The Lefty PO

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  • Deferred Contracts – Good or Bad?

    Deferred Contracts – Good or Bad?

    I’ll start this off with my hot take: Deferred Contracts are good for baseball. 

    What is a deferred contract?

    For those who don’t know, a deferred contract allows a team to push back payments for a player. Say I sign a contract for $100 million over 5 years. Generally you would see the payments at $20 million a year. A deferred contact could allow me to make $10 million for the first 4 years, and then $60 million in the 5th year. Payments can even be pushed back after the player’s contract is up. A famous example of this is Bobby Bonilla getting paid $1.1 million per year until 2035.

    How does this impact a team’s Luxury Tax (CBT)?

    This is where people start to get upset with the rules. On paper, a team’s salary cap is broken out based on “Average Annual Value”. So, that $100 million contract? The average annual value is a nice, easy, $20 million each year. This stops teams from end loading a contract to get under the luxury tax limits. 

    Here is where General Managers work their magic. Money now is worth more than money in the future (thanks inflation). $100 million in 10 years is not going to hold the same value as it would today – due to both inflation and opportunity cost. The key here is deferred contracts are calculated based on “Net Present Value” (or NPV), meaning they are paying a lower real cost to an escrow account, as compared to the high Average Annual Value (AAV counts towards luxury tax, NPV is for Escrow). 

    Escrow Accounts

    To ensure players are fully paid out on their deferred contracts (I’m talking to you, Mets), teams must place the Net Present Value of the contract in an escrow account. An escrow account is an account held by a neutral third party like a bank or investment firm, with the player’s contract money. A team place the money into an escrow account within two years of the contract agreement. Example here being Ohtani’s contract. Ohtani’s contract has him at $2 million a year from 2024-2033, and $68 million a year from 2034-2043. The deferred amount is $680 million, or $68 million a year. Net Present Value of his contract was calculated out to $46 million, so the Dodgers must place that $46 million into the escrow account each year, ensuring Ohtani will be paid when he is supposed to. 

    So while many people think the Dodgers are saving that money until the 2030’s, they will be funding his escrow account starting in 2026.

    Why are Deferred Contracts fun?

    I love deferred contracts because it is such a HUGE risk if the player doesn’t perform. Some of the worst contracts in history are because of deferred contracts.

    Bobby Bonilla (I have a fun article about this coming up) will be getting paid over $1 million by the Mets until 2035 – he hasn’t played for them since 1999. I was two years old. 

    Chris Davis will be getting paid $3.5 million by the Orioles until 2032 and then $1.4 million until 2037 – Hasn’t played for the O’s since 2020 (He hit .110). 

    Deferred contracts assume players are not going to get hurt, and play to their full potential, so you better not be wrong.

    Consensus 

    Deferred contracts can only be approved or disproved in hindsight. Did the Orioles know Chris Davis was going to struggle after multiple 45+ home run seasons? Of course not, which is why I believe you must be so sure of a player’s success when giving them a large deferred contract. Ohtani is an absolute no-brainer – the most talented player in a generation is exactly the person you take the risk on. 

    Who is your favorite team, and who would you feel comfortable giving a deferred contract to?

  • Welcome to The Show

    Hello, my name is Dillon Van Oosbree, and you’ve landed on the only baseball blog run by a self-proclaimed Lefty PO. A title I hold despite being neither left-handed nor a PO. Here, I plan to give my opinions, make videos, and dive into the data about the things nobody cares about (which is going to be all baseball, of course).

    To give my readers a background on myself, I played through college, graduating in 2021. After some arm injuries in my college career, I decided to hang up the cleats, and figure out what a non-athlete does after college. After about a year away from baseball trying to figure my life out, a few things became clear to me:

    1. I truly missed being around baseball
    2. It is incredibly hard to find an identity out of sports after college

    Understanding many people have this same identity crisis, and my desire to get back into the game, I found two new goals for my personal life. 1. Get back in to baseball, and 2. help others cultivate their true passion.

    Around January of 2023 I met one of my old teammates (shoutout Coach Dash) at a College baseball game at Globe Life Field. He told me the Rangers Youth Academy was looking for coaches.

    For those of you who don’t know about MLB Youth Academies, MLB explains them like this:

    “As a not-for-profit organization, the Urban Youth Academies aim to set the standard for baseball and softball instruction, teach and educate in Urban America, and enhance the quality of life in the surrounding communities.”

    This perfectly checked both boxes for me. I applied for the job, and was hired on within a few months.

    Over my two years at the Academy, here is a short list of things I have learned.

    5 Lessons From Coaching

    • Not everyone takes coaching advice the same way. Some people just don’t want to be coached at all.
    • The Best Coaches Listen. You need to be stern, but you absolutely must have the ability to listen.
    • Stories are My Favorite Way to Teach a Lesson.
    • Effort is a Non-Negotiable. This is the one thing everyone can control.
    • Don’t Punish Failure. You have to drive a culture that allows athletes to take risks without fear.

    I clearly have a story for each one of those bullet points, but those are for another time.

    Between coaching, I’ve also trained for baseball myself. I’ve had two separate tryouts with the Savannah Bananas (both were unsuccessful, and definitely great video content) and recently joined a Sunday League.

    I enjoy playing, and I think getting back on the field allows me to keep some of the joy I had through my developing years. I don’t expect many of my articles and videos to be serious, but I wanted to establish who I am and exactly why I ever decided to work in baseball.

    So what rant about baseball should I go on first? Happy reading,

    The Lefty PO.