Ohtani Thread - Special Sheriff's Edition (Update: confirmed going to the Dodgers)

[G-Snarls]

I'll choose to believe Atkins played along with this charade because it at least takes the Dodgers out of Yamamoto.

 

Does t much matter is the Mets wants him as bad as everyone assumes

[Jimcanuck]

Yeah that's an insane loophole if something approaching 50% of a contract is allowed to be deferred in terms of the luxury tax. I have zero issues with a team being allowed to defer payments to reduce initial cash outlay, but this type of accounting creates a massive advantage for richer teams that allows them to defer future dollars and essentially skirt the luxury tax.

 

The deferred money counts towards the luxury tax, but is discounted to present value. This is normal accounting for future liabilities.

 

Every team is subject to the same rules, that were agreed upon by all parties through CBA negotiations. Mid market teams that are contending and flirting with the limit can use deferrals to stay under the limit.

 

At the end of the day, Ohtani had to agree to deferred payment. It's not a unilateral action that a team can take.

[Eat My Shatkins]

Thank you, Mini-Me.

 

There is no way Toronto was going to go to $700M. We were simply outbid.

 

Yes, both can be true. The Dodgers were probably Ohtani's "preferred destination" and also the highest bidders.

 

But the reason they had to go so high was because the Jays were in there being leveraged by Ohtani's reps.

[John_Havok]

Yeah that's an insane loophole if something approaching 50% of a contract is allowed to be deferred in terms of the luxury tax. I have zero issues with a team being allowed to defer payments to reduce initial cash outlay, but this type of accounting creates a massive advantage for richer teams that allows them to defer future dollars and essentially skirt the luxury tax.

 

Yeah, it defeats the entire purpose of the luxury tax. I hope it’s not something that continues like…next season with Soto. It’s a bad precedent

[G-Snarls]

Thank you, Mini-Me.

 

There is no way Toronto was going to go to $700M. We were simply outbid.

 

Yes

 

And at the end of day it's simply a matter of like the player but don't want that contract

[John_Havok]

The deferred money counts towards the luxury tax, but is discounted to present value. This is normal accounting for future liabilities.

 

Every team is subject to the same rules, that were agreed upon by all parties through CBA negotiations. Mid market teams that are contending and flirting with the limit can use deferrals to stay under the limit.

 

At the end of the day, Ohtani had to agree to deferred payment. It's not a unilateral action that a team can take.

 

You accountants need to stop conflating the luxury tax in MLB as being the same as real world accounting. Some principles may be the same but the luxury tax is completely made up and functions only within MLB. The intent of the luxury tax is not the same as the real world.

[L54]

Nah. There was a serious effort to land him, the people reporting signings were more than likely just trying to be “the first guy” to report something and we’re guessing.

 

Whomever it was that suggested Ohtani gave the Dodgers the chance to match any offer …that makes sense. It seems he was always leaning that way but doing his due diligence.

 

The only think that bothers me about the signing is the way the Dodgers are now getting a massive break on the luxury tax. That’s a loophole that shouldn’t exist. The luxury tax penalty should,only be calculated on the 10/700 average, not the deferral stuff. I like the ability to defer salary as an option, it gives lower budget teams a shot at retaining higher end talent rather than losing them or signing upper tier guys (not guys like Ohtani…but star players). Using deferrals to keep actual dollars spent down makes sense. Avoiding luxury tax penalties should not be a factor. The optics and reality of high spending teams deferring money to avoid the luxury tax is pretty low.

 

Great post John, I especially agree with the luxury tax calculation. When the league’s biggest spender gets a break on the salary of the games best player it looks really foolish in my opinion.

 

Logic says you divide total dollars by years to get the luxury tax number.

[L54]

You accountants need to stop conflating the luxury tax in MLB as being the same as real world accounting. Some principles may be the same but the luxury tax is completely made up and functions only within MLB. The intent of the luxury tax is not the same as the real world.

 

Lmao yes, everybody understands how future money is worth less than present day cash and literally nobody is arguing otherwise. Yet these guys keep parroting the same lines like they’re Warren Buffet explaining finance to a room full of ninth graders

[max silver]

The deferred money counts towards the luxury tax, but is discounted to present value. This is normal accounting for future liabilities.

 

Every team is subject to the same rules, that were agreed upon by all parties through CBA negotiations. Mid market teams that are contending and flirting with the limit can use deferrals to stay under the limit.

 

At the end of the day, Ohtani had to agree to deferred payment. It's not a unilateral action that a team can take.

 

I'm having a bit of difficulty in understanding how this actually works. Maybe I should have joined the accounting club in school.

 

What does discounting to present value actually mean? Is the future liability scaled somehow and added to the current year's tax value or something of that sort? Can you come up with an example with actual numbers to break this down to layman's terms a bit?

[Captain_Obvious]

You accountants need to stop conflating the luxury tax in MLB as being the same as real world accounting. Some principles may be the same but the luxury tax is completely made up and functions only within MLB. The intent of the luxury tax is not the same as the real world.

 

Has any official MLB entity made comments on the deal? I don't believe the Dodgers or the Blue Jays front offices have said anything. Same with MLB commissioner office. This might be wishful thinking, but I wonder if the deal is being contested due to these deferrals.

[Jimcanuck]

You accountants need to stop conflating the luxury tax in MLB as being the same as real world accounting. Some principles may be the same but the luxury tax is completely made up and functions only within MLB. The intent of the luxury tax is not the same as the real world.

 

Its not accountants, its the CBA. The intent of the parties with respect to the luxury tax is what the CBA says.

 

The CBA simply aligns with normal accounting practices.

[FantasyNewb]

I'm having a bit of difficulty in understanding how this actually works. Maybe I should have joined the accounting club in school.

 

What does discounting to present value actually mean? Is the future liability scaled somehow and added to the current year's tax value or something of that sort? Can you come up with an example with actual numbers to break this down to layman's terms a bit?

 

The simplest way to understand it is that money received in the present day can be invested and receive a return on the investment over time; compounding interest adds up. Another layer is that inflation impacts the value of $$$ in the future, so the same value today in purchase power won't be the same in subsequent years.

 

So basically, if he were to receive $10 million extra this year, it would give him significantly more value than if he were to receive it 10 years from now.

[max silver]

The simplest way to understand it is that money received in the present day can be invested and receive a return on the investment over time; compounding interest adds up. Another layer is that inflation impacts the value of $$$ in the future, so the same value today in purchase power won't be the same in subsequent years.

 

So basically, if he were to receive $10 million extra this year, it would give him significantly more value than if he were to receive it 10 years from now.

 

How would the luxury tax calculations work? Let's assume that Ohtani is going to be paid $35 million per season for the next 10 years, with the rest deferred over an extra 20 years or something of that sort.

[Jimcanuck]

I'm having a bit of difficulty in understanding how this actually works. Maybe I should have joined the accounting club in school.

 

What does discounting to present value actually mean? Is the future liability scaled somehow and added to the current year's tax value or something of that sort? Can you come up with an example with actual numbers to break this down to layman's terms a bit?

 

https://www.investopedia.com/terms/p/presentvalue.asp

 

Present Value=Future Value / (1+r)^n

 

n = number of years in the future the liability is due

r = rate of return (also termed discount rate)

 

For engineering life cycle cost analysis I was doing, we used r as set by the Ontario Ministry of Finance. MLB likely uses the value set by US Department of the Treasury. r changes with economic conditions, so Ohtani's impact on the luxury tax is going to vary each year of the contract.

 

My experience with it is in engineering. As an engineering example, you might want to compare the alternatives of rehabilitating a structure vs. removing and replacing with new. The two alternatives will have different costs over the analysis period (for a structure, 100 years is typically used - beyond 100 years the present value of these costs will be comparatively negligible anyway). The future liabilities that apply to each alternative are converted to present value for the purpose of cost comparison.

 

A made up example at a basic level:

 

Rehabilitation - $80M now, next rehabilitation in 25 years $100M discounted to present value, remove and replace in 60 years $250M discounted to present value

Remove and Replace - $250M now, 1st rehabilitation in 40 years $50M discounted to present value, 2nd rehabilitation in 70 years etc, etc

 

A more involved analysis will include operating costs and any revenues for each year of the 100 years, which will vary between the existing and new structure.

 

The Jays likely did such an exercise before deciding to renovate the Rogers Centre rather than construct a new facility.

 

Applied to Ohtani's case, it is a method to estimate the true Dodgers payroll cost. Obviously the true cost is not counting future payments as if they are paid today. A dollar 20 years from now does not have the same purchasing power of a dollar today.

 

 

 

​

[FantasyNewb]

How would the luxury tax calculations work? Let's assume that Ohtani is going to be paid $35 million per season for the next 10 years, with the rest deferred over an extra 20 years or something of that sort.

 

From my understanding, is that they take into consideration the full contract over the span of the years signed and use that to calculate the luxury tax owed per year. Even if they aren't paying that full amount per year. So if it averages to $70 million/year over 10 years , that would likely push them over the limit and add a luxury tax on that amount, even if they are actually only paying him $35 million per year for those 10 years. I could be wrong though.

[Jimcanuck]

From my understanding, is that they take into consideration the full contract over the span of the years signed and use that to calculate the luxury tax owed per year. Even if they aren't paying that full amount per year. So if it averages to $70 million/year over 10 years , that would likely push them over the limit and add a luxury tax on that amount, even if they are actually only paying him $35 million per year for those 10 years. I could be wrong though.

 

If Ohtani is getting paid $35M a year for 10 years, and the remaining $350M is paid over a further 10 years, then using the present value formula the luxury tax hit for 2024 would be calculated something like:

 

$35M + [$35M / (1+r)^11 + $35M / (1+r)^12 + $35M / (1+r)^13 + $35M / (1+r)^14 + $35M / (1+r)^15 + $35M / (1+r)^16 + $35M / (1+r)^17 + / $35M (1+r)^18 + $35M / (1+r)^19 + $35M / (1+r)^20] / 10

 

where r = discount rate as determined by US Treasury for 2024

 

So $35M plus the total present value of the deferred payments / 10 (the deferred payments will be applied to the luxury tax calculations for 10 years)

[Jimcanuck]

Keep in mind that if Ohtani did not agree to deferred payments, the contract would be something like 10/550..... or a $55M annual luxury tax hit, or in other words $5-10M higher than the calculated luxury tax hit will be for the 10/700 with deferrals

[Stangstag]

You accountants need to stop conflating the luxury tax in MLB as being the same as real world accounting. Some principles may be the same but the luxury tax is completely made up and functions only within MLB. The intent of the luxury tax is not the same as the real world.

 

Thanks for stating what I was too frustrated to put into words.

 

The luxury tax exists as a competitive balance measure for the sport. Idgaf how real world accounting works, thats not the point.

[Jimcanuck]

Thanks for stating what I was too frustrated to put into words.

 

The luxury tax exists as a competitive balance measure for the sport. Idgaf how real world accounting works, thats not the point.

 

As I posted, the competitive balance measure is what the CBA specifies, i.e., the deal negotiated by all parties.

[Stangstag]

Keep in mind that if Ohtani did not agree to deferred payments, the contract would be something like 10/550..... or a $55M annual luxury tax hit, or in other words $5-10M higher than the calculated luxury tax hit will be for the 10/700 with deferrals

 

The calculated luxury tax hit should be based on the FULL contract amount. Ohtani did not sign for 550 million, he signed for 700 million.

[Stangstag]

As I posted, the competitive balance measure is what the CBA specifies, i.e., the deal negotiated by all parties.

 

Have you read the CBA?

[Jimcanuck]

Have you read the CBA?

 

I don't need to, Passan already posted that present value calculations apply to deferred payments.

[Jimcanuck]

The calculated luxury tax hit should be based on the FULL contract amount. Ohtani did not sign for 550 million, he signed for 700 million.

 

The luxury tax hit is based on the negotiated rules in place, not what you think it should be.

[Stangstag]

The luxury tax hit is based on the negotiated rules in place, not what you think it should be.

 

Im saying that this will definitely cause issues in the next CBA negotiations. This shouldn’t be allowed

[mikepelfrey]

Im saying that this will definitely cause issues in the next CBA negotiations. This shouldn’t be allowed

 

Why because you say so?

 

It’s the same ridiculous argument small market teams give for robbing large market team’s in revenue sharing. And then owners choosing to not spend the money and just put it in their pocket.

 

It’s what all teams negotiated…. It may not be fair but every team including the blue jays, agreed to.

[JaysAllMighty]

Why because you say so?

 

It’s the same ridiculous argument small market teams give for robbing large market team’s in revenue sharing. And then owners choosing to not spend the money and just put it in their pocket.

 

It’s what all teams negotiated…. It may not be fair but every team including the blue jays, agreed to.

 

Salary cap would be much better.... just saying

[philly30]

Salary cap would be much better.... just saying

 

Players union is too strong, will never happen

[Terminator]

Jays twitter is embarrassing as hell. Talking about booing Ohtani and things like that.

 

We got outbid. Doesn't matter how it happened other than for discussion's sake. But booing Ohtani for taking 700M from the Dodgers is ridiculous.

[max silver]

If Ohtani is getting paid $35M a year for 10 years, and the remaining $350M is paid over a further 10 years, then using the present value formula the luxury tax hit for 2024 would be calculated something like:

 

$35M + [$35M / (1+r)^11 + $35M / (1+r)^12 + $35M / (1+r)^13 + $35M / (1+r)^14 + $35M / (1+r)^15 + $35M / (1+r)^16 + $35M / (1+r)^17 + / $35M (1+r)^18 + $35M / (1+r)^19 + $35M / (1+r)^20] / 10

 

where r = discount rate as determined by US Treasury for 2024

 

So $35M plus the total present value of the deferred payments / 10 (the deferred payments will be applied to the luxury tax calculations for 10 years)

 

Looks like a completely straighforward calculation. Maybe I'll borrow my wife's finance calculator to tabulate the total.

[mikepelfrey]

Salary cap would be much better.... just saying

 

Yeah and why is the cost of living so much higher in New York than it is in Kansas City? Why does Toronto have a Major League team and not Calgary?

 

https://www.moneygeek.com/living/analysis/cost-for-family-to-attend-an-mlb-game/

 

The photo isn’t uploading properly but it shows the cost of taking a family of 4 to a game, from the Dodgers at $219, Yankees at $171, to the Marlins at $83, interestingly the Blue Jays didn’t release their data since Rogers was in litigation with MLB. But Forbes estimated they were Believed to be in the $160 range

 

This was based on 2022 data.

 

I don’t know about the rest of you, but I’d be more upset how much more we are paying for housing and food than the rest of Major League cities and the fact that WE SUBSIDIZE theses teams so that they have teams at all.

 

That’s way more unfair

Edited December 10, 2023 by mikepelfrey