Will Juan Soto top Shohei Ohtani’s contract? In the age of delayed money, maybe it comes down to math
NEW YORK– Decide if Juan Soto tops Shohei Ohtani as baseball’s biggest contract could be in the eye of the beholder because of all the deferred money in Ohtani’s deal.
Ohtani agreed to a 10-year, $700 million deal with the Los Angeles Dodgers last December, easily surpassing the previous record when Mike Trout and the Los Angeles Angels agreed to a 12-year, $426.5 million deal years until 2030.
Ohtani’s deal includes $680 million in deferred money payable from 2034 to 2043. There are several interpretations on how to value this transaction in current dollars:
1. For baseball’s luxury tax, the average annual value is set at $46.08 million using a 4.33% discount rate.
2. The players’ association uses a rate of 5%, which puts the value at $43.75 million per season.
3. For regular MLB payroll, a rate of 10% results in a rate of $28.21 million per year.
Soto could get a 10-15 year contract for $600 million or more.
His agent, Scott Boras, isn’t a big fan of deferred money and thinks teams might not insist on delaying paying the money.
“I think it’s a lot less of a problem than it used to be,” Boras said. “Will deferral as a mechanism for me hinder my ability to get the biggest asset I can acquire? And the answer to that question is I don’t think they’re going to want to do anything that gets in the way of their pursuit and their main goal.
The amount of interest used for discounting to determine the value of the luxury tax is set in the collective bargaining agreement as the mid-term federal rate defined in section 1274(d) of the Internal Revenue Code for the month of October preceding the initial contractual year.
That rate fell to 3.7% this offseason, meaning if Ohtani’s deal had closed this month, the annual value of the luxury tax would have been approximately $49.3 million . This would have resulted in an additional $3.5 million annual tax bill for the Dodgers, who would exceed the upper threshold and pay additional tax at a rate of 110% on every dollar.
MLB regular salaries, which use the same rate used to calculate the qualifying offer price based on the 125 largest contracts, use the prime rate set by JP Morgan Chase on the previous November 1 plus 1%. , rounded to the nearest full percentage. indicate. That figure dropped to 9% this offseason.
Deferred compensation must be funded no later than the second July 1 following the season in which it was earned, reduced to its current value at the rate of 5%.
Los Angeles owes deferred payments of just over $1 billion due from 2028 to 2046. Ohtani, Bets on Mookie, Freddie Freeman, Will Smith, Teoscar Hernández, Blake Snell And Tommy Edman.
“It’s just about trying to save money,” St. Louis Cardinals president of baseball operations John Mozeliak said during general managers’ meetings last month.
Ohtani’s payments represent two-thirds of the total owed.
“It was a unique situation for a club, a unique situation for a player who has very significant earning potential outside of strictly club compensation,” said David Stearns, president of baseball operations for the New Mets. York. “These others are much more representative of what you see in the sort of standard contracts in the industry. Each organization, each ownership group will have a slightly different perspective on this, on how they calculate the returns from this compensation deferred.
Dodgers president of baseball operations Andrew Friedman said his team’s leaders at Guggenheim Baseball Management have the expertise to fund deferred compensation wisely.
“A lot of our ownership group comes from a financial background and can use this money right now,” he said.
MLB proposed during collective bargaining on June 21, 2021 to end this practice.
“For contracts entered into after the effective date of the Basic Agreement, any deferred compensation of any nature will not be permitted,” the proposal states, according to a copy obtained by The Associated Press.
This idea was rejected by the union and was not included in the five-year agreement which expires in December 2026.
New York Yankees general manager Brian Cashman believes the deep resources available to his team encourage players to seek their money sooner rather than later.
“We are open to postponements,” he said. “Often players are less willing to make deferrals for us than for other markets, perhaps, but if we can do things that benefit us, of course we will.”
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