Reds announce Spring Training roster

[redsfandan]

Originally Posted by mth123

Looks like a time bomb to me. In three years, the Reds will owe him $15 Million to be a member of somebody else's team. Its ticking down to right when the core will be getting really expensive and the Reds are going to need that money the most. So yeah, I think that's a time bomb.

Yeah, I don't think so:

$15M deferred without interest, paid through 2021, reducing present-day AAV to $28.9M

On a totally unrelated note, do you have any swamp land you'd like to sell me?

[mth123]

Originally Posted by redsfandan

Yeah, I don't think so:



On a totally unrelated note, do you have any swamp land you'd like to sell me?

So because they're going to be continue paying him 8 years after his contract ends I'm supposed to believe its a good thing? Most teams fund those deals during the life of the contract by putting the cash into an annuity. It probably means that it won't cost them $15 Million, but it probably means it comes out of the budget in 2012 and 2013. They may pay some of it in later years, but I think that's a bad thing too.

[TheNext44]

Originally Posted by mth123

So because they're going to be continue paying him 8 years after his contract ends I'm supposed to believe its a good thing? Most teams fund those deals during the life of the contract by putting the cash into an annuity. It probably means that it won't cost them $15 Million, but it probably means it comes out of the budget in 2012 and 2013. They may pay some of it in later years, but I think that's a bad thing too.

Who knows how they are doing it, but considering the return most annuities are getting these days, I personally would just pay directly.

But why would it come out of the payroll for 2012 and 2013? To be honest, I don't know much about how these things work.

[mth123]

Originally Posted by TheNext44

Who knows how they are doing it, but considering the return most annuities are getting these days, I personally would just pay directly.

But why would it come out of the payroll for 2012 and 2013? To be honest, I don't know much about how these things work.

If they fund the annuity in 2012 and 2013 then the annuity pays out over time. That allows the team to fund it with present value dollars of say $13 Million and the earnings from the annuity ensure that the pay-out is made for say $15 Million and allows the team to discount the actual cash cost of the deal.

I don't know what the Reds debt situation is, but MLB put limits on the amount of debt a team could accumulate. Funding these in advance keeps the debt ratio within those guidelines. The Reds have deferrels to Griffey and Chapman that I know of in addition to Arroyo's, I've seen multiple times where Griffey's is fully funded, but I don't know about the others. You may be right about the team just paying as they go based on the low returns made by annuities these days, but it depends upon the Reds debt ratio whether or not that is an option. There must be a little savings since the blurb that Dan posted mentioned the lower present value cost of the deal.