million. Let's say the first is worth about $99.5 million and the second is worth like $90 million. How do you take that into account in figuring out the AAV of the first contract? It would be weird to treat them both as 20/20/20/20/20 for tax purposes. But what are you going to do? Would we actually charge more than $100 million over the 5 years on the first one? If we're not going to charge it as 96/1/1/1/1 then we probably should treat them differently. That was the only point.
This is an aside, but I still need someone to patiently explain to me why I shouldn’t consider the 2020 championship legitimate.
The playoffs operated the same way they always do - actually, probably closer to the current model since there was an additional round (but also more opportunities for them to fall to an inferior team because of random variance). So why does the 60-games thing matter? Are you suggesting some disaster would’ve befallen them during a 162-game season that would’ve caused them to miss the playoffs? I’d maybe agree if the Reds or Marlins had won a fluke title, but the Dodgers have also been great every other year. Also, FWIW, their playoff opponents were the Brewers, Padres, Braves, and Rays, four teams who’ve generally been good within the past five years, so nothing weirdly fluke there, either.
The playoffs operated the same way they always do - actually, probably closer to the current model since there was an additional round (but also more opportunities for them to fall to an inferior team because of random variance). So why does the 60-games thing matter? Are you suggesting some disaster would’ve befallen them during a 162-game season that would’ve caused them to miss the playoffs? I’d maybe agree if the Reds or Marlins had won a fluke title, but the Dodgers have also been great every other year. Also, FWIW, their playoff opponents were the Brewers, Padres, Braves, and Rays, four teams who’ve generally been good within the past five years, so nothing weirdly fluke there, either.
Exactly.
Even removing the deferral issue entirely, these massively long contracts in the current interest rate environment change things quite a bit.
The fair thing to do is honestly just calculate the present day value for any contract and divide that by the number of years.
It will decrease AAV numbers across the board (some teams more than others), but overall is the most reasonable way to keep an apples to apples comparison.
I've no axe to grind here, but I'm a bit bored with some down at work and will offer my 2 cents. MLB played an abbreviated season, which they have done in the past due to work stoppages. The regular season was an anomaly, with how it was structured and the illnesses that affected the rosters. Every team played under the same rules, but some were affected differently than others. There was a post season, a champion was crowned and as far as I'm concerned it was legit. Was it different? Certainly, the entire season was different, but the league decided to carry on and do the best that they could given the circumstance. I personally view the entire season as an anomaly, but see the championship as legit. I do find it interesting that you might agree if it were the Reds or Marlins who won a "fluke" title. Both played over .500 baseball and both made the playoffs.
But as interest rates change over the years, the present day value would change over the course of the contract, too. All this accounting stuff sucks as a discussion topic for a fan. They should just calculate the CBT hit with the top line numbers. Shohei would be a $70 million hit on their payroll every year for the next 10 years, regardless of when they choose to send him his paychecks. And the commissioner's office can reject contracts that are too long to prevent teams from spreading it out too much. I'd actually be in favor of an NBA style max length limit, too. Make it so nobody can sign for more than 6 years and player salaries would go up and accounting tricks would disappear.
If you want to get rid of all the accounting tricks… huge signing bonuses, massively long contracts, and deferrals etc. you can certainly do that instead.
In the absence of doing that, all of these contracts in the end can be calculated down to one single present day value. That’s really the fair thing to do.
The Dodgers would never have set up the contract like this if they had to take a 70M yearly tax hit. They know the “700M” is probably worth 500M (or whatever it turns out to be) and the tax will be adjusted accordingly.
In the absence of doing that, all of these contracts in the end can be calculated down to one single present day value. That’s really the fair thing to do.
The Dodgers would never have set up the contract like this if they had to take a 70M yearly tax hit. They know the “700M” is probably worth 500M (or whatever it turns out to be) and the tax will be adjusted accordingly.
I hope Ohtani likes the big stage after the mellow Anaheim experience. The LA Times ripped Mookie and Freeman mercilessly after their playoff ouster.
I don’t know what the right response to these kinds of comments are but I tend to think big market scrutiny is overhyped. If you suck, you hear it, if you’re good, you hear it. If you’re a bad person, fans don’t forget easily and tend to be even harder on you. Over the long haul, I don’t recall many players saying they hated the experience of being held accountable by their fans. But I’ve heard plenty of players say they hate empty stadiums and despondent fans.
I agree with you about how baseball contracts should be analyzed. But the theory in terms of the financial issue is that LA assumed a $700m liability today, so the current environment should used to calculate the PV. If you redo the analysis every year it would make it very difficult to budget for future CBT penalties. So I don't really have a problem with it, and the fact that rates happen to be high today shouldn't change the outcome. But the logical answer, for CBT purposes, should be to allocate the face value pro rata and call it a day.
Keep in mind that the $10 million annual deferred payments due in the late 2050s and early 2060s may be nothing more than the MLB minimum!
On the other hand it's only until 2043. Let me do the math...
EDIT: If each year's 68M is deferred by 10 years exactly (2024's 68M --> 2034, 2025's 68M --> 2035), using the 5% rate that Jon Becker used, I get 68 / (1.05^10) = 41.74M.
So the rough real value would be 41.74 * 10 + 20 (2 million salary times 10) = 437.4 million.
EDIT: If each year's 68M is deferred by 10 years exactly (2024's 68M --> 2034, 2025's 68M --> 2035), using the 5% rate that Jon Becker used, I get 68 / (1.05^10) = 41.74M.
So the rough real value would be 41.74 * 10 + 20 (2 million salary times 10) = 437.4 million.
Passan is saying 46M tax hit, which would line up with a lesser rate than 5%, I think I was reading it might be around 4.5% right now.
View: https://twitter.com/JeffPassan/status/1734344897606697220?s=20
View: https://twitter.com/JeffPassan/status/1734344897606697220?s=20
So he basically signed for something valued the same as a traditional 10/460M it sounds like. Ohtani must have left a good chunk of $ on the table given the other reported 500M+ (presumably less deferred) offers and just wanted to be on the Dodgers.
Good thing he makes so much off the field, otherwise after federal/CA tax and agent fees he would have a tough time affording a house in LA.
This feels like what the Vegas Knights did wrt to cap manipulation, so yes, I would not be shocked to see MLB/Manfred step in
View: https://twitter.com/Feinsand/status/1734346717355753620
Any team can do this, why would Manfred step in?
It's not cheating the system at all, the 700M is just not at all reflective of the true value of the contract he signed.
Wow. Honestly, the fact he agreed to this is bananas. But still, manipulation like this is never a good think in a competitive tax situation
Just ignore the 700M headline.
Shohei Ohtani just signed with the Dodgers for 10 years and 460M. That's what happened.
The fact that its basically some annuity to be paid out in the future and adds up to 700M after 20 years doesn't matter.
If it somehow starts a trend MLB can close it up next CBA. But I think this is a once in a lifetime player that would actually agree to this (and shows just how much he had decided on LA before this offseason IMO, despite all the noise).
How are these deferments prioritized in case the Dodgers go bankrupt? Super unlikely, but it’s something that would cross my mind being owed that much that far out.
I do kind of wonder if other teams will be annoyed they weren't more aggressive here, 10/460M honestly seems like a pretty good deal for LA.
I have to imagine there are teams that would have beaten that (maybe the Red Sox are one of them?)...but then again, maybe he just wanted the Dodgers and didn't care.
I have to imagine there are teams that would have beaten that (maybe the Red Sox are one of them?)...but then again, maybe he just wanted the Dodgers and didn't care.
Guy took a discount to play where he wants to play. I don't think that's something that MLB should be involved in. The union or Scott Boras might not like it, but it seems plenty fair. It's a $460 million deal over 10 years and the Dodgers are paying AAV accordingly. I guess I don't really understand why he didn't just sign a 10/460 deal instead. That part is strange. I guess it was for the headline, which probably adds some marketing fuel.
Seems like it was mostly for the headlines, unless the Dodgers have some serious cash flow issues we don't know about.
Maybe his agents promised him he would get to 700M but the teams all came in at 450-500M and this was their way of getting there. Who knows.
Would be pretty fascinating if he could just like move to Dubai & avoid all kinds of tax obligations.
Regardless, though, good for the Dodgers & more power to Shohei if this is what will make him happy.
I don’t think this is manipulating the tax. It’s a finance trick, not an accounting one. He basically took less money.
I think athletes pay taxes in the states where they play their games and then get a credit in their home state for taxes played elsewhere. For the Dodgers, it would be 81 games paying CA tax, plus wherever else they play.
For purposes of deferred comp, I tend to doubt that the IRS or treasury departments are willing to forego their cut. I assume taxes are paid when the right to the money vests, at the present value. Not to be morbid or absurd, but I think Ohtani has to (1) stay alive, and (2) not retire, for the money to vest each year. So, my guess is he pays taxes each year on the component of earned income that vests. But, I'm not a CPA.
But he’s still getting 700 million dollars paid out for a deal he signed in 2023, is he not? I’m confused how he’s not.
It’s funny that this is legal but the MLBPA balked at ARod taking a haircut on his deal to go to the Red Sox.
https://x.com/JeffPassan/status/1734349354952233007?s=20
Passan: "For anyone wondering if MLB will challenge or cancel Ohtani's contract: The answer is unequivocally no. There is a specific article in the collective-bargaining agreement that addresses this. And it's very clear: Deferred money is limitless -- even $680 million of $700 million."
Totally unfair but brilliant
Passan: "For anyone wondering if MLB will challenge or cancel Ohtani's contract: The answer is unequivocally no. There is a specific article in the collective-bargaining agreement that addresses this. And it's very clear: Deferred money is limitless -- even $680 million of $700 million."
Totally unfair but brilliant
He is, but that doesn’t mean the value of the contract is anything close to 700M.
If someone wins the lottery and chooses the lump sum 1 time payout, that will be far less than the publicized total jackpot paid out over many years.
I think you pay CA tax on your entire income but you can deduct what you pay to other states for income earned in those states. So when you play a game in FL, with no state tax, you still end up owing CA tax on that income. And when your home state is the highest tax geography, you end up paying your home state tax rate on all your income, even if some of that tax is actually paid to other states.
If deferred compensation is only taxable upon receipt, it's a pretty good technique.
Ahhh -- makes sense. In which case deferring compensation could make a lot of sense -- if the CA franchise board and the IRS are really willing to forego taxes on deferred comp.
Came here to post exactly this. What changed to cause this deal to be approved I wonder.