Quote:
Originally Posted by Andrew
Can you be certain of this?
Also I don't think (could argue) cashflow is issue with rogers its a a budget.
Is a net expenditure in given year? Why defer for rogers other than luxury tax? (Good reason in it's own right)
If ceo sees we are paying 10 to Santander this year...
Even if it is placed in an account. What about the interest?
|
1. A fixed amount of money is placed in "escrow/lawyer account" with a fixed rate of return that equals that exact amount at the exact times the deferral payouts are due. This is to ensure the team doesnt go bankrupt / isn't in a position where they can't pay their owed deferrals
2. There's not a huge benefit to the Jays - They may be able to arbitrage a bit of the interest rate they get on this fixed deferred money vs what the discount rate used to apply the future value is, but on 60 million it wouldn't be much (The Dodgers are rumored to be doing this but on 1.5 billion it makes a lot bigger difference)
3. The biggest reason deferrals are getting popular - and started in LA - is for tax deferral. You can take later payments when you live in a much more tax effective state / country and lower you total tax burden significantly.
So since Santandar most likely has zero interest in living in Canada long term he can move to Florida after his playing career, and eventually pay taxes based on Florida rates. This can save ~10% in taxes paid over the life of the contract.
So a player could take a 5% discount on the present day value of the contract and still end up ahead, and the team would 'save' the 5% . Win Win (Except the CRA/IRS). In this scenario the Jays also "Save" 5% of the luxury tax hit since the player is taking less present day value, knowing they will end up net ahead in 20 (whatever the terms are) years then if they took a traditional contract.
The caveat is all the deferred $$ must be placed in escrow/account up front, so a team has to have the ability to come up with large sums of money on D1 of the contract