Ohtani to the Blue Jays? (Update: Signs w/Dodgers for $700 million over 10 yrs)

[Frobby]

13 minutes ago, 24fps said:

I have been trying to find this out but so far have been unsuccessful...

The deferred money has to be put in escrow within a specified amount of time for each year, but I can't find out if any particular form is stipulated.  Could interest bearing financial tools like promissory notes, insurance products, zero-coupon bonds and the like be used to further minimize the present day impact to free up more 2024 cash for the Dodgers?

For example, $68 million in zero-coupon bonds maturing in 10 years at 5% interest discounts to $41.70 million at purchase.

Anybody know the answer?

At the club’s election, it can be cash, cash equivalents or registered and unrestricted readily marketable securities, unless the player’s contract specifies otherwise or the player consents to some other form.  Section XVI of the CBA, pp. 89-90.

[capyy]

I think that's another reason you set aside the cash now. You can lock into something relatively low risk that beats the 5% discount rate. 5 years ago that wasn't possible and it may not be possible 2 years from now. 

[Warehouse]

14 minutes ago, 24fps said:

I have been trying to find this out but so far have been unsuccessful...

The deferred money has to be put in escrow within a specified amount of time for each year, but I can't find out if any particular form is stipulated.  Could interest bearing financial tools like promissory notes, insurance products, zero-coupon bonds and the like be used to further minimize the present day impact to free up more 2024 cash for the Dodgers?

For example, $68 million in zero-coupon bonds maturing in 10 years at 5% interest discounts to $41.70 million at purchase.

Anybody know the answer?

From Article XVI of the Basic Agreement:

Unless the Uniform Player’s Contract provides otherwise, a Club may fund deferred compensation obligations in such manner as it elects, provided that: (a) the funding method used by the Club must be such that the amount(s) funded are exclusively for the uses and purposes of satisfying the deferred compensation obligation(s) being funded; (b) the amount(s) funded are maintained in the form of unencumbered assets comprising cash or cash equivalents and/or registered and unrestricted readily marketable securities, unless a Club obtains the Parties’ prior written authorization of an alternative form; and (c) such amount(s) funded are subject to the claims of the Club’s general creditors.

[drjohnnyfever1]

9 hours ago, deward said:

Doubt it. If Ohtani helps the Dodgers win a couple of titles, then anything else is gravy. Unless you're expecting him to show up next year looking much skinnier and suddenly unable to hit fastballs right down the middle. 

That's a HUGE assumption or hope.  Two WS wins while he's on the team would make it worth it.  But that's assuming no complications with Tommy John going forward and that he remains healthy too.  At 28, injuries become more frequent, so color me skeptical.  I still think $700M is steep.

9 hours ago, Frobby said:

Depends how you look at it.  If you pay a guy $700 mm and only get $350 mm of value, is that worse than paying a guy $161 mm and getting -$20 mm in value?  On the one hand, the first contract produces a -$350 mm deficit of cost to value, while the second “only” produces a -$161 mm deficit. On the other hand, in the first contract you’re only getting half the value you paid for, but in the second you’re actually getting negative value.   So you can see it either way.  And of course, the deferrals in the Ohtani deal are far greater than in the Davis deal, so you have to factor that in.  

Here you go Frobby - If a Chris Davis train leaves Baltimore on a $1.25M ticket traveling at 60mph and an Ohtani train leaves Anaheim with a $7.625M ticket traveling at 70mph and both make it to St. Louis within a day of each other, who arrives in Savannah to play for the Bananas first?

Good Heavens.  I understand what you're saying, but it seems like a dangerous proposition.  And a proposition only a team like the Dodgers is fiscally able to test.  I just think it's a situation that is potentially ripe for failure or, as you say, ending in a "deficit."

4 hours ago, Can_of_corn said:

Assuming he doesn't have any issues with PEDs or off the field issues I don't see how it could be.

Ohtani brings in tens of million in revenue on a yearly basis.  Davis sold about a dozen season tickets.

If he's injured and doesn't return to his former self, they are essentially paying $700M for a DH.  I wonder how much they'll make when he's just an average DH?  Chris Davis shirts became kindling.

 

Who knows, honestly.  I just think, as I said this could turn out badly.  If they paid for a dual player that winds up playing a singular role, is that cost effective?  I guess it all depends on if WS trophies start stacking up... or not.

Edited December 12, 2023 by drjohnnyfever1

[Can_of_corn]

4 minutes ago, drjohnnyfever1 said:

If he's injured and doesn't return to his former self, they are essentially paying $700M for a DH.  I wonder how much they'll make when he's just an average DH?  Chris Davis shirts became kindling.

 

Who knows, honestly.  I just think, as I said this could turn out badly.  If they paid for a dual player that winds up playing a singular role, is that cost effective?  I guess it all depends on if WS trophies start stacking up... or not.

If he isn't able to pitch I'll be shocked if he can't play outfield.

The money he'll bring in from Japan will keep the deal from being as bad as the Davis deal.

[Moose Milligan]

7 minutes ago, drjohnnyfever1 said:

That's a HUGE assumption or hope.  Two WS wins while he's on the team would make it worth it.  But that's assuming no complications with Tommy John going forward and that he remains healthy too.  At 28, injuries become more frequent, so color me skeptical.  I still think $700M is steep.

Here you go Frobby - If a Chris Davis train leaves Baltimore on a $1.25M ticket traveling at 60mph and an Ohtani train leaves Anaheim with a $7.625M ticket traveling at 70mph and both make it to St. Louis within a day of each other, who arrives in Savannah to play for the Bananas first?

Good Heavens.  I understand what you're saying, but it seems like a dangerous proposition.  And a proposition only a team like the Dodgers is fiscally able to test.  I just think it's a situation that is potentially ripe for failure or, as you say, ending in a "deficit."

If he's injured and doesn't return to his former self, they are essentially paying $700M for a DH.  I wonder how much they'll make when he's just an average DH?  Chris Davis shirts became kindling.

 

Who knows, honestly.  I just think, as I said this could turn out badly.  If they paid for a dual player that winds up playing a singular role, is that cost effective?  I guess it all depends on if WS trophies start stacking up... or not.

After all the jerseys sold, fans in the seats and what he does for the SoCal economy over the course of this deal, 700 million is going to be a bargain. 

[Jagwar]

2 hours ago, capyy said:

I think that's another reason you set aside the cash now. You can lock into something relatively low risk that beats the 5% discount rate. 5 years ago that wasn't possible and it may not be possible 2 years from now. 

Where does it say a 5% discount rate? Not being a noodge, genuinely curious. Being the nerd that I am, I used a 3% discount rate for the cash flows for the next 20 years and came up with a PV of $462 mm. 

[jabba72]

25 minutes ago, drjohnnyfever1 said:

That's a HUGE assumption or hope.  Two WS wins while he's on the team would make it worth it.  But that's assuming no complications with Tommy John going forward and that he remains healthy too.  At 28, injuries become more frequent, so color me skeptical.  I still think $700M is steep.

Here you go Frobby - If a Chris Davis train leaves Baltimore on a $1.25M ticket traveling at 60mph and an Ohtani train leaves Anaheim with a $7.625M ticket traveling at 70mph and both make it to St. Louis within a day of each other, who arrives in Savannah to play for the Bananas first?

Heavens.  I understand what you're saying, but it seems like a dangerous proposition.  And a proposition only a team like the Dodgers is fiscally able to test.  I just think it's a situation that is potentially ripe for failure or, as you say, ending in a "deficit."

If he's injured and doesn't return to his former self, they are essentially paying $700M for a DH.  I wonder how much they'll make when he's just an average DH?  Chris Davis shirts became kindling.

 

Who knows, honestly.  I just think, as I said this could turn out badly.  If they paid for a dual player that winds up playing a singular role, is that cost effective?  I guess it all depends on if WS trophies start stacking up... or not.

Yeah In some ways its kind of ridiculous the contract he got.  

[Frobby]

59 minutes ago, drjohnnyfever1 said:

That's a HUGE assumption or hope.  Two WS wins while he's on the team would make it worth it.  But that's assuming no complications with Tommy John going forward and that he remains healthy too.  At 28, injuries become more frequent, so color me skeptical.  I still think $700M is steep.

Here you go Frobby - If a Chris Davis train leaves Baltimore on a $1.25M ticket traveling at 60mph and an Ohtani train leaves Anaheim with a $7.625M ticket traveling at 70mph and both make it to St. Louis within a day of each other, who arrives in Savannah to play for the Bananas first?

Good Heavens.  I understand what you're saying, but it seems like a dangerous proposition.  And a proposition only a team like the Dodgers is fiscally able to test.  I just think it's a situation that is potentially ripe for failure or, as you say, ending in a "deficit."

If he's injured and doesn't return to his former self, they are essentially paying $700M for a DH.  I wonder how much they'll make when he's just an average DH?  Chris Davis shirts became kindling.

 

Who knows, honestly.  I just think, as I said this could turn out badly.  If they paid for a dual player that winds up playing a singular role, is that cost effective?  I guess it all depends on if WS trophies start stacking up... or not.

I don’t disagree with this.  Frankly, while I admire Ohtani’s skills, I hope this blows up in the Dodgers’ face.  

[capyy]

53 minutes ago, Jagwar said:

Where does it say a 5% discount rate? Not being a noodge, genuinely curious. Being the nerd that I am, I used a 3% discount rate for the cash flows for the next 20 years and came up with a PV of $462 mm. 

"

Deferred compensation obligations incurred in a Contract executed on or after September 30, 2002 must be fully funded by the Club, in an amount equal to the present value of the total deferred compensation obligation, on or before the second July 1 following the championship season in which the deferred compensation is earned. For purposes of this Article XVI, full funding of the present value of deferred compensation obligations shall mean that the Club must have funded, for the duration of and without interruption in each year, the current present value of the then outstanding deferred payments, discounted by 5% annually. If the prime interest rate in effect at The J.P. Morgan Chase Bank on the immediately preceding November 1 is 7% or higher, the Parties shall meet and confer regarding this Article XVI discount rate and may, with due notice to the Clubs, amend such discount rate effective the next succeeding July 1.

"

[capyy]

Prime rate is over 7% now though, so they could negotiate something else I guess

[Frobby]

23 minutes ago, capyy said:

Prime rate is over 7% now though, so they could negotiate something else I guess

I doubt it changes unless the prime rate stays over 7% for a few consecutive years.  

[Sports Guy]

 

[deward]

14 hours ago, drjohnnyfever1 said:

That's a HUGE assumption or hope.  Two WS wins while he's on the team would make it worth it.  But that's assuming no complications with Tommy John going forward and that he remains healthy too.  At 28, injuries become more frequent, so color me skeptical.  I still think $700M is steep.

Who knows, honestly.  I just think, as I said this could turn out badly.  If they paid for a dual player that winds up playing a singular role, is that cost effective?  I guess it all depends on if WS trophies start stacking up... or not.

I think your last point is exactly correct. A team like the Dodgers makes a luxury move like this to bring home championships. Sure, it may have benefits in merch and marketing, and it they may hope it makes them THE destination franchise for Japanese stars for the foreseeable future, but this move will ultimately be judged on whether or not Ohtani puts them over the top in a WS or two. I do think it would take two, rather than one, to get to the point where the deal becomes a win no matter what else happens. 

[Can_of_corn]

I think folks are underestimating the impact on revenues a team gets from Japan with this deal.

https://www.cbc.ca/news/business/armstrong-shohei-ohtani-baseball-blue-jays-1.7052383

Quote

A study by a well-known Japanese economist found Ohtani's broad economic impact as a member of the Los Angeles Angels was around $337 million US in the 2022 season alone.