But they’re setting aside $47 million or so in each year of the deal to make the math work, because the current CBA requires teams to set aside “an amount equal to the present value of the total deferred compensation obligation” within two years of when it’s earned. Then they give that $68 million to Ohtani, along with the $2 million they’ve already paid him, to make $70 million. If the Dodgers set aside $45 million today and invested it at an annually compounding 4.2% rate (10-year treasuries yield 4.2%, so that isn’t a number I just pulled out of thin air), they’d have $68 million in 10 years. I wouldn’t go quite that far, because they put the money in escrow, but that comes pretty close to the way I see it. Tom Tango pitched it as Ohtani giving the Dodgers a loan. Why don’t you set the cash aside today, but then put the money into an account for 10 years and invest it in treasuries before paying me?” Also, as a very rich person, I’d like to do some tax structuring, so let’s do that too. I’d like to invest some of it in risk-free assets over the next 10 years as part of my portfolio-based approach to guaranteeing my children and my children’s children generational wealth. “That amount works for me,” he says, “but I have some terms. Ohtani is sipping a cognac – he’s rich, of course he’s sipping cognac. The Dodgers call up Ohtani and tell him they’d like to give him a 10-year deal worth $470 million. Everyone here went into this with eyes wide open. If the Dodgers gave him a normal deal, they would have offered him less, obviously. He has a team of people who understand the time value of money, and all that. He’s not a rube who’s never seen a contract. Or you can not use it at all! It’s completely up to you.įirst things first: acting like the Dodgers were going to give Ohtani $700 million regardless, and that he just let them defer it out of kindness or some desire for them to win now, doesn’t make much sense to me. Then you can use it to see how things would have gone if Ohtani deferred his money even longer, or if he took more money now, or what a new Juan Soto deal might look like if it comes in this style. That toy is a spreadsheet that lets you turn any contract with deferred payments into the kind of contract we’re used to, in equivalent terms. Here’s how this article is going to go: I’m going to give you a few paragraphs on how I’m thinking about the deferrals in Ohtani’s contract, and then I’m going to give you a new toy. One thing that I feel very strongly about is that treating this as either Ohtani getting fleeced by the Dodgers or him and the team pulling a fast one on the entire league is misunderstanding the situation. I really enjoyed Jon Becker’s CBT explainer, as well as Rob Mains’s look at deferrals and tax regimes. That said, boy do I love numbers, and I especially love goofing around with them.
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