Quake Griffin wrote:Quake Griffin wrote:can someone explain the concept of deferments/ deferred value in his contract?
^
Help me out Ranma.
[tweet]https://twitter.com/JonHeymanCBS/status/672977970420719616[/tweet]
Edit: I just saw Heyman's tweet above, so I went ahead and updated the deferred payment structure to reflect his report.
I'm not exactly a financial wiz or anything but here's my attempt at an explanation. Feel free to ask questions. Hopefully, I'll be able to clarify without giving you misinformation.
From my understanding, deferred money is money that is paid after the years in the playing contract. Think of it kind of like the option for either a lump sum amount or annual payments in lotto winnings. Instead of getting all the money upfront, it is spread out over additional years. Differences include that, unlike the lotto, the overall principal amount paid out doesn't change. Plus, obviously the lump sum amount is paid all at once in a single transaction whereas Greinke's playing contract is paid out over 6 years (not including deferment). Teams do this in order to lessen the payroll burden for particular fiscal years in order to sign other players and/or divert the resources elsewhere.
The accountants also tend to make more money off interest and investments by having cash on hand instead of paying it all out at once to Greinke. The D-Backs deferred and diluted the payroll burden by paying out the $60 million in installments at later dates, which likely also includes interest payments to Greinke as well. And all this obviously helps with lowering the luxury tax bill on payroll by spreading out the overall salary amount into smaller pieces to be accounted for over 11 years instead of a condensed 6 years.
The $60 million deferred amount is owed to Greinke outside of the $146.5 million he will be paid over six years while he's pitching in Arizona; it will be paid to him regardless of whether he'd still be with the D-Backs in year 7 and after.
For example, let's say that Greinke also eventually signs a 2-year, $10 million contract with the Giants as a free agent in 2021 after fulfilling his contract with Arizona. Greinke and the Diamondbacks also apparently agreed to a deferred payment structure of $60 million over 5 years, so I'm going to assume the annual salary and payments are spread out evenly for the sake of simplicity. Also, I'm going to round to the nearest ten-thousandth and not factor in whatever interest payments that may have been agreed to by Zack and the D-Backs. Below is a breakdown of the payout of his hypothetical deals.
$206.5 million Arizona deal (including deferred amount) | $10 million San Francisco contract2016 as Diamondback (Year 1 of Arizona Contract)$24.42 million2017 as Diamondback (Year 2 of Arizona Contract)$24.42 million2018 as Diamondback (Year 3 of Arizona Contract)$24.42 million2019 as Diamondback (Year 4 of Arizona Contract)$24.42 million2020 as Diamondback (Year 5 of Arizona Contract)$24.42 million2021 as Diamondback (Year 6 of Arizona Contract)$24.42 million2022 as Giant (Year 1 of San Francisco Contract + 1st Payment of Arizona Deferment)$5 million +
$12 million = $17 million
2023 as Giant (Year 2 of San Francisco Contract + 2nd Payment of Arizona Deferment)$5 million +
$12 million = $17 million
2024 as Retired Player (3rd Payment of Arizona Deferment)$12 million2025 as Retired Player (4th Payment of Arizona Deferment)$12 million2026 as Retired Player (5th Payment of Arizona Deferment)$12 million
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