RealGM

So this came up about Deng and then the new Conley Deal. I skimmed the CBA FAQ, and then tried looking directly at it:

Can anyone confirm (or deny) that deferred pay doesn't effect the yearly cash flows of an organization?

As far as I could tell, based off: http://www2.bc.edu/~yen/Sports/NBA%20CBA.pdf

The deferred compensation salary cap figure must be used in the salary cap year to buy the deferred salary instrument. As such, if a player with 30% of 10 million salary cap figure deferred for 10 years, then that team that year would pay the player 7 million, and have to pay the 3 million into an annuity. In short, they would still be out 10million that year.
The annuity would grow and ultimately pay out maybe 4 million, with the interest accruing to the player, and not counting additionally against the salary cap more than the original 3 million invested.

I can see the advantage to a player of this (they invest pre tax dollars), but want to confirm that it doesn't cut the immediate cash flows to an organization, as the word deferred might otherwise be thought to.
Experts?

HartfordWhalers wrote:So this came up about Deng and then the new Conley Deal. I skimmed the CBA FAQ, and then tried looking directly at it:

Can anyone confirm (or deny) that deferred pay doesn't effect the yearly cash flows of an organization?

As far as I could tell, based off: http://www2.bc.edu/~yen/Sports/NBA%20CBA.pdf

The deferred compensation salary cap figure must be used in the salary cap year to buy the deferred salary instrument. As such, if a player with 30% of 10 million salary cap figure deferred for 10 years, then that team that year would pay the player 7 million, and have to pay the 3 million into an annuity. In short, they would still be out 10million that year.
The annuity would grow and ultimately pay out maybe 4 million, with the interest accruing to the player, and not counting additionally against the salary cap more than the original 3 million invested.

I can see the advantage to a player of this (they invest pre tax dollars), but want to confirm that it doesn't cut the immediate cash flows to an organization, as the word deferred might otherwise be thought to.
Experts?

First off, I asked a member of a team's front office and he told me that deferred payments are not put into annuities and no interest is earned on them. If interest were to be earned, it would have to be considered as compensation and charged against team salary.

From a cash flow point of view, the deferred money remains in the team's coffers until it is paid out, but the deferred compensation does count against the team's salary in the year that it is earned. Teams count deferred salaries on their books as monies owed.

Dunkenstein wrote:First off, I asked a member of a team's front office and he told me that deferred payments are not put into annuities and no interest is earned on them. If interest were to be earned, it would have to be considered as compensation and charged against team salary.

From a cash flow point of view, the deferred money remains in the team's coffers until it is paid out, but the deferred compensation does count against the team's salary in the year that it is earned. Teams count deferred salaries on their books as monies owed.

Thanks for the reply. Any chance the team involved has a player receiving deferred compensation?
The reason I ask is I know its not that common and the CBA looks to me pretty clear that this is not correct, that any interest earned would NOT effect the salary cap:
Deferred Compensation (3 a 1 ii): "shall not include any Compensation as that the player is scheduled to receive after the term of the Contract pursuant to such annuity compensation arrangement."

I wouldn't be surprised to see teams not paying in to an annuity each season and instead listing it as a payable to keep the cash flow, but again the CBA says they are supposed to, fwtw. But zero interest would surprise me a lot more.

Edited to add: Even if zero interest were a bargained point between the players and the team, I still can't see it for the following:
Teams could lower the salary cap hit of a player by showing the zero interest sum as interested up; i.e. 5 million in the future with zero interest is really a 4 million salary with interest, thus lowering the salary cap hit (and luxury tax if applicable) and showing a net increase in this years profitability. Win-win.