Two-way superstar Shohei Ohtani rocked the baseball world yesterday by agreeing to a ten-year, $700MM deal with the Dodgers. That record-setting contract, taken at face value, would have unparalleled impact on the club’s payroll as calculated for luxury tax purposes. If Ohtani’s contract indeed counted as a $70MM hit to the club’s tax payroll, it would single-handedly push the Dodgers across the first level of the luxury tax even as the club sat at just $174MM in payroll for tax purposes prior to the deal with Ohtani. While the big market Dodgers have never shied away from the tax in the past, paying into the tax during each of the past three seasons, the Ohtani deal would all but guarantee they would continue to do so for the next decade, leaving them vulnerable to escalating penalties.
As reported by Jeff Passan of ESPN, however, the reported deferrals in Ohtani’s deal could lessen the tax burden on LA considerably. Passan notes that Major League Baseball applies a discount to deferrals in luxury tax calculations to determine the present-day value of contracts. Given the fact that “most of” Ohtani’s contract is expected to be deferred, Passan suggests that Ohtani’s deal, for luxury tax purposes, is expected to settle in the range of $40MM to $50MM when all is said and done. While those numbers aren’t final and won’t figure to become exact until the contract is properly finalized and announced, that range substantially alters the impact Ohtani will have on LA’s luxury tax bill over his decade-long tenure with the club.
After all, if Ohtani’s luxury tax hit for the 2024 season were to shrink from the $70MM his on-paper AAV would suggest to a figure in the range of $45MM, that would put the club’s luxury tax payroll at roughly $219MM using the numbers supplied by RosterResource. For a Dodgers club that saw its luxury tax payroll land at $267MM last year after peaking at a whopping $293MM in 2022 (per Cot’s Baseball Contracts), that would leave the Dodgers with the ability to add upwards of $50MM before even matching their 2023 payroll for luxury tax purposes, and just under $75MM in room before their hit their all-time high.
That’s great news for Dodgers fans, as the club has plenty of work to do in improving its roster even after adding a once-in-a-lifetime talent like Ohtani. Their new DH should complement Mookie Betts and Freddie Freeman well at the top of the lineup, but offense was never the primary concern of the Dodgers this winter. The club’s pitching staff was essentially middle-of-the-pack in 2023, with a 4.06 ERA that ranked 13th in the majors and a 4.23 FIP that ranked 15th. Looking ahead to 2024, the club’s only locked in starting pitcher is sophomore right-hander Bobby Miller. While he figures to be joined in the rotation by a veteran presence in the form Walker Buehler, Buehler hasn’t pitched in the majors since early 2022 due to the second Tommy John surgery of his career, casting doubt on his ability to be the durable, front-of-the-rotation arm that the Dodgers need.
While the Dodgers have been connected to plenty of top arms on the trade market this offseason such as Tyler Glasnow, Dylan Cease, and Corbin Burnes, Ohtani’s relatively reasonable luxury tax hit should allow the club to be more aggressive when it comes to top-of-the-market options in free agency. The free agent starting pitching market is of course headlined by NPB star Yoshinobu Yamamoto, for whom the Dodgers are considered to be a likely finalist. Looking beyond Yamamoto, the likes of 2023 NL Cy Young award winner Blake Snell and World Series champion Jordan Montgomery are still available. The market’s second tier of starting pitchers, meanwhile, includes interesting arms like Shota Imanaga, Marcus Stroman, and Lucas Giolito. The addition of any of these arms would surely bolster the club’s rotation headed into 2024, and is made all the more feasible by the deferrals reportedly built into Ohtani’s contract.
NoNeckWilliams
Small market teams with low payrolls, should be allowed to carry 27-28 players on the roster.
Tom Emansk1
They don’t even want to pay 26 guys and you think they want to pay 28? Those two extra AAAA players aren’t gonna make a difference at all.
NoNeckWilliams
You don’t know that. Having a player just to pinch run in the ninth inning of a close game, could be the difference several times a year.
Also, that player and a third catcher (to allow more pinch-hit opportunities for poor hitting catchers), would be very inexpensive.
rememberthecoop
It wouldn’t move the needle very much. Anyway,, those teams could afford to spend a little more than they currently do. There should be a salary floor. Not a cap, just a floor.
Fever Pitch Guy
NoNeck – Funny thing is, what you’ve just described is what MLB did up to 5 or so years ago. They would carry speed and defense guys like Dave Roberts. Then the analytics morons decided to stack the rosters with as many relievers as possible so they can have their ever-loving matchups and rest relievers 3 days for every 10 pitches thrown. Thankfully MLB stepped in and put a 13-pitcher restriction.
So if your suggestion is gonna work, the teams must be forced to use the 27th and 28th roster spots for position players – NOT pitchers.
NoNeckWilliams
Totally agree.
emac22
The point is giving poor teams more flexibility. Forcing poor teams to use an added flexibility option in a specific way doesn’t even make sense.
Degaz
Actually they would as they would help your bullpen stay fresh
emac22
Not familiar with the word allowed or honestly unable to even imagine strategy using a larger roster.
slider32
I am sick of small market talk, time for a floor on these cheap teams. They all are making money and have billionare owners.
solaris602
Couldn’t agree more. The Guardians are constantly crying they have no money, and then they go out and waste $4M on Austin Hedges while still doing nothing to address the middle of the order.
emac22
Does that really make sense to you?
eichejt0570
I tired of the MLB allowing the Major Market Teams the ability to cheat! Insert MLB’s sealed letter to the Yankees detailing how they used technology to steal signs!
MLB redefined how the CBT was calculated not too long ago on multi year contracts. Teams use to back load contracts so the first couple of years would not impact a team’s payroll so harshly. The MLB decided it should be based on AAV. Why? Because it wasn’t fair? Any team could back load a contract. But now there is a loophole in deferred compensation and it counts differently against the CBT? Why would this be? Because middle to small market teams can’t use deferred compensation like the Dodgers just did! Again the MLB closing one loophole that could benefit the entire MLB to only open another loophole that the Big Market Teams can use in their advantage!
I have no problem with a floor but there also needs to be a ceiling!
UncommonSense
I think the rules should be changed so my team does better and your team does worse.
emac22
Are you really asking if $1,000 today is worth less than $1,000 in 10 years?
How much would you pay me today for $1000?
1000 if you weren’t sure.
How much would you pay in 10 years for 1,000 now?
Not sure?
How much would you have to pay the bank in 10 years if they gave you 1,000 now?
Hint…add 10 years of interest.
That’s all that’s happening here. LA has to basically add interest when they defer salary. The union wants the big headline number so they use the actual dollars paid regardless of when its paid but the current value of the money to be paid is much lower. That is used by the CBA.
Tigers3232
@eich Why would that be? It would probably be due to the fact that MLB requires principal invested on all deferrals each season that there is deferred monies. That money is invested to accrue to the anticipated value at time of scheduled payment. It’s much like if a company funded a pension, they would write off and account for the $ at time it was invested in the pension fund.
Logjammer D"Baggagecling
They need to increase the roster number to 28. And make it 28-31 for Sept.
Did they really think 1 extra player would make a difference?
bag o ballz
It kinda would because it would allow more rule 5 guys to stick
sacrifice
They need MLB Max, like every other big money conglomerate
top 8-10 teams, Richest markets. Call it MLB Max.
Pete'sView
No, that’s not the solution. The solution is to stop the Dodgers from buying up all the best talent and ruining competition. The best way to stop this lunacy is to disallow Southern California teams from existing (sorry San Diego, but you’re part of this mess too; collateral damage).
NoNeckWilliams
I didn’t say it was “the solution”. It’s just the first step toward some parity.
Joe says...
The Dodgers have one title since the 80s, but sure, they’re “ruining competition”.
eichejt0570
New York teams are there as well! Look at what the Mets just did in 2023.
xSpecBx
How’d that work out for the Mets? Seems like they just saved a bunch of other teams from overpaying for a bunch of underperforming players.
Joe says...
I’m not letting the Yankees off the hook. They have been a failure since 09. This just happened to be about the Dodgers.
Rick Wilkins
Probably one of the worst ideas I’ve ever heard in relation to baseball. You can stop the Dodgers by also spending money. You know every owner is a billionaire right? It’s not like the Dodgers do this deal every year. Horrible take.
NoNeckWilliams
Cubs fans are always late to the party.
lol
eichejt0570
Why would you have to spend money to stop the Dodgers? The D-Backs just did it with around $119 million spent on their roster! Horrible Take!
Skeptical
Actually, not every owner is a billionaire. Do a little research before you make comments.
DBH1969
Why? Small market teams don’t spend the money they get, so why shouldn’t the big market teams get to defer until 3178?
Jacksson13
They also should have a 45 man roster instead of 40.
Joe says...
And not keep score and hand out participation trophies.
Degaz
Not a bad thought
I.M. Insane
That wouldn’t create much of a balance. The luxury tax should be much higher than it is and include loss of draft picks.
AAATIGERS2020
If teams can’t compete, they should become minor league franchises, move to another city, or blend multiple organizations together. Miami+Tampa, Cleveland + Detroit, Minnesota + Milwaukee, etc.
NoNeckWilliams
Fine… MLB can return to an 8 team league.
Enjoy!
filihok
AAAT
That’s one option
But it seems like a terrible one
If teams can’t compete, MLB needs to figure out why.
If Tampa can then there’s little excuse for anyone else
MLB needs to look first at ownership. If they are the problem, they need to go
If they aren’t the problem, what is? If some teams can’t compete due to finances, then rather than contract teams, they need to increase revenue sharing (please do not make an ignorant comment about “communism”).
Ejemp2006
The Florida market can not support two teams and Southern California doesn’t need three teams. Collapsing the Marlins and Padres would be great for the league, but no one will sign up for that. Instead we’re losing a team in Oakland, a top ten market, because the owner was allowed to put a putrid, unwatchable product out.
Sports team ownership has become a form of government handouts to billionaires.
As a Detroit fan, I miss Mike Illitch. He was a baseball fan, first and foremost. When he was alive, we always had a shot at the top dollar guys like Ohtani. He’s the reason we overpaid to see Miggy reach 3,000 hits in a Tiger uniform.
I guess, in twenty years, all the new hall of fame inductees will be Yankees or Dodgers. And we’ll be micro chipping into the hall and taking orders from our trillionaire overlords who will only let us in if we reduced our rations and paid for their latest vaccine.
Sorry, that got dark. But you get the picture.
FossSellsKeys
Collapse the Padres? The team that was #2 in attendance in all of MLB last year and sold out every game? Dude. This is worst take I’ve ever read. Even Miami, sure the attendance isn’t like it is in SD but still that’s a top 10 national market. mLb is gonna walk away from that? You’re mad. Expansion is next, contraction is never happening.
Chiefnockahoma
Do the Dodgers take a luxury tax hit for the money paid to Ohtani in the years after the ten year contract
filihok
Chief
“Do the Dodgers take a luxury tax hit for the money paid to Ohtani in the years after the ten year contract”
No
MLBTR
Please do an article on how contracts work
Your readers do not know
Eric05216969559
Why is everyone complicating this, mlb just needs a hard cap and salary cap floor, that’s it. This will stop the top teams from always getting the high priced free agents and introduce more parity in the league and level the playing field while stopping the smaller teams from refusing to spend money.
filihok
Eric
“Why is everyone complicating this, mlb just needs a hard cap and salary cap floor, that’s it”
Because that limits the amount players can receive
Degaz
Keep in mind the amount of money Ohtani is losing a year is just staggering compared to what he would easily invest it in. For Example…..
10 Year bond at 5% guaranteed
S&P 500 10% average return since 1950 (SPR ETF)
NASDAQ 100 14% average return in last 30 years (QQQ ETF)
He is also losing money based on inflation which is about 3-5% a year currently and likely to stay in that range for a while.
Pete'sView
Degaz — Can he survive on that . . .I mean with inflation?
xSpecBx
I’m assuming that the inflated overall contract is to compensate for the money “lost” due to the deferment from current to future dollars. Realistically, if his contract was a more normal 10 year contract, he wouldn’t have gotten $700M and he apparently makes like $50M a year in endorsements so he defers the money to the future where he can claim it in a lower taxed location and his made whole with a contract that accounts for inflation. Pretty smart.
Landini
I know it was within the rules but if you sign a player for 10/700 million it should count as 70 million against the cap
Shishka
Exactly. It’s basically a loophole in the rules that rich teams can take advantage of. It doesn’t sit well with me.
slider32
Time to increase the floor, if you can’t compete sell the team.
terry g
No floor.
MrSeptember
May as well just contract down to 5 teams. That will be an exciting product.
tedtheodorelogan
Time to put in a hard floor and a hard cap and close this bs loophole. If the players don’t like it they can quit or go play in Japan or Korea. They can find new players. Plenty of dudes in the minors would be happy to play. The on field product would be back up to par in a few years. I care way more about competition than I care about millionaire players missing out on a few extra million or billionaire owners getting a few extra million. The sport as a whole suffers when teams like the Dodgers pull crap like this.
algionfriddo
Contracting to 24 would be great.
Cam
Shishka – it’s Major League Baseball, they’re all rich. The difference is, some who can spend, choose to pocket it instead.
baseballfan1
It isn’t a loophole, it’s just that this isn’t really a $700m contract in terms of actual value, and so the calculation of the AAV for luxury tax purposes will reflect that. That’s all.
bkbk
What? You shouldnt be able to compensate your players after their contribution, thats an an insane idea. There should be zero costs factored into any deal that happens after they stop playing. It’s fine if you want to reduce the cost ot the team, but if the agreement is to pay x, ultimately then thats what the cap should be.
phantomofdb
He’s on their roster for 10 years and he’s making 700 million. Anything else is a loophole
jorge78
All teams can do this. “Poor” teams could do this for cash flow purposes.
I’m surprised more players don’t do this. Nothing wrong with an annuity at a good interest rate and when all those instant distant relatives show up you can honestly say “sorry, my money’s tied up.”
Bobby Bonilla says hi!
mrpadre19
jorge78:
More players don’t do it because $1 million won’t be worth as much in 15 years as it is today.
Plus much can happen in 15 years and all the player would be doing is helping the billionaire owners give you less so they can keep more.
eichejt0570
jorge78 – For the love of all that’s good and kind please go back to Math and Economics class. Please!
filihok
KLRA
“Jorge, it makes a lot of sense. Kinda like residuals for an actor. Imagine you’re some B-level player who signs for $150 million dollars with $100 million of that deferred over 20 years, for example.
Each year after retirement, say from age 40-age 60, you get a $5 million check in the mail for scratching your balls and playing golf. What a life!”
Another person who doesn’t seem to understand contact valuation
What B-level player is signing that $105 million present value contract?
Pete'sView
I see a future where MLB will be one league made up of the Dodgers, the Padres (If they don’t go broke), the Yankees, the Mets, the Rangers, the Red Sox:
MLB East: Yankees, Mets, Red Sox
MLB West: Dodgers, Padres, Rangers
Pads Fans
I see a future that will happen in the next 3 or 4 years where MLB will have 32 teams. Expansion is inevitable. Resistance is futile.
Arch10
Doubt it… how many rings total between those 6 teams in the past 20 years??
paddyo furnichuh
@Pete…You’re no Nostradamus!
ThonolansGhost
Nostradamus was a fraud… But Pete’s prediction was pretty stupid.
damascusj
For real,
DBH1969
Where in the rules, please? I don’t see it.
johnrealtime
Have the CBA in front of you, do you?
DBH1969
I have the internet just like everyone else. I did not plan on reading the rulebook today, but apparently that is my task today lol.
I have read article 13 section e 3 times. I do not see discounts, present value (whatever the hell that is) or any other loop hole.
I admit that I probably missing it, but I seems pretty Black and white to me.
Guess that’s why lawyers get the big money
bhambrave
I don’t have it in front of me, but try searching for the word defer.
Pads Fans
There IS no loophole. The Dodgers will have $70 million added to their CBT payroll every season for the next 10 years.
Pads Fans
Here is the link to the PDF of the CBA on the MLBPA website
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
You can find the relevant rules in Article XXIII Section E numbers 2 and 6
Article XXIII starts on page 115 and Section E on page 131
Number 2 is on page 131. Number 6 on page 136
ARTICLE XXIII—Competitive Balance Tax
(2) Average Annual Value of Guaranteed Multi-Year Contracts
A Uniform Player’s Contract with a term of more than one (1) championship season (“Multi-Year Contract”) shall be deemed to have a Salary in each Guaranteed Year equal to the “Average Annual Value” (“AAV”) of the Contract (plus any bonuses subsequently included by operation of Section E(4) below).
The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other payment that this Article deems to be a Signing Bonus) attributed to a Guaranteed Year in accordance with Section E(3) below plus (c) any deferred compensation or annuity compensation costs attributed
to a Guaranteed Year in accordance with Section E(6) below shall be divided by the number of Guaranteed Years.”
——————————————————-
(6) Deferred Compensation
(a) Definition
“Deferred Compensation” shall mean any Salary payable to a Player pursuant to a Uniform Player’s Contract in a Contract Year after the last championship season for which the Contract requires services as a baseball player to be rendered.
(b) Attribution
(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.
—————————————————————-
It doesn’t matter what Passan said or that the writers here referenced him on this and the previous article. The ONLY thing that matters is what is written in the CBA. Its not something MLB can bypass or allow some teams to adhere to or not adhere to. Its governed by Labor Law!
Ohtani’s 10 year, $700 million contract will count as $70 million towards the Dodger’s CBT payroll in each of the 10 seasons the contract covers or 2024 to 2033.
As the CBA states clearly, deferred money counts in the year that the Dodger’s were required to designate it for within those 10 years.
HBRC1987
You good bro?
ThonolansGhost
Pads Fan- Apparently, you’re wrong.
Have an a1 day
Ohtani’s actual deal is less than $700 million but it adds up to $700 million after interest. That’s why its not 70 million AAV.
Ncsaint
@pads fans your block quote ends just before the part that explains that you are wrong. They appply a standard discount rate. It would be weird if they didn’t.
“said present value to be calculated by increasing any such payments by the Contract’s stated interest rate, if any, and then reducing such payments back to their present value by applying as a discount rate the Imputed Loan Interest Rate for the first Contract Year covered by the Contract”
emac22
When you buy a 500,000 house using a mortgage you pay about a 1,000,000 over 30 years.
The dodgers are buying othani with a mortgage. They pay him 700 million in total payments over 30 years
The dodgers basically buy an annuity today for 350,000,000 and it pays the player 700,000,000 over 30 years.
(These are all rough examples to illustrate the point with using a calculator)
Habitual Truth Teller
There’s the loop hole.
It’s not a standard 10 year 700 mill deal
It’s a 10 year deal but interest payments push it towards 700 mill total..
Pads Fans
No. It doesn’t. That section is about interest and the interest only. It would actually be ADDED on top of the $70 million per season, just at the rate in the first season of the contract.
In other words, if the Dodgers are paying interest on the deferred money, then the AAV will be MORE than $70 million.
Have an a1 day
Read the reports on Ohtani’s contract again and read the CBA. Ohtani is making 700 million after interest. Whatever the cap hit is is his actual contract and the 700 number is only because of interest.
Pads Fans
Championship season refers to the 10 years Ohtani will be playing for the Dodgers.
ALL deferred money has to be assigned to one of those 10 seasons. IT doesn’t matter when its paid.
Pads Fans
Mortgages and the CBT are not in any way related.
The way that CBT payroll is calculated is simple. The contract says
Ojhtani will play 10 years. How much money total that is on the contract TODAY is divided by the number of years. In this case, its $700 million, so the AAV for CBT payroll calculations is $70 million. This is not difficult except for sportswriters and a few people on this website apparently.
Pads Fans
Apparently, I am right. Its not hard to read the CBA. Try it.
Pads Fans
Jobu, in terms of the CBT payroll, its the same as a straight up 10/700 deal. It makes no difference.
DBH1969
@Padsfan. I thought the same thing because it is reported as a 700mil contract. But I read elsewhere that it is actually 600+ mil contract.
The 700 being reported includes the interest on the deferred payments.
Everyone arguing is correct on both sides.
It is the effing reporters who are wrong… again!
Ncsaint
Yes, all of it is assigned to those ten years, but the *amount* assigned is discounted to present value for each of those years, after taking interest in to account. This is both:
1) What the agreement clearly says if you read it more carefully
2) What already happens for many players with a lot of deferred money
3) What everyone is reporting about this contract
Or maybe the press, MLB, the Dodgers, Ohtani, his agent, and I are all reading it wrong. That would be a pretty exciting outcome!
Fernando P
Not defending Dodgers, but the Nationals have been using deferrals for years. Imagine other teams have some contracts with deferrals.
Anyone know if these deferrals count against the luxury tax the years they are paid?
halloffamernobodycares
Mookie has a lot of money deferred as well.
Nats ain't what they used to be
That is different. Nats defer because they don’t get fair share of TV most from MASN. MLB screwed them by giving O’s sole control of TV money.
Fernando P
Absolutely, Orioles have been holding payments to Nats for years. I was just using them as a recent example of teams using deferrals.
Mets still paying Bobby Bonilla for his deferrals since the early 2000’s.
paosfan
Nats didn’t have to move to DC and cut orioles territory in half. Masn was part of the compensation.
paosfan
Because Nats want more than the agreement allowed to allow them to move into orioles territory.
Nats ain't what they used to be
Nat’s did not cut O’s territory in half. Nat’s claimed Senators territory that O’s never had rights to and were only squatting in.
Pads Fans
There WERE no TV rights when the Senators were there. Those didn’t exist until nearly 20 years after they left.
Pads Fans
CBA Article 13 Section 2 and 6. For CBT purposes the deferrals don’t matter. 10 years, $700 million = a $70 million hit to the CBT payroll in each of those 10 years.
Perksy
So how are the dodgers working around this? Or is this another “Ohtani rule”
Pads Fans
The Dodgers are NOT working around this. That is the point. They can’t. Its in the CBA, so labor law is what governs how it is applied. They can’t change anything that is in the CBA without going back to the bargaining table with the union.
The Dodgers will take a $70 million hit to their CBT payroll.
Pads Fans
Section XXIII. Sorry.
kevnames42
Watch this sort of thing won’t be allowed in the next CBA
Pads Fans
Its not allowed in THIS CBA
Pads Fans
It does. Read the CBA. I have linked to it several times here. Article 13 Section E2 and 6.
Ohtani counts $70 million towards the Dodgers CBT payroll.
Have an a1 day
I guess you know more than Jeff Passan then. He thinks that the deferrals do lower the CBT amount, but I guess Pads Fans know more than professional journalists.
Pads Fans
I read the CBA. Maybe you should do the same.
Here is the link to the PDF of the CBA on the MLBPA website
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
You can find the relevant rules in Article XXIII Section E numbers 2 and 6
Article XXIII starts on page 115 and Section E on page 131
Number 2 is on page 131. Number 6 on page 136
Pads Fans
In this case, apparently I do know more than Passan does.
Have an a1 day
That’s not even a full link. And every MLB professional disagrees with you. The deferred amount ($700m) is after interest. Might need to work on your reading comprehension.
Have an a1 day
Read this:
forum.soxprospects.com/thread/7172/deferred-paymen…
Pads Fans
I posted the link many other times. But since you are so lazy you won’t go to google and put in MLB CBA or scroll down, here it is again.
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
Pads Fans
Why would I read a forum on a blog? I will read the CBA. That is where the relevant information is located.
Have an a1 day
I already read that and it doesn’t say what you think it does. Reports are that Ohtani is signed to play for 10 years and will get paid $700 million total at the very end. When the total is calculated, it is based on the base CBT rate with interest (i.e. 50 million with 20 years interest)
(ii) If the Deferred Compensation is to be paid with interest at
an effective rate that is within one and one-half percentage points
of the Imputed Loan Interest Rate for the first Contract Year covered by the Contract, then the Deferred Compensation shall be
included at its stated value. Otherwise, the Deferred Compensation shall be included at its present value in the season to which it is attributed, said present value to be calculated by increasing any such payments by the Contract’s stated interest rate, if any, and then reducing such payments back to their present value by applying as a discount rate the Imputed Loan Interest Rate for the first Contract Year covered by the Contract. If the terms of a Contract are confirmed by the Association and the Office of the Commissioner before the Imputed Loan Interest Rate for the first Contract Year covered by the contract is available, the Imputed Loan Interest Rate shall be the annual “Federal mid-term rate” as defined in section 1274(d) of the Internal Revenue Code for the month preceding the month in which terms are confirmed. If a Uniform Player’s Contract uses the date or year in which a Player retires as a triggering event for the commencement of payment of the Deferred Compensation, it will be assumed for purposes of calculating Salary under this Article only that the Player retires on the day that he reaches age 40 or at the end of the Contract, whichever is later.
700 million is the stated value. The cap hit is the present value.
Learn to read.
drasco036
This is the most ridiculous loophole I’ve seen and had no idea it existed. All the sudden Steve Cohen is going to defer deals for the next 100 years….
I thought attempts to circumvent the luxury tax were shot down by the commissioners office? Wasn’t that the case with Judge last year where MLB was ready to shoot down Judges contract if he signed with the Padres because it was an obvious attempt to lessen the luxury tax penalty?
My mind is pretty blown right now in all honesty.
Perksy
The Padres I don’t think do referrals they just extend the years
emac22
Would you honestly have felt better if the deal was reported using the actual value of the deferred compensation? The fake number is the 700 million. The tax hit is the real number.
The problem with the deal isn’t the failure to tax the dodgers 70 million next year even thought they only pay him 45 million.
It’s the deferred money the next owners will use as an excuse to field scrubs for a decade.
Pads Fans
The CBT payroll hit is $70 million. More if the Dodgers will be paying Ohtani interest on the deferred money.
Have an a1 day
100% wrong. The agents will always put the post-interest amount publicly. The CBT is calculated off the pre-interest amount.
Pads Fans
OMG. Read the CBA. The link is there multiple times on this page. Its not a question. I have it right. So either go read it or get muted. The choice is yours.
Have an a1 day
Go ahead and mute me. I’m right. I read it several times. Maybe YOU should learn how to read.
How arrogant you must be to think that you know the CBA better than player agents, MLB GM’s, and professional journalists.
Ohtani’s stated value is $700m, but the cap hit is based on PRESENT VALUE.
Salary Calculations (pg 314-315)
All deferred compensation shall be included in a Player’s Salary in the year in which it is earned at an amount equal to the DISCOUNTED PRESENT VALUE of such deferred amount. (Salary that is earned in one year of a contract but paid in a later year of the contract, on the other hand, shall not be considered deferred compensation. Such compensation shall be included in a Player’s Salary at its stated value in the year in which it is earned.)
Rsox
Ownership starting to feel the frustrations of all of the regular season success/postseason failures. Supposedly they want Yamamoto too soo thats going to push them even higher into tax penalties.
I imagine the seats under Friedman and Roberts must be starting to get warm
johnrealtime
I’d put a whole lot of money on Friedman’s seat being ice cold. His job is not in danger and if he were let go, he’d have his pick of any open executive position in MLB
drasco036
Nope because apparently they can just pay Yamamoto until he’s 75 and stay under the luxury tax.
Balk
If they plan to go after top market arms like Yamamoto for any significant amount of years, wouldn’t that handicap them for a foreseeable future? Tricky situation I’m thinking
AngelsMinion
Nah! I guess they can just pay Yamamoto $1 mil per year for three centuries to lower their tax burden! What a joke! Should be simple – 10/700 = $70 mil/yr tax burden. Otherwise, why even do this?
Every elite player could just sign for insane money, and the team could just defer a portion over dozens of years (placing deferments in a trust), significantly eliminating any use for the CBT in controlling annual payroll, and incentivizing players to go this route? This has a major potential for abuse, and for chaos. You’d think the owners would resist allowing this, as it transfers leverage to the players?
VinScullysSon
Most players wouldn’t agree to this as they also understand that far away money isn’t worth the nearer money. That’s why this is rare.
paddyo furnichuh
A bag of money now is worth two bags of money in the bush
Fernando P
True to an extent. Some players don’t mind deferrals for when they are living in a more tax advantageous state or when their tax rate is much smaller given the deferral amount being their only revenue.
There’s also the benefit of guaranteed stream of money for later in life. Lots of celebs and athletes have gone through money issues later due to bad investments early on.
emac22
They would if they were worth 400 and offered 700.
Both sides understand how interest works even if it’s a mystery here in the comment section.
The real downside is mortgaging the teams future.
solaris602
Well, unless and until they add two solid rotation pieces there won’t be much success in 2024.
Aussie_dodger
Imagine our pitching gurus getting their hands on Blake Snell
I have no doubt he would be even better than last season. There is a connection with Andrew Friedman too. They seem to have a mutual respect for each other
Cam
I may be in the minority, but I don’t want Blake Snell on the Dodgers. He has an electric arm, but that Cy Young covers up some problems underneath. A guy shouldn’t have a career high walk rate (13.3%). in his 8th season. His K and BB rates last year were almost identical to his 2021 season, where he put up a 4.20 ERA – the difference is, in 2021, he didn’t strand 86% of runners.
Someone’s going to give him 6 years and that’s a scary thought.
DBH1969
I see discounts mentioned nowhere in the rules. Article 13 section E is pretty clear that all deferrals count.
Where is Pessan getting this from???
ATL_Bravos
I’m looking at the 2022-2026 agreement on the MLB Players page and Article 13(E) relates to Certified Athletic Trainers
DBH1969
I believe it is the rules section, but I don’t remember. I have given up trying to understand this lol.
Pads Fans
Article XXIII Section E 2 and 6. Article 13 starts at the bottom of page 115. Section E starts on page 131
Here is a link to the PDF.
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
snoopy369
Subsection E (ii) is where you need to look. It mentions that the deferred amount is reduced to its ‘Present Value,’ which is an economic term that refers to ‘what someone should be willing to exchange in money right now for that money later,’ basically inverse interest calculation. That’s the calculation Passan and Fangraphs are referring to.
Bucket Number Six
So, it’s a negative amount added to the AAV?
Bucket Number Six
So, it is a negative amount added to the CBT?
Bucket Number Six
Ignore my 2nd comment above.
Pads Fans
That is ONLY if the deferred payments is being paid with interest and even then its attributed to one of the guaranteed years of the contract.
(ii) If the Deferred Compensation is to be paid with interest at
an effective rate that is within one and one-half percentage points
of the Imputed Loan Interest Rate for the first Contract Year cov-
ered by the Contract, then the Deferred Compensation shall be
included at its stated value. Otherwise, the Deferred Compensa-
tion shall be included at its present value in the season TO WHICH IT IS ATTRIBUTED, said present value to be calculated by increasing
any such payments by the Contract’s stated interest rate, if any,
and then reducing such payments back to their present value by
applying as a discount rate the Imputed Loan Interest Rate for the
first Contract Year covered by the Contract. If the terms of a Con-
tract are confirmed by the Association and the Office of the Com-
missioner before the Imputed Loan Interest Rate for the first
Contract Year covered by the contract is available, the Imputed
Loan Interest Rate shall be the annual “Federal mid-term rate” as
defined in section 1274(d) of the Internal Revenue Code for the
month preceding the month in which terms are confirmed. If a
Uniform Player’s Contract uses the date or year in which a Player
retires as a triggering event for the commencement of payment of
the Deferred Compensation, it will be assumed for purposes of
calculating Salary under this Article only that the Player retires
on the day that he reaches age 40 or at the end of the Contract,
whichever is later.
Emphasis mine.
scottn59c
Eff me if they go out and get Yamamoto too.
Dodgers starting to resemble Mr. Burns’ softball team.
Cam
Top 3 episode – if not, the best ever.
agnes gooch
Not eff you, eff the dodgers!
LeeJPC
Will MLB approve a contract that clearly manipulates the luxury tax in a big way? Then every Mets, Phillies, Yankees, Braves, big spender team contract will be deferred to drop salaries and allow the rich to get richer by signing all the star free agents.
Ryan ryan
This isn’t new. The Mariners did this with Ichiro more than 10 years ago.
Habitual Truth Teller
Yeah but what’s the largest deferred payments prior to this?
Passan is saying he’s getting 40 to 50 mill against CBT so he’s pushing 300 mill 200 mill into future payments over how many years?
Personally we either get rid of deferred payments
Or
We cap the years and totals you can defer.
Bobby Bonilla doesn’t seem to care he gets 1.5 mill or whatever it is every year despite ot being “worth less” over time. When you’re talking millions added up over time in addition to what you earned as a player they’re not exactly living in the slums
Pads Fans
The only way to manipulate a contract for CBT purposes is to increase the length to lower the AAV as the Padres did with Bogaerts and the Phillies did with Harper and Turner
soxprospectsroverrated
Yankees should do the same exact thing with Soto’s money.
Every big market club should do it until MLB makes the small market teams spend money and not pocket the tax money.
Anthony maresca
Bingo rest assured Yamamoto and Soto’s contracts are going to be deferred to maximize their total contract amount as they are rich beyond their imagination and dont need the money right away. Yamamoto and Soto is not an issue how much they get paid, its where do they want to play!
slider32
The Nats did this with Scherzer years ago! Deferring money is not a new thing!
johnrealtime
The player has to want the deal. Soto already turned down a huge, heavily deferred deal
halloffamernobodycares
valid in theory, but what about the other squad that offers a non-deferred contract at a higher annual value for the same money? If Soto wants the money now and not later, deferring the money just backfired. It’s a case by case basis, and more to the point, team by team basis, and no one wants to play in SF or TB regardless of money.
VinScullysSon
Thank you for saying this. Not sure why nobody gets why this isn’t a new thing that will suddenly become popular.
emac22
Deferring money isn’t free just like credit cards have to be repaid.
West Coast Blue Jay
Why would this loophole even exist? Doesn’t that completely defeat the purpose of the luxury tax? MLB needs a hard salary cap in the next CBA at whatever cost to achieve one.
raregokus
The one thing that would ruin baseball faster than any other.
Lefty_Orioles_Fan
The Dodgers just decided to buy the whole entire league, make their own rules, and abolish the luxury tax
fox471 Dave
Yeah, that happened.
Lefty_Orioles_Fan
What happened? Lol
Halo11Fan
The bad news is fangraphs did actual analysis on this, with a reasonable example of 400 million deferred over 40 years. They got it down to 60 million AAV.
Fangraphs is a data driven site, I’m not sure Passan is.
I don’t know who is likely to be more accurate, but if I were a Dodger fan,I wouldn’t get my hopes up it’s only 45 million.
ayeah
True. In not getting their hopes up in it being only 45 million. They have to put all that money to good use too! And win it all too.
How many championships did all that spending get them the last couple of years? As well, how did the Mets do this last year too with all the spending they did last year too.
Good thing Dodgers stadium is filled with a lot of Hollywood stars who will be able to afford ticket prices and such to see the games. Because no one else will be able.
paddyo furnichuh
aueah…you assume raising ticket prices is one of the first strap that will be done. Considering the Unicornature of Ohtani’s skills and marketability, ticket prices will likely not increase at any greater rate than they have in the recent past .
emac22
ayeah
I’m not assuming. It has been a known fact ticket prices and all other costs…parking, food and streaming packages have gone up to pay for the players outrageous salaries.
How else would teams pay the players salaries? Sure not from money falling from trees.
No player no matter how much a unicorn or superhero they may appear are worth anywhere upwards of 1 million dollars a year.
Are any one of them saving lives? Risking their lives being shot or stabbed every single day of their working hour on the job? Or are risking all of our lives with the ability to take us all to war?
Absolutely not!
So, why should any one of them be allowed to demand these ridiculous contract salaries?
Because of fans who believe there is nothing wrong in paying a supposedly deserving player what they, their agent, the owners and spoiled fans feel they are worth to be paid. No matter how much it is causing the sport to die because the affordability to enjoy the sport anymore is becoming out of reach for fans.
filihok
MLBTR
Please do an article on how business works so your readers don’t embarrass themselves like this
Ayeah
“I’m not assuming. It has been a known fact ticket prices and all other costs…parking, food and streaming packages have gone up to pay for the players outrageous salaries.”
Where did you hear this?
You have it exactly backwards
Player salaries are high because people spend a lot of money on baseball.
Do you think owners see that fans are willing to pay $150 to go to a game and just decide, “well, out of the goodness of my heart I’m only going to charge $100”. And then, they sign a huge contract then decide to raise prices to pay for it? That’s what you think? Have you thought? Really? You don’t think owners will charge $150 from the get go so they can keep that extra $50 for themselves?
“How else would teams pay the players salaries? Sure not from money falling from trees.”
Teams would rather not pay them at all if that were possible. They’d keep the whole $150 for themselves.
“No player no matter how much a unicorn or superhero they may appear are worth anywhere upwards of 1 million dollars a year.”
Why do you think the owners are worth all that money? If it doesn’t go to the players, it’s going to the owners.
“Are any one of them saving lives? Risking their lives being shot or stabbed every single day of their working hour on the job? Or are risking all of our lives with the ability to take us all to war?
Absolutely not!”
How do you think this works. Again, people are VOLUNTARILY giving billions to baseball. Yet nearly everyone complains about how much they have to pay for doctors to save lives (insurance) and for police, firefighters and the military (taxes).
The only way to get what you’re asking for it to tax people more to pay doctors, police and the military and have less to spend on baseball. Is that what you meant?
“Because of fans who believe there is nothing wrong in paying a supposedly deserving player what they, their agent, the owners and spoiled fans feel they are worth to be paid. No matter how much it is causing the sport to die because the affordability to enjoy the sport anymore is becoming out of reach for fans.”
Always the dumbest argument. Look at all the money baseball is bringing in! It’s dying!
tedtheodorelogan
It got em a halfass ring that nobody respects, or recognizes as being legit.
UncommonSense
You’re thinking of the Astros win in 2017
rct
@ayeah: only one team can win the championship each year, yet many spend through the teeth to try. So citing examples of high-spending teams not winning the championship as proof that spending doesn’t work isn’t really accurate. If it was, teams wouldn’t still be spending like crazy.
And to counter your examples, take a look at how much money the current world champion Texas Rangers have passed out over the past couple of years.
ayeah
Teams spend like crazy because their fans insist the teams need to spend whatever the team can to get the player.
Your example of the Rangers highlights my point exactly. Look back at the A-Rod signing. How many rings did the Rangers win with that contract? Exactly!
Halo11Fan
Now Fangraphs wrote an apology. What is going on with the media today?
They got it down to 42.5 million. So 45 million is a reasonable take.
emac22
Hate mistakes or corrections?
Datashark
Blame Bobby Bonilla on the deferrals program.
If Dodgers do get the Yamamoto – its truly a shame because small market to mid market in the NL have so little chance now. Dodgers are building up their Japan to MLB route with this.
slider32
Dodgers reloaded last year, they will sign at least 2 top end starters either through trade or free agency. They have been connected to Yamamoto and Cease, I can see them landing both now!
JerseyShoreScore
Just glad to read that there is plenty of money leftover for the Dodgers to sign a top tier starting pitcher. Hopefully, Yamamoto wants to play the next decade side by side with Ohtani.. That would be great for the Dodgers, MLB, Japan, and the rest of the world…
MadBum14
“Great for MLB” Blow me
Datashark
That would make NL non-competitive, and may even have issues with smaller market teams to have such a lopsided team filled with obnoxiously paid all-star squad – it may even hurt fan bases knowing one team is so stacked
getrealgone2
Still gotta win the games.
Sid Bream Speed Demon
So the Braves have an artificially high tax number because the averages on all of their extensions get weighed into the tax, so a functional $210 million payroll becomes a $260 million dollar payroll but these guys are allowed to defer money to avoid a bigger tax burden? Absolutely ridiculous. Especially when you consider Freeman and now Ohtani have large deferred money amounts.
Wrian Washman
My brother in Christ trust me when I say, nobody except Dodgers fans want that.
revolver
Betts too. His contract is only like a 24 million hit. It’s ridiculous. Defeats the entire purpose of the CBT.
halloffamernobodycares
don’t forget Mookie! He deferred a ton, too.
Sid Bream Speed Demon
I didn’t forget him, I just didn’t know it. Thanks for the info though!
emac22
The brave prepay expenses and the dodgers live on credit.
Think about how that plays out long term and stop crying.
wbz41
who gets the tax money?
revolver
Divided by the small market teams .
sacrifice
The Dodgers are legit.
Gavin Lux is an absolute stud.
Mookie 2nd, Lux ss? That’s a top 3 middle infield in baseball
I’ll get back to ya on the pitching.
Central Valley
Anyone heard from Farhan?
MadBum14
He’s cackling it up with his former boss Friedman. No one can convince me he’s not on the dodgers payroll.
Whyme
Huh? That was Bernie Madeoff and the Mets owner.
pt24601
Seems like a bald faced attempt at circumventing the luxury tax. The dude is contracted to play 10 years for $700M in compensation. AAV should be considered $70M regardless of the amount or length of deferred payments. Why is MLB allowing this?
ibuititnoonecame
They went as far too. Say in the rules that they average the salary over the years so you can’t back load why can you defer. If ever the “in the best interest of baseball” clause was to be used it’s how
MadBum14
MLB won’t get in the way. They got what they wanted. Another superstar in LA. League is a sham
Pads Fans
It is considered to be $70 million annually for the CBT.
emac22
Take it to Vegas and lose.
emac22
Why allow financing, why allow players to make more than minimum wage or why allow business owners to invest in their businesses?
Just want to clarify your pain.
AL B DAMNED
Why does MLB let the Dodgers manipulate the Luxury Tax all the time? The did it with Betts & Freeman, and now Ohtani! It is not fair to other teams & especially to the teams that have to pay more in Luxury Tax fees! L.A. needs to work with Arizona D-Backs about a name swap because the Dodgers are the REAL “SNAKES” IN MLB!
halloffamernobodycares
cry louder
Pads Fans
The Dodgers DON’T get to manipulate the CBT just by deferring money. No team does.
Its exactly why the Padres extended Bogaerts deal to 11 years and the Phillies extended Harper and Turner’s deals. The ONLY way to get the AAV for CBT purposes down, is to sign the player for more years.
If Ohtani’s deal is 10 years and $700 million then it counts as $70 milloin towards the CBT payroll, regardless of how much of it is deferred.
Deferring money helps the Dodgers with their annual out of pocket costs, but it doesn’t change how the CBT payroll is calculated.
YankeesBleacherCreature
si.com/mlb/2015/01/19/max-scherzer-washington-nati…
Pads Fans
I don’t care what a sportswriter said. I care what the CBA says.
I posted the full thing below and several other times on here. Go read it in the CBA.
emac22
Will you be back when you figure out you’re wrong?
Pads Fans
It you are talking to me, I am correct. 100%.
If you think I am wrong, then quote where it says in Article XXIII something that contradicts what I said.
Otherwise, I am correct.
ibuititnoonecame
I don’t think it’s fair in the least to allow deferred money to not count now. Clearly it circumvents the “soft cap”
filihok
ibinoc
“I don’t think it’s fair in the least to allow deferred money to not count now. ”
You’re in luck. Since deferred money absolutely counts
See, MLBTR, see now little your readership understands about this situation? You could change that. Just write a decent article explaining how present value works, and how it works with regards to AAV.
Back to the dude who misspelled their user name.
The deferred money still counts. It’s not just erased. It just counts less. Which is perfectly reasonable. You wouldn’t say that me paying you $100 today is equal to me paying you $100 in 10 years. So, why should player salaries in 10 years be considered equal to today’s?
JoeBrady
How is it that people do not understand the time value of money? I can buy a 10-year bond with a 4% coupon. So if you lend me $1M for ten years, with no interest, you just lost $200k or so.
Same thing with Ohtani’s contract. If I don’t have to pay $100M for ten years, I just made $20M or so.
johnrealtime
The Nationals have been doing this for years. They’re paying upwards of 30 million yearly over the next decade to a handful of players for deferrals.
You can do this but it will affect the teams budget eventually.
That being said, I imagine an “Ohtani Rule” is going in the next CBA that limits how deferrals impact the luxury tax
ibuititnoonecame
Right it needs to be stopped for the good of competition. Look this may blow the F up on th e dodgers if he continues the trend of breaking down and it stops them from winning. They then have to pay for him hurt ans later when he is gone.
towinagain
Dodgers have an endless money tree, so doubt they are hurting. Easiest bet to make Dodgers vs Yankees in the 2024 WS
ibuititnoonecame
winning the off-season does not mean a thing
KamKid
Didn’t the league office step in to avoid a 14 year contract the Padres were tabling for Judge last year on the basis that it was clearly tax shenanigans? If that’s a manipulation of the tax rules, why isn’t this?
MadBum14
Because they can bend the rules to benefit LAD and NYY. Then all the talking heads like Passan spin the narrative that this is some common occurrence. 95% of fans won’t blink an eye to this nonsense.
Pads Fans
They CAN’T bend the rules. Its not governed by MLB and they don’t have the ability to bend the rules. Its written into a collectively bargained agreement, the CBA between MLB and the MLBPA so its governed by labor law.
Ohtani’s 10 year, $700 million contract will add $70 million per season to the Dodgers CBT payroll.
TrumboRedux
Pretty good point Kamkid!
emac22
One thing being illegal doesn’t make everything illegal. SMH.
You can defer money under the cba rules. That doesn’t mean you can do anything you want.
JoeBrady
You need to separate two distinct concepts: one of duration and one of discounting.
1-Duration-If I sign Ohtani to a $700M, 35-year deal, then he won’t even be in the country for the final 25 years. So the MLB will not allow you to call the a $20M a year deal.
2-Discount-If the player is willing to take the same deal over 35 years of payments, then he is effectively getting less than if he took $700M over ten years. The team, the player, and the union all recognize that $700M paid over 35 years is worth a whole lot less than $700M paid over ten years, and will discount that.
ayeah
The sad part of this signing is the players and owners are destroying baseball for good.
Because who is going to be able to afford to go to a game or pay a streaming service to watch another game?
Ok, maybe a rich, family-less NFL football, NBA basketball or NHL hockey player, but that’s about it.
No average working family with any kids will be able to pay for parking, tickets, and meals or drinks at the games anymore.
filihok
MLBTR
Again. Thank you for attempting to clear up the confusion regarding deferred money and AAV for CBT purposes
“The sad part of this signing is the players and owners are destroying baseball for good.
Because who is going to be able to afford to go to a game or pay a streaming service to watch another game?”
Maybe an article on basic economics to further inform your readers so you don’t have so many uninformed readers like this
filihok
Oh
And Present Value. Please. Look how many people commenting here do not have the slightest understanding of it.
Pads Fans
As usual, you are wrong and won’t admit it.
Here is the link to the CBA
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
You can find the relevant rules in Article XXIII Section E numbers 2 and 6
Article XXIII starts on page 115 and Section E on page 131
Number 2 is on page 131. Number 6 on page 136
ARTICLE XXIII—Competitive Balance Tax
(2) Average Annual Value of Guaranteed Multi-Year Contracts
A Uniform Player’s Contract with a term of more than one (1) championship season (“Multi-Year Contract”) shall be deemed to have a Salary in each Guaranteed Year equal to the “Average Annual Value” (“AAV”) of the Contract (plus any bonuses subsequently included by operation of Section E(4) below).
The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other payment that this Article deems to be a Signing Bonus) attributed to a Guaranteed Year in accordance with Section E(3) below plus (c) any deferred compensation or annuity compensation costs attributed
to a Guaranteed Year in accordance with Section E(6) below shall be divided by the number of Guaranteed Years.”
——————————————————-
(6) Deferred Compensation
(a) Definition
“Deferred Compensation” shall mean any Salary payable to a Player pursuant to a Uniform Player’s Contract in a Contract Year after the last championship season for which the Contract
requires services as a baseball player to be rendered.
(b) Attribution
(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.
It doesn’t matter what Passan said or that the writers here referenced him on this and the previous article. The ONLY thing that matters is what is written in the CBA. Its not something MLB can bypass or allow some teams to adhere to or not adhere to. Its governed by Labor Law!
Ohtani’s 10 year, $700 million contract will count as $70 million towards the Dodger’s CBT payroll in each of the 10 seasons the contract covers.
As the CBA states clearly, deferred money counts in the year that the Dodger’s were required to designate it for within those 10 years.
Let me repeat for clarity.
Ohtani is a $70 million hit to the Dodgers CBT Payroll from 2024 to 2033.
LeeJPC
This is exactly what I thought, and very poor reporting by both writers here and others suggesting otherwise.
JoeBrady
Fillhok and Pads Fans seem to have a disagreement on this, and are very outspoken. I think a wager is in order. The loser disappears until opening day.
emac22
Othani playing for the dodgers doesn’t ruin baseball. players like him floundering on bad clubs like the Angels does.
ayeah
It will in a year or two when his arm gives out again and can’t pitch anymore for the remaining X? years on the contract and the Dodgers are stuck with a contract that looked feasible at the signing and made all their fans chest pump and loving their owners for giving way too much money for him.
For there WILL be upcoming players who feel their contracts command more than Ohtani’s did. So, contracts will keep getting astronomically higher and higher and players will continue not to be able to fulfill their contracts because they will breakdown with injuries.
It’s ruining baseball because the unGodly salaries, will not be affordable for fans. Players will get hurt and not be able to play through their complete contract obligation. I.e. Ryan Howard. Because players have no remorse in giving a cent back to the team and fans who were willing to pay them that salary for X amount of years to only have them play a fraction of the contract.
True, it’s not him playing “for” the Dodgers, but the contract he demanded and the Dodgers and any other team willing to offer that much “is” what is ruining the game.
drdback
Hope the dodgers wind up paying out billions of dollars in luxury taxes over the next couple decades.
emac22
I just hope a few 1/2 billion dollar investments produce nothing and they stink for a decade to pay it all off.
haighwiser
If they can skirt the luxury tax like that, why even have it then? Isn’t this defeating the whole purpose of having one in the first place?
BigFred
I guess this should allow the Dodgers to add Yamamoto & Snell for the rotation, Hader for the pen and maybe Bellinger for center field. Ha.
ayeah
That would be awesome. And then they can choke and not go all the way again too.
holycow16
Go Cubs Go!!!
jorge78
Oh, discount on present value! I was wondering about that! Thanks Nick!
lebowskiachiever
What no one mentions is that the number of dollars the Dodgers do NOT spend. They let more free agents go than just about any other team, preferring to consolidate their money to pay truly great players rather. Just this offseason, they are likely to not resign (or already haven’t) Martinez, Kershaw, Peralta, Hernandez, Hudson, Shelby Miller, Urias, Syndergaard, and Lynn, to the tune of $88.25 million in savings. After 22, they let Trea Turner, Justin Turner, Bellinger, Heaney, Kimbrel, and Tyler Anderson walk. After 21, it was Seager, Scherzer, and Jansen. The Dodgers do not just gobble up the best players willy-nilly – they let some of the best/most expensive players in the league go each year as free agents. They have been saving their nickels and dimes for Ohtani for years and should not be begrudged for spending their well-planned savings on him.
emac22
Ahh yes. Let’s have a discussion about dollars the dodgers don’t spend!
You sound like fun!
filihok
Emac
I’ve been with you most of this thread but
“Ahh yes. Let’s have a discussion about dollars the dodgers don’t spend!”
This is kinda dumb. Talking about the players the Dodgers didn’t resign makes perfect sense in response to “The Dodgers just sign everyone”
And this
“You sound like fun!”
Us the lamest internet trope
terry g
The Dodgers did not invent the use of deferred payments. They just use the system the way it is. Other organizations have used the deferred payment system to lower the luxury tax hit. Washington comes to mind.
The way the league treats FA salaries and extension salaries is a crime. Extensions rarely include deferred unless they’re buying out FA years. Like Betts.
Very few owners use their own money for team salaries. Cohen is an exception, not the rule. I’d love to see owners be fans first and business people second but it rarely happens.
99socalfrc
What a crock of stuff. So they get to pay him $700m and only count $450m against the tax number.
Total BS
VinScullysSon
After 10 years, the Dodgers will still take a hit on CBT for maybe the next 20 years of some amount like $10-15 million based on the deferrals so it’s not like they just avoid it all together.
Pads Fans
After 10 years Ohtani’s hit to the Dodger’s CBT payroll is ZERO. For the next 10 years its $70 million per year.
Fever Pitch Guy
Pads – With all due respect, that is not right.
Because most of the contract is deferred, only the Present Day Value will go against the CBT.
Want proof? Scherzer’s 7-year $210M contract with the Nats had 50% deferred which meant the annual CBT hit was only around $26.4M.
It’s been stated many times Ohtani agreed to defer most of the contract because he wanted more CBT space used for other players to improve the team. Obviously if the full $70M annually went against the CBT, that additional CBT space wouldn’t happen.
We don’t know the specific details of the deferrals yet, but most likely Ohtani’s contract has a Present Day Value of between $550-$600M. The $700M is very deceiving.
emac22
I can almost taste your tears.
filihok
VSS
“After 10 years, the Dodgers will still take a hit on CBT for maybe the next 20 years of some amount like $10-15 million based on the deferrals so it’s not like they just avoid it all together.”
This is not correct
MLBTR should do an article on present value and deferred money contacts because their readers do not understand them
VSS
The Dodgers are not just counting the non-deferred part now and paying the deferred part later. That’s not at all how it works.
It’s based on the present value of the deferred money
Present value is like the opposite of interest
$100 with 5% interest is $105 after a year
In the same way, the Present Value of $105 at a 5% discount rate is $100.
The deferred money has a present value
That’s what’s counted for the AAV
roiste
How is it bs? The extreme deferral of this money means it is less valuable to both Ohtani and the Dodgers in the present day. It makes complete economic sense that the luxury tax hit would adjusted accordingly
filihok
RE: robuste
“How is it bs? The extreme deferral of this money means it is less valuable to both Ohtani and the Dodgers in the present day. It makes complete economic sense that the luxury tax hit would adjusted accordingly”
One of the few MLBTR readers who understands
JoeBrady
only count $450m against the tax number.
=====================
I’d bet serious money that the $450M is wrong. The heavily-discounted Betts deal was discounted by about $58M. In order for Ohtani’s deal to be discounted $250M, they’d have to defer half the deal over 20 years.
Sign all the Cubans
Love all the complaining about the deferred money here. Fact is, every team has the opportunity to make deals using this tool, so don’t blame the Dodgers because the FO of your favorite team isn’t smart enough to take advantage of this. You’d think the lower-revenue teams would be all over this because it might enable them to snag a free agent that might otherwise be out of their price range.
Fact is, the Dodgers front office is playing by the same rules as everyone else…they’re just better at it than your favorite team.
Pads Fans
The Dodgers are making a ton, maybe as much as 20%, of Ohtani’s contract back in additional marketing revenue and increased ticket sales.
What they cannot do is skirt the CBT rules. He will cost them the full $70 million per season for the next 10 years against the CBT payroll.
That means they are unlikely to dip under the CBT as long as Ohtani is a Dodger.
Sign all the Cubans
And they’re not skirting the rules, but the CBT number will be less than $70 million per year. Passan may not be correct about the final number, but his analysis is spot-on. This Fangraphs article back it up: blogs.fangraphs.com/the-dodgers-have-signed-shohei…
Pads Fans
You can believe Fangrqaphs or you can read the actual legal definitions that are in the CBA. This is ruled by labor law, not people that write about sports.
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
Article 13. Section E2.
Ohtani adds $70 million to the Dodgers CBT payroll.
Pads Fans
“The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other
payment that this Article deems to be a Signing Bonus) attributed to
a Guaranteed Year in accordance with Section E(3) below plus (c)
any deferred compensation or annuity compensation costs attributed
to a Guaranteed Year in accordance with Section E(6) below shall
be divided by the number of Guaranteed Years.”
Ohtani adds $70 million to the Dodgers CBT payroll each and every one of the 10 years of the deal.
Pads Fans
More from Article 13 of the CBA.
(6) Deferred Compensation
(a) Definition
“Deferred Compensation” shall mean any Salary payable to a
Player pursuant to a Uniform Player’s Contract in a Contract Year
after the last championship season for which the Contract
requires services as a baseball player to be rendered.
(b) Attribution
(i) Deferred Compensation shall be included in a Player’s
Salary as if paid in the championship season to which it is attrib-
uted 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.
Ohtani adds $70 million to the Dodgers CBT payroll each and every one of the 10 years of the deal.
Pads Fans
Passan is wrong.
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
Article 13. Section E.
Ohtani adds $70 million to the Dodgers CBT payroll.
bernbabybern
He’s not wrong. First, it’s article 23, not 13. (6)(b)(ii)
Pads Fans
You are correct. XXIII. That is why I corrected on other posts. Thank you.
Ma4170
The fact that luxury tax implications only count against net present value of contract is BS and a clear loophole that shouldn’t exist. And assuming MLB approves the deal is even worse. I bet they wouldnt if he signed w Toronto instead of a major media MLB market. It should be a $70m payroll hit, case closed.
Pads Fans
There is no loophole. Ohtani is a $70 million hit against the Dodgers CBT payroll. Every year.
Ma4170
@pads Not from what is being reported and detailed on MLB radio.
Pads Fans
I don’t CARE what some radio jock thinks. READ the fing CBA. I even included the page numbers.
You can believe what they say or you can read it yourself. The choice is yours. It won’t change the fact that the CBT hit for the Dodgers of a 10 year, $700 million contract is $70 million per year.
emac22
No one cares if you care or get hysterical.
You’re wrong and making g a fool of yourself.
Enjoy but get some Prozac for the morning.
Catuli Carl
Seems… unfair
oriolefaninva
Makes me wonder if the Dodgers will spend the rest of the money it’s gonna take in order to put a better pitching staff out there. Otherwise Ohtani is gonna be on another team that’s not gonna win the World Series while he’s there.
tedtheodorelogan
If they use this same loophole to sign Yamamoto the rest of the league should just forfeit all games against the Dodgers. If they don’t want to play fair don’t let them play at all. Maybe they end up with a second ring that nobody respects, just like their one from 2020.
UncommonSense
How is it not fair if any team can do the exact same thing?
TrumboRedux
Anyone else have a feeling that Yamamoto will have a locker next to Ohtani’s next season?
itsmeheyhii
Probably at the all-star game.
❤️ MuteButton
I believe 70 million should count against the Dodgers payroll for each of the next 10 years. Deferred money is irrelevant to the fact that they are paying somebody 700 million for playing 10 years. Allowing teams to defer money and not have it count against their annual payroll sets a dangerous president that teams will be in debt forever just to compete.
emac22
Should we tax your house based on the total of all of your mortgage payments or the purchase price of the house?
Hint – one is about twice the cost of the house.
lebowskiachiever
It’s not a loophole. MLB is adjusting for the devaluation of the dollar. It works the exact same way as an annuity – lower cash value today versus a higher total dollar number in the future. MLB and the MLBPU negotiated and agreed to this adjustment in the CBA precisely to allow for huge deals exactly like this one. If this MLB/Players Union-negotiated adjustment was not allowed, then Ohtani would have signed for his net $45-$50 million per year (which is what he essentially agreed to with this contract) and the contract would not look like such an outlier.
filihok
la
“If this MLB/Players Union-negotiated adjustment was not allowed, then Ohtani would have signed for his net $45-$50 million per year (which is what he essentially agreed to with this contract) and the contract would not look like such an outlier.”
100.
Too bad your explanation will have gone over the heads of 90% of the readers here.
CujoMarlin
fili – why do you insult nearly everyone in nearly every comment you post?
filihok
CM
Do you think most people commenting here understand anything about finance?
Do you think they understand that counting a deal that’s worth around $500 million as being worth $700 million dollars is an effort to drive down player salaries?
Or that they are doing present value calculations to analyze contracts?
Do you think their reactions to 10/$700 with defferels and 10/$500 would be the same since the two contacts are basically equal?
I don’t
So, I said say so
emac22
Because people need to learn and stupid people are loud.
Pads Fans
They CAN’T adjust it. The CBA doesn’t allow it in terms of the CBT payroll.
Habitual Truth Teller
It’s a loophole to avoid cbt tax hit.
I get it. Dodgers don’t want to pay taxes. Billionaires use all kinds of tax loop holes to avoid paying taxes. Nothing new.
The sad part is the mlb allows them to do such. We can barely get living wages and conditions for minor leaguers but dodgers can avoid tax penalties by deferring 40% of ohtanis contract.
Mlb is a joke till they figure out how to have an appropriate salary cap and floor.
filihok
MLBTR
“dodgers can avoid tax penalties by deferring 40% of ohtanis contract”
I’m begging you
Please explain contacts and present and future value to your readers. They are clueless
Jobu
If the the Dodgers weren’t deferring so much money they wouldn’t have given him $700 million. They would have given him like 500 million and, HERE’S THE KICKER, it would have had the same value.
emac22
Devaluation of the dollar is absolutely the wrong phrase but the annuitycomparison I’d good.
Mercenary.Freddie.Freeman
Ohtani is going to show us what a humanitarian he is and buy up sections of skid row in Los Angeles to put in shelters and soup kitchens.
filihok
See MLBTR
See how little your readers understand about Present Value.? Look at the absolutely ignorant comments here.
You guys have thr opportunity to change that.
A simple article – a primer on present value.
Then you start reporting all contracts with the total payout and the PV (10/$300 million $206 million PV).
Then your readers will be better informed citizens of the world through something that you did. Wouldn’t that be awesome?!
JBBooks1901
This whole Dodger deferred money deal is not unlike a ponzi scheme. At some point the deferred money owed to players will have to be met and the whole house of cards will fall.
bhambrave
It’s my understanding that teams create annuities to fund the future outlays. They aren’t ignoring the expense, they’re just delaying the payment.
UncommonSense
Is your mortgage a Ponzi scheme?
filihok
For everyone here who thinks this is a “loophole” or whatever
1) you think that because you don’t understand finance or present value
2) players almost certainly lobied for contracts to be accounted for this way.
3) counting Ohtani’s deal as 10/$70 vastly overstates how much money he will get. Using an 8% discount rate, a 10/$70 deal has a present va,ue of about $508 million. Why should the Dodgers be taxed on $70 million per year, for a contract that is worth about $50 million per year? Owners want the CBT to drive down player salaries and taxing them at the nominal (10/$70) rate does that, ALL multi-year deals should be taxed at the present value rate. That’s the most reasonable way to do it. If you then wanted to say that deferred payments had to be treated as occurring during the contract terms, that might make some sense. Using PV would favor the p,ayers and counting defferments as occurring during the contract would favor owners.
Said more simply, a 10/$70 million deal is not worth $700 million and should not be taxed as such. If you had money, you wouldn’t want it taxed that way,
Fernando P
We’ve mentioned Bonilla, but that was a bad example. Bonilla’s contract didn’t contain any deferrals.
Bonilla was cut by the Mets in 1999 and still had 5.9M guaranteed money remaining. Mets and Bonilla agreed to defer money until 2011. From 2011-2035, Mets would pay 1.19M each year. That amounted to 29.75 total, which was the future value of 5.9M deferred at 8% interest for like 36 years (11 years of no payments and 25 years of payments).
Degaz
$45M is still a ton of money for a DH even if he hits as well as he did this past year. DH’s generally start wit ha negative dWAR of -1.0 or lower. That means you are paying $45M for a DH that will pretty much max out at 6.0 WAR but more likely 3.5- 5.0 WAR. Lotta money….as I said before better hope that elbow holds up. I have my doubts….
Pads Fans
I am off for dinner, so let me post the bottom line and the facts to support it.
Here is the link to the PDF of the CBA on the MLBPA website
mlbplayers.com/_files/ugd/4d23dc_d6dfc2344d2042de9…
You can find the relevant rules in Article XXIII Section E numbers 2 and 6
Article XXIII starts on page 115 and Section E on page 131
Number 2 is on page 131. Number 6 on page 136
ARTICLE XXIII—Competitive Balance Tax
(2) Average Annual Value of Guaranteed Multi-Year Contracts
A Uniform Player’s Contract with a term of more than one (1) championship season (“Multi-Year Contract”) shall be deemed to have a Salary in each Guaranteed Year equal to the “Average Annual Value” (“AAV”) of the Contract (plus any bonuses subsequently included by operation of Section E(4) below).
The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other payment that this Article deems to be a Signing Bonus) attributed to a Guaranteed Year in accordance with Section E(3) below plus (c) any deferred compensation or annuity compensation costs attributed
to a Guaranteed Year in accordance with Section E(6) below shall be divided by the number of Guaranteed Years.”
——————————————————-
(6) Deferred Compensation
(a) Definition
“Deferred Compensation” shall mean any Salary payable to a Player pursuant to a Uniform Player’s Contract in a Contract Year after the last championship season for which the Contract
requires services as a baseball player to be rendered.
(b) Attribution
(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.
—————————————————————-
It doesn’t matter what Passan said or that the writers here referenced him on this and the previous article. The ONLY thing that matters is what is written in the CBA. Its not something MLB can bypass or allow some teams to adhere to or not adhere to. Its governed by Labor Law!
Ohtani’s 10 year, $700 million contract will count as $70 million towards the Dodger’s CBT payroll in each of the 10 seasons the contract covers or 2024 to 2033.
As the CBA states clearly, deferred money counts in the year that the Dodger’s were required to designate it for within those 10 years.
vivalosdoyers
Tough week for Padres fans.
emac22
Looks like we need to send some mental health professionals down there for an intervention.
JoeBrady
It’s not a tough week until the off-season is over (as I like to tell the RS fans). That said, I’ve never seen so many fans of any team screaming like they did prior to Soto being dumped.
Perksy
Pads yet I hope you’re right as I’m not a dodger fan but Im sure did their due diligence on this before the signing and the cbt will be lowered
Brian frigging Downing
What’s for dinner?
bhambrave
Homemade beef stew.
Brian frigging Downing
That sounds really good. Going slow cooker, pressure cooker?
bhambrave
Slow cooker. We put it in last night.
Brian frigging Downing
I’ll be over in an hour
bhambrave
Glad to have you.
itsmeheyhii
Am I not understanding this correctly? It seems like circumvention of the luxury tax.
filihok
imhh
You’re not understanding it. Or basic finance.
The Present Value of this deal is going to be something like 450 to 500 million.
If it was you, you wouldn’t want to be taxed on $700 million of value for something that was worth $500 million. Why would a team?
emac22
Deferred value is now basic finance or was that just an additional insult by someone who thinks they’re smart because they understand basic finance and kids don’t.
filihok
emacc
“Deferred value is now basic finance ”
Yes
emac22
No. You’re just an jerk.
It’s retty simple but it has nothing to do with the finances most people deal with and getting upset when someone doesn’t know and asks nicely is just you being a jerk.
Not everyone has a job or education in finance and basic finance doesn’t refer to one year of economics in college or a career in finance.
JoeBrady
Not everyone has a job or education in finance and basic finance
=======================
But the idea of money being worth less next year relative to this year, is not complicated.
But that’s not the important part. Some fans are screaming about how wrong this process is, without knowing that there is nothing wrong with the process. That’s the issue for me.
itsmeheyhii
@JB Thats true.
Its also not what I was asking. I was referencing MLB and its CBA.
corrosive23
Cope and seeth, if it was any other team, you guys would be praising the fo for figuring this out.
emac22
Nothing was figured out.
Nothing is new.
Nothing is wrong.
They made the headline number look bigger by giving him a deal worth 500 mil and calling it a 700 mil deal.
They probably wouldn’t have if they realized how many people it would damage.
websoulsurfer
Don’t want to read through all the arguing in the comments above, so just going to state the fact that deferrals don’t impact CBT calculations in any way. Ohtani will cost the Dodgers $70 million per year towards their CBT payroll. Not ACTUAL payroll, CBT payroll.
Please don’t believe me. Read the CBA. I saw several people that have posted the areas you need to read.
Brian frigging Downing
How much wood would Ohtani Chuck if Ohtani could Chuck Norris? That is the real quandary
bxbombers857
Article VI section B talks about calculating deffered at a discounted true rate.
(ii) Deferred Compensation Adjustment. If any deferred
compensation is included in the Base Salary, the Base Salary
shall be adjusted to reflect the discounted present value of the
deferred amount.
filihok
100!
Seems like MLBTR could have included this in their article. They must be aware that their readers don’t understand anything about how these contacts work.
Half the other thread is ignorant blowhards insisting that the Dodgers would have $70 million a year counted against them for the CBT. You’d think the site would want to help to inform their readers. But, maybe they just want clicks
vivalosdoyers
Because you can’t PV the payments when you don’t know the amortization of the deferred deal.
emac22
Seriously?
Does an internet sports business want clicks or educated readers?
You’re no longer allowed to call people stupid.
filihok
emac
Muted
NoNeckWilliams
It’s not that the small market teams can’t afford to pay 150 million in salaries…. it’s that they can’t survive to eat a 300 million dollar bust.
emac22
Or have 50 mil per year in deferred salaries added to payroll for a decade.
HBRC1987
You gotta be a real wanna be baseball nerd to give a damn about a teams luxury tax impact… oh wait, thats all mlbtr commenters are I forgot
filihok
dg
I know, right
Damn nerds wanting to understand things. Losers.
HBRC1987
Understand things that have nothing to do with them and on a economic level they’ll never be close to. Yeah, losers.
filihok
dg
Spoken like someone who topped out ineffectually around middle school
HBRC1987
Spoken like someone who is butt hurt cuz what I said hit home
its_happening
You forgot to block with your second burner account. I see you haven’t learned baseball since the first burner account, fili-cheez.
Yanks2
Why didn’t they let the Padres take advantage of this loophole trying to sign Judge for 14 years?
emac22
Why is it hard to understand rules allow some things and not others?
There is a legal way to pay deferred money. The Padres tried to push the boundaries too far.
Does a conspiracy theory have to lie at the root of everything?
filihok
Imagine thinking something your [unintelligent donkey] said has any impact on me
Muted
its_happening
No point in a luxury tax if teams are allowed to circumvent the system with deferred salary. Argue for it all you want, it’s bogus. Deferred money or not, Shohei’s cap hit every season should be $70-mil the next 10 years.
terrymesmer
CBT is a scam.
filihok
Terry
“CBT is a scam.”
It is
It’s just a way to drive down salaries.
Deferrals are a way to bring them back up.
If the Dodgers were stuck counting $70 million against the CBT they might spend less on players this year. Since they can defer the payments and reduce the CBT value they can spend more
That means more total money going to players in 2024
That’s what players want
And owners hate
Chris Koch
You know. The Dodgers are in a great place with pitching if they sit tight and let Miller, Sheehan, Pepiot, Stone, and May? Just develop into top of rotation-#3 pitchers who won’t be available for meaningful playoff starts in 2024. But 2025 now brings back Ohtani, and all of those pitchers are capable playoff starters if healthy 2024 were had. Ohtani added what 60? Runs expectation to the Dodgers offense. What’s the rush to improvement if all they need to do is settle on ohtani year 1 not bringing their WS appearance chances come playoffs at say 30pct but enjoy a 60pct WS chance each of the next 5 seasons+ afterword? Those 4 would be a cheaper compliment for the team at least the next 3 seasons. Take a break, win 100games sleeping. Lose in a series and then dominate the baseball world for 5seasons vs searching for 1-2 SPs again come 2025 because you traded away 1-2 of those 4.
Btw Fangraphs shows Ohtani was worth 70m value each of last 2 seasons. Ones that add 0 playoff game appearances. He’s going to get opportunity for at least 9 seasons of guaranteed playoff appearances to add to the value he’s just shown for a regular season. Dodgers got off light.
DBH1969
I am going to post this at the end of the chat so I don’t have to post this 400 times above:
We are all right, and we are all wrong.
I read elsewhere that it is actually a 600+ mil contract, not a 700…. the reported 7oo includes interest on the deferred payments.
Congrats everyone! We just spent 2 days arguing the same point from 2 different directions!
Thanks for that reporters!!! You effs!!!
MLBTR needs to hire editors
“Meanwhile” can’t be inserted mid-sentence, separated by commas. It needs to START the sentence.
Charrlie
Shohei Ohtani Contract
10 Years 700 Million
Luxury Tax should be 70 Million a year
Anything less than 70 Million is total BS
I’m ready for a real salary cap with Upper & Lower floors.
Also No contracts over 10 Years to lower Cap Numbers!