Deferred money deferential

[GovClintonTyree]

A bankruptcy court judge in his courtroom is closest thing we have to a king in the US. The court could literally ignore MLB's attempt to force a sale if it wanted to. If it was a Chapter 11 and the team intended to come out of the bankruptcy a going concern, you could see plan that pays deferred money at pennies on the dollar.

Is this likely? No. Most likely MLB would force a sale of a team well before it entered into bankruptcy. If a team did somehow end up in bankruptcy, MLB would still have options. For example, MLB could buy the debt from the creditors. Offer them face value and they'd jump at it. MLB would then likely be able to end up owning the restructured team which it would then sell.

Still, it's fun to think of a scenario where these deferred money schemes blow up in the faces of those involved.

I agree with this analysis. Ohtani is actually taking an unsecured promise to pay instead of current compensation and if it were secured he would be currently taxed. The tradeoff is that if the promisor (the business) goes under, the deferred comp participant waits in line with the rest of the general creditors and, as you say, theoretically could receive pennies on the dollar. An arranged marriage with a new owner is a more probable result.

[Southcack77]

I agree with this analysis. Ohtani is actually taking an unsecured promise to pay instead of current compensation and if it were secured he would be currently taxed. The tradeoff is that if the promisor (the business) goes under, the deferred comp participant waits in line with the rest of the general creditors and, as you say, theoretically could receive pennies on the dollar. An arranged marriage with a new owner is a more probable result.

Fairly low risk that the Dodgers have solvency issues to begin with.

[GovClintonTyree]

Fairly low risk that the Dodgers have solvency issues to begin with.

True, as long as they're controlled by Guggenheim, for whom they're almost a toy. It's worth pointing out that the team filed Chapter 11 as recently as 2011, though that was under Frank McCourt's stewardship. And when he sold the next year, he got $2.1 billion for the club. So despite having significant value, the asset's cash flow was insufficient.

What we're talking about are fairly substantial future obligations that they can plan for and that they have the advantage of the time value of money. But, they're in essence mortgaging the 2030s. They're betting they can outrun the debt, and as you say, they probably can. But it's a gamble.

[Tapate50]

Or bankroll that increase in merch and intl exposure

[50PoundHead]

I would be surprised--but not shocked--if the Braves went down this road to some extent given the success of The Battery. I don't know there's a lot of cash sitting around or whether it's wise to bet on the long-term future of commercial real estate, but it's certainly something would mitigate risk for a contract with a ton of money deferred.

[mfree80]

Doesn’t the contractual obligation make it essentially secured rather than unsecured?

The contract means they can’t just decide not to pay.

[GovClintonTyree]

Doesn’t the contractual obligation make it essentially secured rather than unsecured?

The contract means they can’t just decide not to pay.

The second statement is true but the first is not. There’s no identified account that they can point to and say they have a superior right to other creditors. So they have a contract, Ohtani or another deferred player has the ability to compel payment through a judgement if necessary….but they have no primacy versus any other creditor.

The Dodgers could build an account for Ohtani and lose it to tort, contract or bankruptcy, leaving Ohtani in the cold.

[Southcack77]

Doesn’t the contractual obligation make it essentially secured rather than unsecured?

The contract means they can’t just decide not to pay.

Secured means there is a lien or other priority interest on specific property.

A contract gives legal recourse to the parties, but if we are talking bankruptcy may not be much obstacle.

[striker42]

Secured means there is a lien or other priority interest on specific property.

A contract gives legal recourse to the parties, but if we are talking bankruptcy may not be much obstacle.

As a lawyer, this is correct.

People tend to think baseball contracts have more authority because they're written and have all sorts of stuff in them. But when it comes to getting paid in bankruptcy, your average plumber probably has more recourse than an MLB star.

But this is academic. It's hard to imagine a situation where MLB lets it happen.

[50PoundHead]

As a lawyer, this is correct.

People tend to think baseball contracts have more authority because they're written and have all sorts of stuff in them. But when it comes to getting paid in bankruptcy, your average plumber probably has more recourse than an MLB star.

But this is academic. It's hard to imagine a situation where MLB lets it happen.

Posted at 2:55 in the morning. New fatherhood keeping you up? Don't worry. You can still get 8 hours sleep. It just takes 12 hours to get it.

[zitothebrave]

As a lawyer, this is correct.

People tend to think baseball contracts have more authority because they're written and have all sorts of stuff in them. But when it comes to getting paid in bankruptcy, your average plumber probably has more recourse than an MLB star.

But this is academic. It's hard to imagine a situation where MLB lets it happen.

Correct, MLB wouldn't let a team go bankrupt, the owners can go bankrupt, but they'd force the sale of the team or take it over. See Mets, Rangers, and Expos. The Wilpons nearly went bankrupt and were threatened to because of the Madoff stuff, Rangers went bankrupt and sold, and part of the sale was covering salaries (A-Rod to name one) MLB stepped in to facilitate the sale which made sure those were covered, Expos fell into financial hell and MLB took over the team from Loria before selling it and moving to Washington.

[striker42]

Posted at 2:55 in the morning. New fatherhood keeping you up? Don't worry. You can still get 8 hours sleep. It just takes 12 hours to get it.

Hit the nail on the head. The little Striker doesn't care much for sleep.

[50PoundHead]

True, as long as they're controlled by Guggenheim, for whom they're almost a toy. It's worth pointing out that the team filed Chapter 11 as recently as 2011, though that was under Frank McCourt's stewardship. And when he sold the next year, he got $2.1 billion for the club. So despite having significant value, the asset's cash flow was insufficient.

What we're talking about are fairly substantial future obligations that they can plan for and that they have the advantage of the time value of money. But, they're in essence mortgaging the 2030s. They're betting they can outrun the debt, and as you say, they probably can. But it's a gamble.

I grew up in a farming community and while I have taken numerous economics courses, there are some simple maxims and one is even if you are sitting on a gold mine, if you haven't got the cash flow to maintain your capital, things get crappy in a hurry.