Quote:
Originally Posted by Enoch Root
I can only speak for Canada, where the money would be held in trust by a legal firm - no chance for the payor to invest it on their own, to do better.
If California allows that, that is crazy. The reason it is held in trust by lawyers is to guarantee delivery. Also, it is no longer as asset of the payor, it is an asset of the payee, so they should not have an ability to capitalize on it.
I would love to see the article on what the Dodgers are doing. I suspect that it isn't straight deferral, but there is actually some payments that will not be owing until some point in the future (unlike a deferral, which is due now)
|
Sorry - Let me clarify . It isn't that the Dodgers (or another NHL team for example) are "investing" on their own. It's that they can get a better guaranteed ROI on the large amount they have to segregate to cover their obligations (or borrow the $$ at a lower rate then their can get off their cashflows ROI) then the interest rate 'offered' to the players when they want to defer.
For easy math take an $11 million contract, where the player wants to defer $10 million into 10 equal $1million payments starting in 2035.
While we say "They deferred $10 million of the contract" they reality is they deferred some unknown amount based on an interest rate negotiated between the team and them (OR - They said I want 1 million this year and $1 million each year from 2035-45) The "contract" value is calculated using CBA formulas (for both sports) but that rate isn't necessarily what the team and player used to negotiate. This is where the team can arbitrage a bit.
A professional sports team (especially the Dodgers) can get very favorable rates to borrow this money and put into the segregated account/lawfirm guaranteeing the future payouts. OR if they are using their own cash, they are getting a better ROI on the guaranteed "note" that pays $1 million in 2035-45 then they offered the player when they negotiated. IE - Dodgers would say we are offering 4% a year for deferral but can get 5.5% on the guaranteed note paying the $1million in the segregated account, meaning they put less real money into the segregated account/lawfirm to eventually equal $1million per year from 2035-45.
If they weren't deferring, they are paying that money up front/yearly to the player (Duh) . Effectively a team can lower the real payments over a long term on a contract by a few % points because of their ability to leverage better guaranteed ROI's then a player (And because players get the tax savings they can take a smaller yearly rate - Or potentially even NO interest rate if the tax savings are worth it)
On a small contract like this you are correct its probably $100K in savings, but if Anaheim convinces all their players to talk to Vartano's accountant and see the tax savingings and ends up deferring 50-60% of everyone's salary, a % point of 60 million a year adds up.
The only issue really could be the HOW CBA calculates the current value of the contract for cap purposes.
If California teams all convince their players to defer money into the future with a lower interest rate then is defined in the CBA (or discount the salary before applying the defined rate to zero sum it out for cap purposes) there is the opportunity for teams to gain a few % points on their cap.
I am just not sure who would raise this as a CBA concern. It's advantageous to owners and players. I guess low tax teams might complain they are losing their existing low tax cap advantage over higher tax jurisdictions ?