2023-24 free agency, trades, and signings

[Natsinpwc]

$60 million AAV makes some sense.  Can’t see how they would ever get to $40 million.  Or even $50.

[bluestreak]

So is the AAV actually $70 million a year.  I can see how deferrals will help the team with cash flow but don’t see how it helps with the luxury tax?

I think that, for AAV purposes, there's a net present value calculation for the stream of payments, then that is divided over the number of playing years. That's why the CBT hit on Strasburg, Max, and Corbin is a bit less than an undiscounted average of the total dollars.

https://x.com/jeffpassan/status/1733617544471216149?s=46

I’m going to explain why Shohei Ohtani’s $700 million contract with the Los Angeles Dodgers will not equal $700 million in terms of MLB accounting or the present-day value of the deal.

When money in a contract is deferred, the competitive-balance tax number — the luxury tax — is discounted. With a source saying a “majority” of Ohtani’s contract is deferred, the discount could be significant. Typically, a CBT number is the average annual value of a deal — in this case $70 million. But depending on the size and length of the deferrals, Ohtani’s CBT number is likelier to wind up in the $40-50 million-a-year range, an enormous benefit for the Dodgers.

The deferrals also affect the net present value of the deal. There’s a rule of thumb across all walks of life: Money today is more valuable than money tomorrow, inflation being what it is. When you defer money, you’re taking less. The Dodgers are operating in an environment in which the prime rate is 8.5%. And with money today being so pricey, it lowers the present-day value of the deal by a significant margin.

Regardless, in the end, Shohei Ohtani will be paid 700 million US dollars by the Dodgers. It’s an obscene amount of money. It’s just going to be seen as less by the league’s accounting — and will allow the Dodgers to add even more around Ohtani as they try to win a championship.

[nfotiu]

That 8.5 number is not correct. Discount rate is more like 5%. 

Are they really deferring a significant amount of money 40 years??   

I’d be surprised if the deferrals get it below 65 million per year aav.

It gives the perception of cbt circumvention but it’s not really. It’s more misleading to call it a 700 million contract if the deferrals are that extreme. 

 

[Natsinpwc]

That 8.5 number is not correct. Discount rate is more like 5%. 

Are they really deferring a significant amount of money 40 years??   

I’d be surprised if the deferrals get it below 65 million per year aav.

It gives the perception of cbt circumvention but it’s not really. It’s more misleading to call it a 700 million contract if the deferrals are that extreme. 

 

Yeah Passan is pissing in the wind a bit I think.  He should not have made up numbers. 

[JCA-CrystalCity]

The other thing is the Dodger board has some really bad language.

they could use a strong moderator 

[Senatorswin]

they could use a strong moderator 

Yes they could. Good thing we don't have that issue.

[Senatorswin]

In 2055 the Dodgers will have a Shohei Ohtani day like the Mets have a Bobby Bonilla day.

[JCA-CrystalCity]

In 2055 the Dodgers will have a Shohei Ohtani day like the Mets have a Bobby Bonilla day.

Except there's some likelihood that Ohtani / Betts / Freeman etc... might produce a few pennants and world series wins. That doesn't happen, then Bonilla Day 2.0.

Which reminds me, we ought to have Viva Max Day.

[imref]

Our equivalent would have been Rafael Soriano day.

[nfotiu]

Except there's some likelihood that Ohtani / Betts / Freeman etc... might produce a few pennants and world series wins. That doesn't happen, then Bonilla Day 2.0.

Which reminds me, we ought to have Viva Max Day.

Who's going to pitch for the Dodgers?   They're payroll is 244 million and they have maybe 1-2 starting pitchers ready to go opening day as it stands now.

[Five Banners]

Who's going to pitch for the Dodgers?   They're payroll is 244 million and they have maybe 1-2 starting pitchers ready to go opening day as it stands now.

I don’t think it’s going out on a limb to speculate that now that this deal is wrapped up, they could be making moves in that direction

[Slateman]

Who's going to pitch for the Dodgers?   They're payroll is 244 million and they have maybe 1-2 starting pitchers ready to go opening day as it stands now.

Why cant they just sign more pitching? Ohtani's contract is a huge money maker for the Dodgers. It more than offsets the luxury tax penalties that will be assessed.

Theres nothing that prevents the Dodgers from signing a Yamamoto/Snell/Montgomery. They then have the farm system to trade for a Cease or Glasnow.

[JCA-CrystalCity]

$60 million AAV makes some sense.  Can’t see how they would ever get to $40 million.  Or even $50.

actually, the dude who calculated the $60 million AAV says he made a huge math error, and, assuming $40 million deferred over 40 years, with $10 million yearly payments, then the AAV is reduced to about $43 million.
https://blogs.fangraphs.com/the-dodgers-have-signed-shohei-ohtani-what-does-it-all-mean/

More or less, even if the deal comes out to $50 million AAV, he's probably worth it (relative to Judge's contract) even if he never pitches again.

[Natsinpwc]

Sho hei the money. 

[nfotiu]

actually, the dude who calculated the $60 million AAV says he made a huge math error, and, assuming $40 million deferred over 40 years, with $10 million yearly payments, then the AAV is reduced to about $43 million.
https://blogs.fangraphs.com/the-dodgers-have-signed-shohei-ohtani-what-does-it-all-mean/

More or less, even if the deal comes out to $50 million AAV, he's probably worth it (relative to Judge's contract) even if he never pitches again.

Is it really 40 years??  Who knows if the mlb or dodgers are still even around by then.


What is the point in taking 700 million over such a long period vs the 500 million it is actually worth in present value?   Just to make a splash and be able to claim he’s getting 700 million using the same tricks as lotteries and publishers clearinghouse sweepstakes? 

[imref]

He wants to win and wants the dodgers to be able to sign other players.

[nfotiu]

He wants to win and wants the dodgers to be able to sign other players.

That doesn’t really add up to me.  If he’s going to be a 50 million/ year cap hit now but get that money over several years, he’s the same of better off just to take a 50/year contract paid normally.  It helps the dodgers a bit from a short term cash flow perspective.   But why punt that money down the road when they’re getting 300 million/ year on a tv deal that likely wi r be paying near that when they’re done paying him.

[bluestreak]

Is it really 40 years??  Who knows if the mlb or dodgers are still even around by then.


What is the point in taking 700 million over such a long period vs the 500 million it is actually worth in present value?   Just to make a splash and be able to claim he’s getting 700 million using the same tricks as lotteries and publishers clearinghouse sweepstakes?

If I had to bet whether MLB would be a going concern in 2064, I would bet no.

[Senatorswin]

It doesn't seem the Ohtani signing will significantly increase revenue to the team.

- They already had an attendance of over 3.8 million (over 48,000 per game) so that's not going to increase much.
- They already draw over 32,000 per game on the road so that's probably not going to increase much.
- The concessions won't increase much because the fans are already eating and drinking.
- Their local TV money is already set so that won't increase.
- I'm sure there will be a lot of Dodger Ohtani jerseys sold but supposedly MLB only gets 12% of that revenue, which still amounts to a lot of money, but all the MLB teams share that money and Ohtani already sold the most jerseys in MLB last year.

I could be missing something though.

[tomterp]

That 8.5 number is not correct. Discount rate is more like 5%. 

 

Right, you would never use a prime rate in such a calculation, as the prime rate is a short term borrowing rate and relatively volatile  The time frame of a prime rate doesn't match the contract term, not remotely appropriate.  You'd use a long term rate that is representative of the duration of the contract for the entity doing the calculation (the Dodgers*).  4, 5% might be a better fit. 

[Natsinpwc]

He wants to win and wants the dodgers to be able to sign other players.

Should have told them to pass on him and sign some pitching. Urias is gone. Kershaw maybe gone and not a top of the rotation anymore. Buelher I guess will be back but he is a free agent after 2024.

[Natsinpwc]

So to summarize. We don’t know the amount of the deferrals.  Or the length.  Or the discount rate used. 

[JCA-CrystalCity]

So to summarize. We don’t know the amount of the deferrals.  Or the length.  Or the discount rate used. 

or the revenues impact.

We just know the Angels are paying Anthony Rendon instead of this guy.

[tomterp]

So to summarize. We don’t know the amount of the deferrals.  Or the length.  Or the discount rate used.

We still can wet a finger and stick it in the air. 

[nfotiu]

We still can wet a finger and stick it in the air. 

Or to quote the most famous of Canadian bands..

Drive-In's rained out
Weatherman wet-fingers the sky
He pokes it out, he pulls it in
He don't know why
It's the same mistake