Author Topic: 10 years, 700 million for Shohei  (Read 5540 times)

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Re: 10 years, 700 million for Shohei
« Reply #30 on: December 12, 2023, 09:10:27 AM »

Offline Vermont Green

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I’m honestly surprised the MLBPA is allowing this. We’ve seen them nix other deals that they thought would set a bad precedent and this appears to egregiously circumvent this luxury tax at the players expense.

Is it at the player's expense?  He can live off of endorsements and he's got $680 million guaranteed to retire on.

What were other teams offering?

Yeah, I am not sure this type of deal is bad for the players.  To me, it is dumb for the team.  I get that in 10 years, $68M won't seem as bad as it seems now, but they are going to have to pay that to a player who isn't even on the team, for 10 seasons!  Most long term deals end up bad for the team for the last few seasons of the deal in which the older player is still actually playing.  How bad is this going to be for the Dodgers in 2034-2043?

And will the Dodgers actually spend these 10 seasons they are only paying him $2M?  Probably, but they will also probably bank some cash to pay the deferred money later.

Re: 10 years, 700 million for Shohei
« Reply #31 on: December 12, 2023, 09:54:08 AM »

Offline Roy H.

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I’m honestly surprised the MLBPA is allowing this. We’ve seen them nix other deals that they thought would set a bad precedent and this appears to egregiously circumvent this luxury tax at the players expense.

Is it at the player's expense?  He can live off of endorsements and he's got $680 million guaranteed to retire on.

What were other teams offering?

Yeah, I am not sure this type of deal is bad for the players.  To me, it is dumb for the team.  I get that in 10 years, $68M won't seem as bad as it seems now, but they are going to have to pay that to a player who isn't even on the team, for 10 seasons!  Most long term deals end up bad for the team for the last few seasons of the deal in which the older player is still actually playing.  How bad is this going to be for the Dodgers in 2034-2043?

And will the Dodgers actually spend these 10 seasons they are only paying him $2M?  Probably, but they will also probably bank some cash to pay the deferred money later.

One option for the Dodgers:  "win now" as much as possible, and then sell the team just as that deferred money is becoming due.  One thing that is unlikely to change is that sports franchises are incredibly lucrative.

As for the market, I'm just not good enough at economics.  The highest AAV (even on a short term deal) was around $43 million, right?  Ohtani is a special player, so let's say his 2023 market was 10 years, $500 million.  Is deferring that salary a decade for another $200 million a good investment or a bad one?  That's a 40% ROI over a decade.  Is that a reasonable choice?


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Re: 10 years, 700 million for Shohei
« Reply #32 on: December 12, 2023, 12:01:32 PM »

Offline Moranis

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.
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Re: 10 years, 700 million for Shohei
« Reply #33 on: December 12, 2023, 12:12:51 PM »

Offline Vermont Green

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.

That is very interesting but I don't understand what the advantage is for either party.  If the LAD are paying into an escrow account anyway, why not just give the money to Ohtani?  And for Ohtani, why not just take the money?  What is the advantage to either to have the money just sitting in an escrow account for 10 years?

Re: 10 years, 700 million for Shohei
« Reply #34 on: December 12, 2023, 12:22:31 PM »

Offline Moranis

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.

That is very interesting but I don't understand what the advantage is for either party.  If the LAD are paying into an escrow account anyway, why not just give the money to Ohtani?  And for Ohtani, why not just take the money?  What is the advantage to either to have the money just sitting in an escrow account for 10 years?
Ohtani gets 70 million instead of 46.  Dodgers pay 70 but essentially only pay 46 and have it only count at 46 for tax purposes (and when they actually pay Ohtani it doesn't count against cap at all).  I have no idea why, they didn't just pay him the 46 (or maybe 50) and call it a day.
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Re: 10 years, 700 million for Shohei
« Reply #35 on: December 12, 2023, 12:42:16 PM »

Offline bdm860

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Just comparing the biggest MLB deals from a net present value perspective (what is the total contract's value in today's dollars), Shohei's deal, while still the largest seems underwhelming to me considering that he's this unicorn 2-way player.  If we use a 5% rate (since that seems to be the rate MLB uses) then:

Shohei $700m NPV: $337,795,798
Trout's $426.5m NPV: 311,165,580
Betts $380m NPV: 260,163,382
Judge $360m NPV: 284,312,867

So $338m NPV is still the largest, but it's not that much of an increase over Trout's deal from 4 years ago.

Jaylen Brown's NPV on his contract (Spotrac reports it's actually $288m, not $304m) is $245m (calculating it when the contract starts, not when signed), which is half the length as well as half the games each year, and he'll likely be able to sign another one after this.  If we were to add up the value of all contracts signed in a players 10 year prime, Jaylen's would probably come out on top.

That's all high level, on a deeper level, wonder what some of the intricacies are?  I don't think the jock or state taxes apply on deferred money, so in 2040, Ohtani won't have to pay CA tax on that $68m if he's moved back to Japan (or to a no income tax state).  That's just an educated guess though, tax is complicated.
« Last Edit: December 12, 2023, 02:24:00 PM by bdm860 »

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Re: 10 years, 700 million for Shohei
« Reply #36 on: December 12, 2023, 02:18:33 PM »

Offline Vermont Green

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.

That is very interesting but I don't understand what the advantage is for either party.  If the LAD are paying into an escrow account anyway, why not just give the money to Ohtani?  And for Ohtani, why not just take the money?  What is the advantage to either to have the money just sitting in an escrow account for 10 years?
Ohtani gets 70 million instead of 46.  Dodgers pay 70 but essentially only pay 46 and have it only count at 46 for tax purposes (and when they actually pay Ohtani it doesn't count against cap at all). I have no idea why, they didn't just pay him the 46 (or maybe 50) and call it a day.

That is my point exactly.  I see no advantage to the Dodgers, they have to make good on the full future value amount whether it appreciates or not.  Ohtani could probably do better than 5% if he took the full present value and invested even in a simple mutual fund.  I guess the Dodgers probably get the extra if the escrow account does better than 5% so maybe that is their angle.  I assume that they are only going to pay Ohtani $68M each year, per the contract.

I wonder if they need someone to manage the escrow account for them?  I would be happy to offer my services for a small annual fee.

Re: 10 years, 700 million for Shohei
« Reply #37 on: December 12, 2023, 04:26:33 PM »

Offline footey

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.

That is very interesting but I don't understand what the advantage is for either party.  If the LAD are paying into an escrow account anyway, why not just give the money to Ohtani?  And for Ohtani, why not just take the money?  What is the advantage to either to have the money just sitting in an escrow account for 10 years?
Ohtani gets 70 million instead of 46.  Dodgers pay 70 but essentially only pay 46 and have it only count at 46 for tax purposes (and when they actually pay Ohtani it doesn't count against cap at all).  I have no idea why, they didn't just pay him the 46 (or maybe 50) and call it a day.

Invest the cash they defer until needed. Put it in 10 year treasuries which until recently were yielding 4.8%.

Re: 10 years, 700 million for Shohei
« Reply #38 on: December 12, 2023, 04:57:32 PM »

Offline rocknrollforyoursoul

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.

That is very interesting but I don't understand what the advantage is for either party.  If the LAD are paying into an escrow account anyway, why not just give the money to Ohtani?  And for Ohtani, why not just take the money?  What is the advantage to either to have the money just sitting in an escrow account for 10 years?
Ohtani gets 70 million instead of 46.  Dodgers pay 70 but essentially only pay 46 and have it only count at 46 for tax purposes (and when they actually pay Ohtani it doesn't count against cap at all). I have no idea why, they didn't just pay him the 46 (or maybe 50) and call it a day.

That is my point exactly.  I see no advantage to the Dodgers, they have to make good on the full future value amount whether it appreciates or not.  Ohtani could probably do better than 5% if he took the full present value and invested even in a simple mutual fund.  I guess the Dodgers probably get the extra if the escrow account does better than 5% so maybe that is their angle.  I assume that they are only going to pay Ohtani $68M each year, per the contract.

I wonder if they need someone to manage the escrow account for them?  I would be happy to offer my services for a small annual fee.

Doesn't the advantage lie in what counts against the cap? Namely, that only about $45M per year (instead of $70M per) gets counted against the cap? That would give them a lot more room to make other additions to the team.
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Re: 10 years, 700 million for Shohei
« Reply #39 on: December 12, 2023, 05:52:27 PM »

Offline Vermont Green

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.

That is very interesting but I don't understand what the advantage is for either party.  If the LAD are paying into an escrow account anyway, why not just give the money to Ohtani?  And for Ohtani, why not just take the money?  What is the advantage to either to have the money just sitting in an escrow account for 10 years?
Ohtani gets 70 million instead of 46.  Dodgers pay 70 but essentially only pay 46 and have it only count at 46 for tax purposes (and when they actually pay Ohtani it doesn't count against cap at all). I have no idea why, they didn't just pay him the 46 (or maybe 50) and call it a day.

That is my point exactly.  I see no advantage to the Dodgers, they have to make good on the full future value amount whether it appreciates or not.  Ohtani could probably do better than 5% if he took the full present value and invested even in a simple mutual fund.  I guess the Dodgers probably get the extra if the escrow account does better than 5% so maybe that is their angle.  I assume that they are only going to pay Ohtani $68M each year, per the contract.

I wonder if they need someone to manage the escrow account for them?  I would be happy to offer my services for a small annual fee.

Doesn't the advantage lie in what counts against the cap? Namely, that only about $45M per year (instead of $70M per) gets counted against the cap? That would give them a lot more room to make other additions to the team.

That is my point. Why not just pay him the $48M?  They are writing the check in either case. It counts to the tax in either case.  The only difference I see is it sounds like more to quote the future value instead of the present value.

Re: 10 years, 700 million for Shohei
« Reply #40 on: December 12, 2023, 06:00:04 PM »

Offline Roy H.

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Did a bit more research into this. The Dodgers have to pay 44 million every year into an escrow account, which is the annual value of the 68 million made present.  Their tax hit is the 44 plus the 2. So Ohtani essentially signed a 10 year, 460 million contract.  If the escrow ends up short, the Dodgers have to make it up (Im not sure who gets the extra if the account does really well). Ohtani makes the 2 million salary, but also makes over 45 million annually in endorsements. Presumably when he isn't playing the endorsements will reduce significantly, but that is when the 68 million kicks in.

That is very interesting but I don't understand what the advantage is for either party.  If the LAD are paying into an escrow account anyway, why not just give the money to Ohtani?  And for Ohtani, why not just take the money?  What is the advantage to either to have the money just sitting in an escrow account for 10 years?
Ohtani gets 70 million instead of 46.  Dodgers pay 70 but essentially only pay 46 and have it only count at 46 for tax purposes (and when they actually pay Ohtani it doesn't count against cap at all). I have no idea why, they didn't just pay him the 46 (or maybe 50) and call it a day.

That is my point exactly.  I see no advantage to the Dodgers, they have to make good on the full future value amount whether it appreciates or not.  Ohtani could probably do better than 5% if he took the full present value and invested even in a simple mutual fund.  I guess the Dodgers probably get the extra if the escrow account does better than 5% so maybe that is their angle.  I assume that they are only going to pay Ohtani $68M each year, per the contract.

I wonder if they need someone to manage the escrow account for them?  I would be happy to offer my services for a small annual fee.

Doesn't the advantage lie in what counts against the cap? Namely, that only about $45M per year (instead of $70M per) gets counted against the cap? That would give them a lot more room to make other additions to the team.

That is my point. Why not just pay him the $48M?  They are writing the check in either case. It counts to the tax in either case.  The only difference I see is it sounds like more to quote the future value instead of the present value.

I think you'd need to speak to his financial advisor, but there may be tax benefits, he may be betting that $680 million in 11 years ends up being worth more than $460 million today, etc. 


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Re: 10 years, 700 million for Shohei
« Reply #41 on: December 12, 2023, 06:12:55 PM »

Offline Donoghus

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I'm still fascinating by the state tax ramifications of this and how this will play out with the CA franchise tax board who have never passed on the chance to collect what they think is their fair share.   

It's deferred comp but the larger key here is the 10 years.

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Re: 10 years, 700 million for Shohei
« Reply #42 on: December 12, 2023, 06:37:26 PM »

Offline bdm860

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So the effective CA state income tax rate for Shohei would be ~13.26%.  Plus jock tax, using this Steph Curry example as a proxy shows his jock tax was 2.5% in '18, let's call it 15% even.

The $2m for 10 years, Shoehei will pay $3m in total state + jock tax.

If he was getting paid $46m for 10 years, then he'd pay $69m in tax.

If he was getting paid $70m for 10 years, then he'd pay $105m in tax.

That's a lot savings. Taking his total annual salaries minus the tax and calculating NPV that way, his current deal has an NPV of $335m, while if he was paid $46m for 10 years, his NPV would be $302m after taking out the state taxes.
« Last Edit: December 12, 2023, 06:45:30 PM by bdm860 »

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Re: 10 years, 700 million for Shohei
« Reply #43 on: December 13, 2023, 09:43:46 AM »

Offline smokeablount

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Just comparing the biggest MLB deals from a net present value perspective (what is the total contract's value in today's dollars), Shohei's deal, while still the largest seems underwhelming to me considering that he's this unicorn 2-way player.  If we use a 5% rate (since that seems to be the rate MLB uses) then:

Shohei $700m NPV: $337,795,798
Trout's $426.5m NPV: 311,165,580
Betts $380m NPV: 260,163,382
Judge $360m NPV: 284,312,867

So $338m NPV is still the largest, but it's not that much of an increase over Trout's deal from 4 years ago.

Jaylen Brown's NPV on his contract (Spotrac reports it's actually $288m, not $304m) is $245m (calculating it when the contract starts, not when signed), which is half the length as well as half the games each year, and he'll likely be able to sign another one after this.  If we were to add up the value of all contracts signed in a players 10 year prime, Jaylen's would probably come out on top.

That's all high level, on a deeper level, wonder what some of the intricacies are?  I don't think the jock or state taxes apply on deferred money, so in 2040, Ohtani won't have to pay CA tax on that $68m if he's moved back to Japan (or to a no income tax state).  That's just an educated guess though, tax is complicated.

As an MBA candidate, nice practical use of discounting future cash flows in the wild. TP.
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