Baseball accounting question

[Dtwncbad]

How is cash going from one team to the other in trades treated in terms of salary calculations?

I mean, if Team A sends $5m to team B in a deal, isn’t team A really effectively paying another $5m in “salary” that should count toward their luxury tax number?

Shouldn’t team B get a $5m reduction in their salary calculation since they received that money as an offset?

[Hubs]

It does count. Exactly as you described. If the Red Sox were to say move $7M per season in a Price trade, the balance of the AAV (24) would count towards the acquiring team and $7 would count against the Red Sox's cap.

[Dtwncbad]

6 minutes ago, Hubs said:

It does count. Exactly as you described. If the Red Sox were to say move $7M per season in a Price trade, the balance of the AAV (24) would count towards the acquiring team and $7 would count against the Red Sox's cap.

No I get that.  I am asking about actual cash.

The Angels trade a minor leaguer and $5m CASH to the Red Sox for Joe Nobody whose salary is $2m.

So the Angels now have Joe Nobody and his salary of $2m.

Does the Angels luxury tax number go up just the $2m for Joe Nobody’s salary they acquired, or does it go up $7m because they also spent an additional $5m (where the Red Sox luxury tax number would go down $7m total, $2m for unloading Joe Nobody and also $5m for cash received)?

Edited December 23, 2019 by Dtwncbad

[Hubs]

Up and Down $7.

Unless the payout was in multiple years. Then it would reflect that way. In each year it was paid.

It's not usual that a player is bought in this way, unless long term contracts are involved. It happens, but not often. Usually Cash Considerations are smaller deals, like $500k.

 

[Jeff Fletcher]

1 hour ago, Dtwncbad said:

The Angels trade a minor leaguer and $5m CASH to the Red Sox for Joe Nobody whose salary is $2m.

I have read this a bunch of times I don’t understand it. 

How does it make sense for the Angels to make a deal like this? 
 

I can’t think of a reason you’d ever send another team more cash than is required to pay the salaries involved. 

Maybe I’m just not reading it right?

[Lou]

1 minute ago, Jeff Fletcher said:

Maybe I’m just not reading it right?

I didn't get it either

[Cosmo_Kramer]

1 hour ago, Dtwncbad said:

No I get that.  I am asking about actual cash.

The Angels trade a minor leaguer and $5m CASH to the Red Sox for Joe Nobody whose salary is $2m.

So the Angels now have Joe Nobody and his salary of $2m.

Does the Angels luxury tax number go up just the $2m for Joe Nobody’s salary they acquired, or does it go up $7m because they also spent an additional $5m (where the Red Sox luxury tax number would go down $7m total, $2m for unloading Joe Nobody and also $5m for cash received)?

Screen shot from CBA.

[Cosmo_Kramer]

20 minutes ago, Jeff Fletcher said:

I have read this a bunch of times I don’t understand it. 

How does it make sense for the Angels to make a deal like this? 
 

I can’t think of a reason you’d ever send another team more cash than is required to pay the salaries involved. 

Maybe I’m just not reading it right?

Looks like it's actually against the CBA, per my above post.

[ettin]

2 hours ago, Dtwncbad said:

How is cash going from one team to the other in trades treated in terms of salary calculations?

I mean, if Team A sends $5m to team B in a deal, isn’t team A really effectively paying another $5m in “salary” that should count toward their luxury tax number?

Shouldn’t team B get a $5m reduction in their salary calculation since they received that money as an offset?

 

2 hours ago, Hubs said:

It does count. Exactly as you described. If the Red Sox were to say move $7M per season in a Price trade, the balance of the AAV (24) would count towards the acquiring team and $7 would count against the Red Sox's cap.

Not quite. If the player being traded has a multi-year contract with an AAV number, it should be a percentage.

For example:

Player A is traded from Team X to Team Y. Player A was originally signed to a 5-year, $100M deal (AAV of $20M per season). The salary breakout by year was $15M (Year 1), $18M, $20M, $22M, and $25M (Year 5). The trade is happening prior to the 5th season of control.

To help get better prospects back Team X offers to pay $4M of the $25M owed in the last season. This means that Team X is absorbing $4M of $100M, which is 4%. Because the AAV is still $20M for Year 5, this means Team X is retaining 4% of $20M, which is $800,000 in AAV on their payroll. This means Team Y will pay $21M in Club Payroll for the last season of control and $20M - $800,000 = $19.2M toward their AAV for that season.

This is my understanding of it, I could be wrong but it makes sense.

[Dtwncbad]

1 hour ago, Jeff Fletcher said:

I have read this a bunch of times I don’t understand it. 

How does it make sense for the Angels to make a deal like this? 
 

I can’t think of a reason you’d ever send another team more cash than is required to pay the salaries involved. 

Maybe I’m just not reading it right?

The deal described was only to ask a question about how actual cash changing hands is treated.  It was never meant to represent a framework of a real deal. 

[Jeff Fletcher]

3 hours ago, Dtwncbad said:

The deal described was only to ask a question about how actual cash changing hands is treated.  It was never meant to represent a framework of a real deal. 

Well I don’t think there is an answer because it can’t really happen that way. A team can’t just give another team cash with nothing in return. 
 

[arch stanton]

When Charles Finley tried to sell off all the old A's players they put a $400,000 cap on cash for player transactions. I don't know what it is now but I think they discourage selling off for cash

[Hubs]

On 12/23/2019 at 6:00 PM, ettin said:

 

Not quite. If the player being traded has a multi-year contract with an AAV number, it should be a percentage.

For example:

Player A is traded from Team X to Team Y. Player A was originally signed to a 5-year, $100M deal (AAV of $20M per season). The salary breakout by year was $15M (Year 1), $18M, $20M, $22M, and $25M (Year 5). The trade is happening prior to the 5th season of control.

To help get better prospects back Team X offers to pay $4M of the $25M owed in the last season. This means that Team X is absorbing $4M of $100M, which is 4%. Because the AAV is still $20M for Year 5, this means Team X is retaining 4% of $20M, which is $800,000 in AAV on their payroll. This means Team Y will pay $21M in Club Payroll for the last season of control and $20M - $800,000 = $19.2M toward their AAV for that season.

This is my understanding of it, I could be wrong but it makes sense.

 

 

I don’t think it works that way. Not when there is one year of a deal remaining. If there were two years left and they offered to pay the entire salary in year four to get rid of the contract in year five, then the percentages are equalized I think. But I actually think it’s straight money. 
 

Edit: I am correct, it counts in full for the team that paid it, in the year they paid it. So if they send $5M cash with a player, it counts in that year. If said player has a $2M Salary this year and $5 next year— but the $5 was paid in year one, it would be a $5 payout in luxury tax in year one, and so the AAV for the tax is 3.5 so it is then zero and the paying team is $5. 
but again, not usually done this way. 

[ettin]

58 minutes ago, Hubs said:

I don’t think it works that way. Not when there is one year of a deal remaining. If there were two years left and they offered to pay the entire salary in year four to get rid of the contract in year five, then the percentages are equalized I think. But I actually think it’s straight money. 
 

Edit: I am correct, it counts in full for the team that paid it, in the year they paid it. So if they send $5M cash with a player, it counts in that year. If said player has a $2M Salary this year and $5 next year— but the $5 was paid in year one, it would be a $5 payout in luxury tax in year one, and so the AAV for the tax is 3.5 so it is then zero and the paying team is $5. 
but again, not usually done this way. 

Link?

The AAV is spread across all the years of the contract equally so I am curious where you found this information.

[Hubs]

I read part of the CBA. We’re both kind of right though because I missed the first part. If it is one year remaining it counts to that year alone as I thought. If it is a multi year deal it’s spread over the remaining years, (not prior years or as a percentage). It counts the same way for the payee of the cash.

(iii) Cash Consideration: An assignor Club that pays cash consideration to defray all or part of the salary obligation of the assignee Club for an assigned Player or Players shall include such cash consideration in its Actual Club Payroll on a pro-rata basis over the remaining Guaranteed Years of the assigned Con- tract(s). Cash consideration that is conditionally payable based on the Player’s earning of performance or award bonuses will be included in the Actual Club Payroll of the Club responsible for paying the bonus in the Contract Year in which the bonus is earned. Cash consideration that is conditionally payable based on the outcome of Club or Player Option decisions will be included in the pro-rata calculation described above if the con- sideration is contingent on the decline of a Club Option Year or the exercise of a Player Option Year, but will not be included if contingent on the exercise of a Club Option Year or the decline of a Player Option Year. If any cash consideration not originally included in the pro-rata calculation described above is ultimately paid as a result of the outcome of Club or Player Option deci- sions, the cash consideration will be included in the Contract Year(s) covered by the Club or Player Options. An assignor Club that pays cash consideration in lieu of assigning an unnamed player shall include such cash consideration in its Actual Club Payroll in the Contract Year in which the cash consideration is paid.
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Any cash consideration that is included in the Actual Club Pay- roll of the payor Club shall be subtracted from the Actual Club Payroll of the payee Club in the same Contract Year in which it is added to the payor Club’s Actual Club Payroll. Notwithstanding the foregoing, an assignee Club may not receive an aggregate credit against its Actual Club Payroll(s) for cash consideration received in an assignment that exceeds the sum of (a) the total amount of the acquired Player(s) Salaries that are included in the Club’s Actual Club Payroll(s) following the assignment, and (b) any cash consideration paid by the assignee Club to another Club in a subsequent assignment of the acquired Player(s) that is attrib- utable to those Players