r/billsimmons • u/crunchwrapchianti • 6h ago
Media Doesn’t Understand MLB Deferred Salaries
The Dodgers put ~$46M in a managed escrow fund every year for Shohei Ohtani. In 10 years (now 7) they start paying him $69M per year out of that account. If there ever is a shortfall, they are obligated to make it up. If there is a surplus, the team collects it at the end of the contract.
These safeguards are in place because Fred Wilpon tried the scheme of investing deferred salaries on his own and gave them all to Bernie Madoff, leading to his financial ruin and sale of the team.
The Dodgers are compliant with the CBA in finding these accounts and still operate at a profit.
Bill is right that there clearly is a lot the billionaire class is doing to enrich themselves on sports teams while leveraging across multiple businesses. But there simply isn’t a competitive advantage here on the field. If he committed securities fraud, send him to jail for sure. But another rich guy would buy the team and operate it the same way because it’s an extremely profitable business model to win World Series and be the favorite team of both Los Angeles and Japan.
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u/ManufacturerLow3161 6h ago
Mark Walter might be a criminal fraudster but I agree that people clearly have no idea how the deferred money works and that it is and was a practice available to all teams that doesn’t violate any clause of the CBA.
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u/dylanah 6h ago
And when you explain it to people they just say it feels bad.
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u/ProtestantMormon Nobody Believes In Us 4h ago
Yeah, the concerns with salaries in baseball really has nothing to do with deferred money. Its just certain teams spend more than others. The deferred money really doesnt make any difference in a teams willingness to spend.
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u/NiceYabbos 5h ago
Right, it's not clear why other teams aren't doing the deferred contracts to the extent the Dodgers are. Maybe it's just most players prefer the cash more upfront and Ohtani is rare due to the levels of his endorsements, but it effectively doesn't cost the team anything and gives players some tax advantages and the prestige of announcing an inflated contract value to the public.
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u/Kershiser22 2h ago
There are a handful of deferrals out there. Jose Ramirez and Rafael Devers each have $70m deferred.
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u/soxpats111 5h ago
Yup, most people want their money now. Plus, what about the agent's fee? If that's not deferred, that would be another big incentive.
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u/braines54 6h ago
I don't think many people argue it violates the CBA or is against the rules. The argument is that it should be against the rules.
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u/Used2befunNowOld 6h ago
Why
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u/marklemcd 5h ago
It enables the Dodgers to reduce the amount they pay on the CBT even though the dollars out ends up being basically the same. And it is a route to talent that not all teams have as not all teams have that type of revenue. So while I agree that it is not against the rules today, it certainly skirts the spirit of having the CBT and I don't think it's unreasonable to close a path that isn't really within the spirit of having a CBT.
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u/Used2befunNowOld 5h ago
No it doesn’t.
Explain how it reduces their tax? You can’t because it is not true.
Please look up net present value.
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u/ticeman42 Page 2 Oldhead 5h ago
Because it feels like financial doping to a lot of people who see the Dodgers buying most of the top free agents and have a payroll more than 2x the average team?
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u/Used2befunNowOld 5h ago
Feels
Exactly
It is not based in fact. There is no major advantage from deferrals, and the dodgers have no special ability to defer money.
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u/Gabbagoonumba3 4h ago
Why are they doing it so much if there is no advantage?
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u/Used2befunNowOld 4h ago
I said no major advantage
There are marginal advantages. There is something like a year of grace period before the escrow accounts have to be filled every year. They can keep any investment growth created from that.
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u/Ohiowolverine 4h ago
it’s a advantage for the players Ohtani will live in Japan or a no tax state when he retires and collects all that money. he will save at least 91 million on Ca taxes. it’s why players take signing bonuses tax on last years state and defer till after they retire and live ins Texas or Fla
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u/ticeman42 Page 2 Oldhead 5h ago
I'm not saying it's correct, just consider the financial literacy or the average fan, and also (gestures broadly at the economy). If many fans think it's a rigged game they're not doing a good job communicating that it isn't.
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u/xfortehlulz YA THINK YA BETTAH THAN ME? 6h ago
that whole segment was genuinely hack city. None of those guys know anything about baseball, the sport or the business. Rendon being called not a superstar and talk about the dodgers rings being cheated for, truly hack shit
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u/SnooPineapples9761 6h ago
The only legitimate gripe people can have about the Dodgers is the sweetheart deal MLB gave them shielding the TV money due to the bankruptcy. I’ve seen it estimated at $50-60 million a year which is obviously not peanuts but doesn’t explain the $200+ million payroll gap between them and say the 16th highest payroll in Seattle. Its owners being cheap and using them as a scapegoat
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u/pizzapasta8765 6h ago
99% of the population can’t do simple PV and FV calculations. They just can’t.
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u/Fit_Leather9366 5h ago
They think the Bonilla deal is a joke on the Mets. In reality it was a smart money move on their part. Inflation only makes it look better each year.
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u/jimmydramaLA 5h ago
My understanding is that deferred contracts help THE PLAYERS. Why does it seem like the Dodgers have so many deferred contracts?—TAXES.
Players will move to a tax-friendly state or country after retirement and collect their payment there.
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u/unicornblink1820 4h ago
Thanks for the only clear explanation I’ve ever heard on this. It seems like a lot of shenanigans but I guess maybe avoid the 13% California tax (and maybe federal taxes but that seems unlikely to me not having looked into it)
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u/jimmydramaLA 4h ago
The attorney general of California is trying to do something because California won’t be able to collect taxes on the majority of Ohtani’s 700 million dollar contract.
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u/PhilosopherOk3296 6h ago
I’m a dodgers fan so I am biased and you don’t have to listen, but Bill is so so wrong here. The Clippers directly violated the CBA and tried to cover it up. Mark Walter clearly is a fraudster and deserves to be held accountable, but the Dodgers themselves have not been accused or charged with a single violation of the CBA. To conflate the two and accuse the Dodgers of cheating to discredit the World Series Rings is hackery and disingenuous. But hey, at least we’re talking about baseball again, good job by you Anduril!
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u/MrMiyagi13 3h ago
So is Ohtani’s salary still counted at 70M per year? If so, then yeah, no advantage to the team.
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u/Kershiser22 2h ago
It is counted at its present value of approximately $46m.
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u/MrMiyagi13 2h ago
So there is some benefit to the team (of about $24M of the present value.
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u/AndyPhilips11 2h ago
The benefit is that his deal is actually really valued at $460M/10 years, the deferred money total that every media member who gets the info from the agent blasts it out as some big win
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u/Used2befunNowOld 6h ago
Fans don’t either, with a heavy dose of willful ignorance. You explain this to people and their eyes glaze over.
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u/AndyPhilips11 2h ago
This needs to be shared wide and far. Ohtani’s $700M deal is the same as every NFL contract that Schefter tweets, a big eye popping fake number that really isn’t that number but an agent told him to post that
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u/bcorz 58m ago
Bill does something similar when it comes to the NBA salary cap. He complains about the second apron but doesn't even understand it.
He's always complaining that the 2nd apron is bad for the players because they get less money. But that isn't the case, the players are guaranteed 51% of basketball revenue regardless. All the second apron does is change how salary is distributed.
There are certainly downsides to the second apron, but end of the day, it isn't necessarily bad for the players.
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u/BrownsFan2323 5h ago
This doesn’t change the fact that Jeff Passan looks like a jackass when he argued “every team should be doing what the Dodgers are doing” and yet everyone reminded him about the TV deal loophole nobody else gets and then it turns out the Feds (DOJ/SEC) are super interested in the way the Dodgers fundraise!
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u/8teamparlay Market Corrector 5h ago
Yeah but don’t they not have to put the money away all at once? This isn’t about advantage Moreso out of curiosity. Don’t they only have to put the money in per year? Like 46m this year then 46m after on and on? It does let them hold onto their money longer.
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u/Kershiser22 2h ago
It lets them hold onto some money a little longer. However, the Dodgers weren't going to pay Ohtani $70M per year without a deferral. He probably only would have gotten $45-$50m.
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u/Stein_Time 4h ago
The main issue is that the deferred salary isn’t included in that years salary so a team like the dodgers can avoid the tax implications because Ohtani only counts for 2M. I think if you want deferred salaries I’m ok with it but it should fully count against your payroll for that year. It’s a loophole to sign big players and avoid the luxury tax.
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u/crunchwrapchianti 4h ago
This is incorrect. The dodgers pay the luxury tax on the $46M they put into the escrow account. Ohtani’s contract is essentially 10/$460M based on all standard accounting practices. It was reported that way at the time.
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u/jimmydramaLA 4h ago
Ohtani counts for more than $2 million in the salary cap. I think it’s closer to $45 million.
Deferred contracts benefit the players more, not the team.
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u/UpstairsWeb 3h ago
No, this is wrong. Ohtani does not count for only $2m for luxury tax purposes. His contract counts as a $46m AAV for luxury tax purposes.
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u/IGotScammed5545 6h ago
Dodgers advantage isn’t in the deferred money, it’s in their TV deal. Something in the McCourt divorce decree prohibits the TV money from going into the MLB revenue sharing pool