Hot Stove League Update: CBT Shenanigans and the Axis of Evil

As updates trickled out revealing details of the staggering contract Shohei Ohtani  agreed to with the Dodgers, something started smelling fishy in Denmark.....or somewhere.  When we first heard the majority of Ohtani's compensation was deferred most analyses assumed that meant something in the neigbhorhood of $400 M out of the $700 total.  That is already an unprecedented amount of deferred money but then the bombshell dropped today.  Turns out Ohtani is only going to get paid $20 M over the 10 year term of the contract leaving a mind-boggling $680 M deferred over the next 20 years.  

There are several obvious reasons why this arrangement is good for the Dodgers:  

1.  It is accounting dogma that future money is worth less than present money due to the relentless predictability of inflation.  

2.  There is a previously little-known loophole in the CBT rules which allows for a recalculation of AAV for a contract to something called Present Value when there is deferred money based on a devaluation of future payments due to the above-mentioned inflation.   Analysts calculate this reduces the Dodgers CBT hit from $70 M to $46 M, still a large amount but only a little more than half what the full AAV would be(I saw one calculation of $26 M which would be ridiculously small).

There seem to be two reasons why Ohtani would accept this arrangement(in fact, it was apparently suggested by him and his team):

1.  The lower AAV hit on the CBT enables the Dodgers to sign additional players...cough....cough....like Yoshinobu Yamamoto, just to name one.

2.  Ohtani is at the height of his personal marketing power.  He is reportedly earning approximately $50 M/yr in endorsements so he doesn't need the money now.  The $68 M/yr for 10 years kicks in after the contract and presumably his career ends when he will not be able to command so much in endorsements which the deferred salary payments will more than make up for(someone pointed out he also may not be living in Calfornia by then which might reduce is tax liability on the income).

You might reasonably ask how such a contract which is obviously designed to circumvent the CBT, is allowed.  Well, that is an excellent question.  Turns out there is a clause in the Basic Agreement between the MLBPA and MLB specifically prohibiting restrictions on deferred salary.  But wait!  Baggs pointed out on X that there is also a clause prohibiting contracts which are obvious attempts to circumvent the CBT.  Unfortunately I am not holding my breath that the Commissioner will step in and void the contract or charge the Dodgers the full $70 M AAV against the CBT.

My opinion is the Giants, Blue Jays and Angels all have reasons to file grievances against the contract with the Commish which they should do.

So is this the future of superstar contracts?  Probably not.  Most players do not have the gushing stream of endorsement income that Ohtani has so they are going to want as much of their money up front as possible, again because present money is almost always more valuable than future money.

There is another twist to this story involving a sweetheart deal between the twin evil empires, Dodgers and Yankees.  The Dodgers needed to clear two 40-man roster spots to accommodate Ohtani and Joe Kelly RHP who they also signed.  The Yankees just happened to have a couple of extra 40-man roster spots so they did their partners in the Axis of Evil a solid by sending them a prospect who was not on their 40-man roster, Trey Sweeney IF for the Victor Gonzalez LHP and Jorbit Vivas IF from the Dodgers.  This will probably turn out to be an inconsequential trade but Gonzalez has had some success as a reliever at the MLB level and Sweeney and Vivas appear to be legit prospects with Sweeney being a former first round draft pick in 2021.  So, if you are looking for one more reason to hate both of these despicable teams look no further.