Ohtani to Dodgers

[jerichoholicninja]

2 minutes ago, Brewcrew82 said:

They wouldn't fight the bigger markets exacerbating their competitive advantage on the field???

I think they would. 

When have they before? And the players would never agree to anything that could surpress their earnings anyway.

[Fear The Chorizo]

To me it's not the deferred money payments that is gross, it's the fact that doing so reduces the luxury tax AAV of the deal in any meaningful way for the 10 years ohtani is actually playing for the dodgers  

The Dodgers are literally the only market that can absorb this type of longterm deferred payment because of their tv deal compared to everyone else, and they are skirting the serious luxury tax penalties altogether because of it, basically saving those penalties they'd othwise have to pay the rest of mlb and instead giving it to ohtani as a retirement gift.

[wibadgers23]

The Dodgers are going to go out and sign Yamamoto now, aren’t they?

[markedman5]

1 minute ago, wibadgers23 said:

The Dodgers are going to go out and sign Yamamoto now, aren’t they?

Probably 

[SRB]

1 hour ago, jerichoholicninja said:

Wait a minute, the guy chose deferred payments (i.e. taking less money) to help his team continue to sign talent and make the team better and we're holding it against him? 

He's not really taking less money. The true value of the contract is closer to $450M/10, which is what everyone was expecting him to get in the first place. He's benefiting from this chicanery as well by circumventing taxes on his massive contract 😂

[TURBO]

11 minutes ago, wibadgers23 said:

The Dodgers are going to go out and sign Yamamoto now, aren’t they?

More than likely...

I once thought Burnes was destined to be a Dodger, but if they sign Yamamoto, I think that will not be happening.  Makes sense really, they can throw boatloads of money around, no need to trade their top prospects.

[SRB]

47 minutes ago, jerichoholicninja said:

Why would the players fight this? Ohtani is getting a larger contract than he would have if it wasn't deferred and the deferred money can be spent on other players right now.

Why would the owners fight this? It saves them money in the long run.

Everyone seems to be saying this is not good for competition. Neither or those groups care about MLB being competitive so they will do nothing about it.

Most importantly, if the Brewers would have made this deal most of you would be praising Matt and Mark for how smart they are.

They're not going to fight it obviously, but it's not a good precedent for players, because the only reason Ohtani can do this is that he is a unique marketing phenomenon who already makes $60M on marketing deals (probably way more now that he's with the Dodgers). The second highest marketing earnings per year is Mike Trout at like $5M.

[Fear The Chorizo]

It's honestly the type of contract where even teams like the Yankees, Red Sox, and Cubs feel like the little guy, because even their market sizes and TV deals can't make it work with those deferrals.  Makes me wish they would set up full revenue sharing with a salary cap during the next cba, keep guaranteed contracts and then the salary cap figure would be based entirely on actual dollars spent on payroll each year (meaning the Dodgers would have an annual $68m cap hit due to Ohtani count against their cap for a decade after he's done playing)

[MrTPlush]

Fail on MLB to not have things in place to avoid this. It isn’t just them putting $68mil off for 10 years…it’s going to be well past the next CBA is agreed upon and even the CBA after that is agreed upon. In 10 years the rules could be totally different, thus, none of it or way less of it would actually be subject to any tax.

 

If in 2026 they decided deferred money should count towards the cap in the year it was deferred from…are the Dodgers getting years of tax free savings?

[Axman59]

2 hours ago, wiguy94 said:

You can bet the next CBA will get rid of this. 

I bet it doesn't.

[Axman59]

This is a good read. The massively deferred contract is not the tax dodge people think it is.

https://www.mlbtraderumors.com/2023/12/why-shohei-ohtanis-contract-structure-is-not-a-luxury-tax-dodge.html

[JosephC]

7 hours ago, Axman59 said:

This is a good read. The massively deferred contract is not the tax dodge people think it is.

https://www.mlbtraderumors.com/2023/12/why-shohei-ohtanis-contract-structure-is-not-a-luxury-tax-dodge.html

It's garbage.  Saying that Ohtani's 700 million is really only 460 million due to loss of income from gains, dividends, interest is a perfectly legitimate argument FROM THE PLAYER'S PERSPECTIVE.  But when looking from the team perspective and the concept of dodging the competitive balance tax, the only thing that matters is how much the team pays a player and how much of that money is "eligible" for the tax.  The Dodgers will be paying Ohtani 700 million,  Only 460 million of that will count towards calculating the competitive balance tax.  From the team's perspective, there is no doubt that it is a tax dodge.

And with as money hungry as California politicians are, I'd actually be pretty surprised if we don't see a few representatives from that state really start grumbling about this.  Top income rate in that state is 13.3%.  I realize it's a progressive tax and the first dollar earned is not taxed at the same rate as the 2,000,000th dollar earned.  Just to make the math easy, let's say the effective tax rate for a 70 million dollar earner is 13%.  I also realize that players pay taxes on where they play games, so let's just say Ohtani will play 15 road games in the state of California, for a total of 96 games annually in the state.  96/162 = 59.3% of his earnings occur in California.  .593 * 700 million * .13 tax rate = 53.96 million.  But since he is deferring all that money, his earnings over the 10 years of the contract is only 20 million.  .593 * 20 million * .13 tax rate = 1.5418 million.  So, if after the last year of this contract, Ohtani up and leaves California, the state is out over 52 million in revenue due to these deferred payments.  If Ohtani relocates to a state with no income tax, it's a massive "rich guy tax dodge"...pure and simple.  Even if Ohtani goes back to Japan when the deal ends, and has to pay 45% (got the number from a quick internet search, not sure on how accurate that is) on that 680 million dollars in deferred earnings, it's still better than the 37% federal rate + 13.3% California rate = 50.3% tax rate.  

[brewerfan82]

1 hour ago, JosephC said:

The Dodgers will be paying Ohtani 700 million,  Only 460 million of that will count towards calculating the competitive balance tax.  From the team's perspective, there is no doubt that it is a tax dodge.

Doesn't it make sense to calculate the competitive balance tax based on present day value though? If they started negotiations with a 10 yr, $460M offer and it only went up to $700M in order to spread the payment out later, while keeping the same overall value, it makes sense that it should still only be a $46M/yr hit to them.

[owbc]

One has to admire Ohtani for using his leverage to make this work. In terms of achieving his two primary goals of getting paid and winning a championship, he couldn't have orchestrated it any better. 

[SRB]

9 hours ago, Axman59 said:

This is a good read. The massively deferred contract is not the tax dodge people think it is.

https://www.mlbtraderumors.com/2023/12/why-shohei-ohtanis-contract-structure-is-not-a-luxury-tax-dodge.html

I don't think this considers the full picture. It may be true that the Ohtani contract is less of a salary cap dodge than some people think, but it's still shady.

MLB does not have a true salary cap, it has a competitive balance tax, which just means you have to pay additional $ as a penalty the more you go over it.

In 2024 the Ohtani contract will eat up $46M of the Dodgers competitive balance cap, but the Dodgers will only be paying Ohtani a mere $2M. That means from a pure payroll perspective, they can add an additional $44M in extra salary plus penalties for 2024 before they reach the position they'd be in if they were just paying Ohtani on a straight $460M/10 contract. I'd have to do the math but that might be something like an extra $20-30M/year player that they could not "afford" otherwise if they were not deferring money.

In other words the structure of the contract frees them up to just blow past the competitive balance tax with no financial loss for at least another decade.

[CheezWizHed]

While I'm no tax expert, I'm pretty certain the deferred money is still considered to be "earned" in California when they pay it (unless maybe the Dodgers move...).  When i worked in MN and lived in WI, I paid MN taxes.  I doubt the money being defered will matter... it is still earned in CA.

And as long as the revenue hits LAD's luxury tax threshold in the future, I have no issues with deferred cash.  It impacts them at they time they pay it.  Obviously, Ohtani has good representation that knows how much this is worth in present day dollars and that no one was going pay him $70M/year from day one.  It is just us fans that struggle to understand the cash flow situation.  Much like Chourio's deal didn't mean he was paid $80M this offseason. 

[Fear The Chorizo]

31 minutes ago, CheezWizHed said:

While I'm no tax expert, I'm pretty certain the deferred money is still considered to be "earned" in California when they pay it (unless maybe the Dodgers move...).  When i worked in MN and lived in WI, I paid MN taxes.  I doubt the money being defered will matter... it is still earned in CA.

And as long as the revenue hits LAD's luxury tax threshold in the future, I have no issues with deferred cash.  It impacts them at they time they pay it.  Obviously, Ohtani has good representation that knows how much this is worth in present day dollars and that no one was going pay him $70M/year from day one.  It is just us fans that struggle to understand the cash flow situation.  Much like Chourio's deal didn't mean he was paid $80M this offseason. 

Will the deferred money actually hit the LAD luxury tax payroll down the road though?  Even if it fully does, that $20-30m annual accounting value 10-20 yrs from now is much less of a hit to those luxury tax years because of inflation and rising payroll limits.  It's simply not right and more evidence of a broken financial system mlb organizations operate in.

 

It's way different from chourio's contract, too - one thing to be paid $80 m over 8 seasons /calendar years at progressively increasing amounts, totally different to sign a ten year, $700m free agent contract and then proceed to be paid $2m actual dollars a year for those 10 years of play, then get the remaining $680m the following 10 calendar years and have the actual contractual impact to the Dodgers from an accounting standpoint spread across 20 seasons with accounting gymnastics to make it feel to the LAD like they signed a mid-tier player to a 20 year contract.  It's like doing salary cap gymnastics without having to meet a salary cap to avoid the luxury tax penalties paid to the rest of the league.

People will say that any of the other teams could also work out this sort of deal with huge deferrments, but thats not based in reality.  The only way it's possible for LAD to make this work in terms of annual cost is the fact their TV deal alone pays them enough annually to field close to a $250m payroll without selling a single ticket or a jersey shirt.  That's entirely due to the market they play in.  No other team could afford to play footsie with the luxury tax for 20 straight seasons and in years 11-20 of that stretch pay out $68m dollars a year in actual dollars in deferred money to a player that has likely been retired for a few seasons.

[JosephC]

2 hours ago, CheezWizHed said:

While I'm no tax expert, I'm pretty certain the deferred money is still considered to be "earned" in California when they pay it (unless maybe the Dodgers move...).  When i worked in MN and lived in WI, I paid MN taxes.  I doubt the money being defered will matter... it is still earned in CA.

And as long as the revenue hits LAD's luxury tax threshold in the future, I have no issues with deferred cash.  It impacts them at they time they pay it.  Obviously, Ohtani has good representation that knows how much this is worth in present day dollars and that no one was going pay him $70M/year from day one.  It is just us fans that struggle to understand the cash flow situation.  Much like Chourio's deal didn't mean he was paid $80M this offseason. 

There have been a couple media outlets that have reported that Ohtani could avoid paying the high California taxes.  See the following:

https://www.usatoday.com/story/sports/mlb/dodgers/2023/12/11/shohei-ohtani-contract-los-angeles-dodgers-heavy-deferrals/71885939007/

Yet, considering Ohtani earned about $40 million in endorsements last year, easily a record for a baseball player, it’s hardly as if it will affect his modest lifestyle. Besides, deferring such a massive amount of money saves Ohtani from paying about 13.3% in California state taxes. If he moves from California after his contract expires, he’ll avoid the high taxes. Effective on Jan. 1 the state income tax rate increases to 14.4%.

Ohtani doesn't earn the 680 million dollars of deferred money until he is actually paid that money, and he won't be paid that money until the current contract expires...and he may no longer be a resident of that state from that date forward.

[JosephC]

3 hours ago, brewerfan82 said:

Doesn't it make sense to calculate the competitive balance tax based on present day value though? If they started negotiations with a 10 yr, $460M offer and it only went up to $700M in order to spread the payment out later, while keeping the same overall value, it makes sense that it should still only be a $46M/yr hit to them.

?

700 million does not equal 460 million.  Saying Ohtani is getting paid 700 million, but that 700 million isn't really 700 million...it's really only 460 million because he will lose out on capital gains/interest/dividends that he would have earned from 2024-2033, does not change the fact that the Dodgers will still be paying him 700 million dollars.  If the Dodgers are paying him 700 million dollars, then it stands to reason that the Dodgers should be "charged" 700 million dollars as part of the competitive balance tax.

[sveumrules]

It's all perfectly legal, just dirty and in bad faith, but hey, that's Capitalism in a nutshell.

[JosephC]

2 hours ago, Fear The Chorizo said:

Will the deferred money actually hit the LAD luxury tax payroll down the road though?  Even if it fully does, that $20-30m annual accounting value 10-20 yrs from now is much less of a hit to those luxury tax years because of inflation and rising payroll limits.  It's simply not right and more evidence of a broken financial system mlb organizations operate in.

The total amount of the contract gets divided up and an "equal share" get applied to each year of the contact.  So if MLB designed the competitive balance tax in a reasonable manner, even with the Dodgers paying 97.1% of the salary after the contract expires,,,it still should be 700 million / 10 years = Ohtani's salary is 70 million and appears as 70 million on the "Competitive Balance Tax Payroll" for the Dodgers each season from 2024 through 2033.

However, due to the design of the CBA, even though the Dodgers are paying him 700 million, the contract is only deemed to be worth $460,814,760 from the player's perspective as they figure the player will lose $239,185,240 by not having that money to invest now, thereby the player loses the capital gains, distributions, dividends, interest that he would have earned if he would have had the full amount of that contract across the length of the contract.  Since this is the way it is calculated, Ohtani's "Competitive Balance Tax Payroll" number for the Dodgers will be $46,081,476 for each season from 2024 through 2033, not $70,000,000.  Exactly why a player should elect to receive deferred payment, would end up wiping $239,185,240 off the of money that should be part of the payroll for the purpose of calculating the Competitive Balance Tax Payroll is a big mystery.  The Dodgers are still paying him 700 million, why should 34% of that be exempt?

[sveumrules]

10 minutes ago, JosephC said:

  The Dodgers are still paying him 700 million, why should 34% of that be exempt?

Because if they weren't allowed to defer the overwhelming majority of the salary, they wouldn't have signed him for $700 million in the first place.

If all the money were required to be paid over the life of the contract, it would have come in much closer to the CBT hit of $460 million over ten years than the $700 million it was announced as with all the deferrals included.

[Fear The Chorizo]

9 minutes ago, sveumrules said:

Because if they weren't allowed to defer the overwhelming majority of the salary, they wouldn't have signed him for $700 million in the first place.

If all the money were required to be paid over the life of the contract, it would have come in much closer to the CBT hit of $460 million over ten years than the $700 million it was announced as with all the deferrals included.

Then that's what needs to happen - unless MLB is ok with the Dodgers being able to operate this way financially in a way that even the other monster MLB markets can't.  

 

[sveumrules]

7 minutes ago, Fear The Chorizo said:

Then that's what needs to happen - unless MLB is ok with the Dodgers being able to operate this way financially in a way that even the other monster MLB markets can't.  

From the reporting on the Ohtani contract it sounds like MLB has proposed deferral limits in the past, but the union has rejected them.

The easy fix would seem to be to continue to allow deferrals, but ditch the practice of applying the "present day value" towards the CBT.

Maybe the owners will present something similar in the next round of negotiations if this kind of thing continues to happen beyond singular talents such as Shohei.

[CheeseheadInQC]

16 minutes ago, sveumrules said:

Because if they weren't allowed to defer the overwhelming majority of the salary, they wouldn't have signed him for $700 million in the first place.

If all the money were required to be paid over the life of the contract, it would have come in much closer to the CBT hit of $460 million over ten years than the $700 million it was announced as with all the deferrals included.

Assuming that the contract would have been in the $460 million range without the deferrals, you could make a good case this structure benefits Ohtani more than the Dodgers.

1. If accurate, you have the tax dodge.

2. He gets to claim the absurd $700 million figure 

3. He gets the good publicity about being dedicated to winning by deferring the money without costing him anything.

The Dodgers, on the other hand, kick the can down the road on the payments but end up with the same CBT number.