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golakersgo121
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 Posted: Thu Nov 16, 2017 3:34 pm Post subject: |
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| emplay wrote: | Aeneas - I went to a sports accountant to break it down - the basic math on 2-3% rate of return isn't even a question - even on gross numbers
it's when you project, can Deng bring back 8%? 10%? etc. |
Eric - great article, appreciate it.
Some caveats:
I understand that you went to sports accountant but I do find some assertions questionable.
1. Tax rates for professional athletes (and, I think, we have discussed it previously) is based on where they make their basketball related money. In other words - 41 home games are taxed at the team's (not athlete's) tax rates and every away game is subject to tax rate of the place it is being played.
2. tax rates for athletes on their outside of basketball income is calculated based on where he claims his residence to be (not where he plays). He just has to certify that he lives there more than 6 months in a calendar year.
3. Estimated return for NPV purposes calculated anywhere below 3.5% annually even in this low cost money environment is laughable and serves no purpose other than academic.
4. And then this circumvention thing. CBA has this cap definition. Everyone remembers Gasol trade and the fact that we have been able to execute it via CBA circumvention. Back then NBA looked another way and attempted to close this loophole later. how they'd treat it this time around - perhaps Larry is, indeed, the best person to give it an intelligent guess. However, as much as I felt unfairness of CPaul "basketball reasons" fiasco - I'd understand if they call this one a "cap circumvention".
and, lastly: that cat is out of the bag now but I'd run it by the Lakers FO to check if they want to attempt it and keep it out of general audience attention. But I don't make my living by publishing articles 
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emplay
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| Posted: Thu Nov 16, 2017 3:37 pm Post subject: |
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| venturalakersfan wrote: | | One question loosely based on this topic, but when does an extension hit the cap? For example the 76ers announced an extension with Covington. Does that hit their cap July 1 or when it is signed like a FA contract? |
- renegotiation - the salary for this season climbs once signed
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 3:39 pm Post subject: |
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| emplay wrote: | Discount Rate 5 year NPV 11 year NPV Difference
1.00% $35,730,961 $37,521,389 $1,790,428
2.00% $34,700,489 $35,419,493 $719,004
3.00% $33,715,804 $33,486,088 $229,716
4.00% $32,774,316 $31,704,962 $1,069,354
5.00% $31,873,607 $30,061,668 $1,811,939
6.00% $31,011,422 $28,543,316 $2,468,106
7.00% $30,185,654 $27,138,384 $3,047,269
8.00% $29,394,331 $25,836,561 $3,557,771
on gross - it's basically a wash at 3% - but it's not on gross, it's on net - and if he earns another $2.4 mil as a min player the next year? And any years after that |
Discount rate is different from return on investment. A 3% discount rate strikes me as insane. It would be good to get some input from Angry Puppy or one of the other financial types on the board. I’m just a working class lawyer. However, I do deal with this stuff from time to time in the context of pension issues and certain types of settlements. I can tell you that a 3% discount rate would raise all sorts of red flags.
I understand the point about gross vs. net, but I don’t know why you think it would make a difference. The numbers would change, of course, but it should be proportional. I mentioned the offset waiver in my earlier discussion. |
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emplay
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| Posted: Thu Nov 16, 2017 3:42 pm Post subject: |
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| golakersgo121 wrote: |
1. Tax rates for professional athletes (and, I think, we have discussed it previously) is based on where they make their basketball related money. In other words - 41 home games are taxed at the team's (not athlete's) tax rates and every away game is subject to tax rate of the place it is being played. |
not in buyouts - state tax is based on player residence
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emplay
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| Posted: Thu Nov 16, 2017 3:45 pm Post subject: |
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Aeneas - how would it be proportional if he's getting additional income of $2.4 mil in a new contract - that's a fixed number - it's not going to have the same proportion to a gross number and a net number
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venturalakersfan
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| Posted: Thu Nov 16, 2017 3:52 pm Post subject: |
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| emplay wrote: | | venturalakersfan wrote: | | One question loosely based on this topic, but when does an extension hit the cap? For example the 76ers announced an extension with Covington. Does that hit their cap July 1 or when it is signed like a FA contract? |
- renegotiation - the salary for this season climbs once signed |
Thanks
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 3:53 pm Post subject: |
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| golakersgo121 wrote: | | 3. Estimated return for NPV purposes calculated anywhere below 3.5% annually even in this low cost money environment is laughable and serves no purpose other than academic. |
On cue, here’s one of our real financial guys.
GLG, my thinking is that an individual would be more risk averse and that the resulting discount rate would be higher than for a business. Of course, the people I represent rarely have the sort of income that we see with pro athletes. It might be different if Deng has managed his money well and is already completely set for life. |
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golakersgo121
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| Posted: Thu Nov 16, 2017 3:55 pm Post subject: |
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| emplay wrote: | | golakersgo121 wrote: |
1. Tax rates for professional athletes (and, I think, we have discussed it previously) is based on where they make their basketball related money. In other words - 41 home games are taxed at the team's (not athlete's) tax rates and every away game is subject to tax rate of the place it is being played. |
not in buyouts - state tax is based on player residence |
right, sorry about it. Buyout is a settlement of the contract
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 3:55 pm Post subject: |
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| emplay wrote: | | Aeneas - how would it be proportional if he's getting additional income of $2.4 mil in a new contract - that's a fixed number - it's not going to have the same proportion to a gross number and a net number |
Oh, you just mean the set off waiver. I thought you meant taxes and the like. |
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golakersgo121
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| Posted: Thu Nov 16, 2017 4:00 pm Post subject: |
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| Aeneas Hunter wrote: | | golakersgo121 wrote: | | 3. Estimated return for NPV purposes calculated anywhere below 3.5% annually even in this low cost money environment is laughable and serves no purpose other than academic. |
On cue, here’s one of our real financial guys.
GLG, my thinking is that an individual would be more risk averse and that the resulting discount rate would be higher than for a business. Of course, the people I represent rarely have the sort of income that we see with pro athletes. It might be different if Deng has managed his money well and is already completely set for life. |
Right, guys with this income level (as a rule) have money managers or, at the very least, use financial advisers. Being risk averse is very common when you're settling, for instance, a case between a regular consumer that never held a check for $500,000 in his hands and insurance company (for instance). Needless to say - I don't intend to offend anybody.
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emplay
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| Posted: Thu Nov 16, 2017 4:09 pm Post subject: |
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Under normal circumstances - players give up a certain amount of $ - sometimes millions, to take buyouts.
The true comparison is how much would Deng be willing to accept in buyout paid out over 5 years
vs. getting $3 mil more than his current deal over 11.
so the before number is actually less - so I'm running projections on more money than he'd actually get if he got a normal buyout. If he's willing to leave $3 mil on the table to be free - then it's a $6 mil gross difference
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 4:39 pm Post subject: |
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| emplay wrote: | Under normal circumstances - players give up a certain amount of $ - sometimes millions, to take buyouts.
The true comparison is how much would Deng be willing to accept in buyout paid out over 5 years
vs. getting $3 mil more than his current deal over 11.
so the before number is actually less - so I'm running projections on more money than he'd actually get if he got a normal buyout. If he's willing to leave $3 mil on the table to be free - then it's a $6 mil gross difference |
As I indicated in one of my earlier posts, we just don’t know enough about Deng’s finances, goals, and general attitude about these sorts of things. You’re analyzing the financial issues in a vacuum, which is all you can do. That’s reasonable.
But what if Deng came to someone like me and asked for my opinion? First, I’d ask about all of those things that we don’t know about. Second, assuming that Deng is otherwise indifferent between 5 and 11 years, I’d tell Deng that we can get a lot more money out of the Lakers by negotiating. I’d try to figure out where the sweet spot is for the Lakers. I mean the point at which the 11 year stretch clears enough cap space for the Lakers to achieve their objectives. Let’s say for sake of discussion that the sweet spot is $15M guaranteed. My goal would to be to get as much of that money as possible for my client. If I can get $12M, or even $9M, it’s a win.
If Deng’s agent is worth anything, that’s how it would go down.
I’ll say again that if the Lakers want to play this game, they need to do it sooner instead of later. If they wait until next July, the risk greatly increases that the league will find circumvention. |
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emplay
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| Posted: Thu Nov 16, 2017 5:05 pm Post subject: |
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Deng's representative is going to push for the one that gets the player the greater gross = greater commission.
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Omar Little
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| Posted: Thu Nov 16, 2017 5:05 pm Post subject: |
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| emplay wrote: | Under normal circumstances - players give up a certain amount of $ - sometimes millions, to take buyouts.
The true comparison is how much would Deng be willing to accept in buyout paid out over 5 years
vs. getting $3 mil more than his current deal over 11.
so the before number is actually less - so I'm running projections on more money than he'd actually get if he got a normal buyout. If he's willing to leave $3 mil on the table to be free - then it's a $6 mil gross difference |
Isn't that instituting a second hypothetical; to justify the first? Or do you believe he actually will take less?
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emplay
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| Posted: Thu Nov 16, 2017 5:07 pm Post subject: |
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I know that Deng is willing to take less to be a free agent. How much less I don't know
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32
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| Posted: Thu Nov 16, 2017 5:23 pm Post subject: |
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Thanks Eric. Great plan B to explore.
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WindyCityLakerFan
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| Posted: Thu Nov 16, 2017 5:31 pm Post subject: |
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| Aeneas Hunter wrote: | | emplay wrote: | Under normal circumstances - players give up a certain amount of $ - sometimes millions, to take buyouts.
The true comparison is how much would Deng be willing to accept in buyout paid out over 5 years
vs. getting $3 mil more than his current deal over 11.
so the before number is actually less - so I'm running projections on more money than he'd actually get if he got a normal buyout. If he's willing to leave $3 mil on the table to be free - then it's a $6 mil gross difference |
As I indicated in one of my earlier posts, we just don’t know enough about Deng’s finances, goals, and general attitude about these sorts of things. You’re analyzing the financial issues in a vacuum, which is all you can do. That’s reasonable.
But what if Deng came to someone like me and asked for my opinion? First, I’d ask about all of those things that we don’t know about. Second, assuming that Deng is otherwise indifferent between 5 and 11 years, I’d tell Deng that we can get a lot more money out of the Lakers by negotiating. I’d try to figure out where the sweet spot is for the Lakers. I mean the point at which the 11 year stretch clears enough cap space for the Lakers to achieve their objectives. Let’s say for sake of discussion that the sweet spot is $15M guaranteed. My goal would to be to get as much of that money as possible for my client. If I can get $12M, or even $9M, it’s a win.
If Deng’s agent is worth anything, that’s how it would go down.
I’ll say again that if the Lakers want to play this game, they need to do it sooner instead of later. If they wait until next July, the risk greatly increases that the league will find circumvention. |
I was thinking the lakers dont have a chance after the owners canceled the cp3 trade but if they don't do it first someone else might beat them to it. If the thunder want to resign George they could do the same thing to Andre Roberson to lessen the luxury tax. Washington has Mahimi, jr smith in Cleveland ,Evan turner in Portland and Delladova with a Parker extension coming could also use the same loophole |
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emplay
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| Posted: Thu Nov 16, 2017 5:46 pm Post subject: |
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The owners didn't cancel the cp3 trade
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WindyCityLakerFan
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| Posted: Thu Nov 16, 2017 5:53 pm Post subject: |
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| Aeneas Hunter wrote: | | emplay wrote: | Under normal circumstances - players give up a certain amount of $ - sometimes millions, to take buyouts.
The true comparison is how much would Deng be willing to accept in buyout paid out over 5 years
vs. getting $3 mil more than his current deal over 11.
so the before number is actually less - so I'm running projections on more money than he'd actually get if he got a normal buyout. If he's willing to leave $3 mil on the table to be free - then it's a $6 mil gross difference |
As I indicated in one of my earlier posts, we just don’t know enough about Deng’s finances, goals, and general attitude about these sorts of things. You’re analyzing the financial issues in a vacuum, which is all you can do. That’s reasonable.
But what if Deng came to someone like me and asked for my opinion? First, I’d ask about all of those things that we don’t know about. Second, assuming that Deng is otherwise indifferent between 5 and 11 years, I’d tell Deng that we can get a lot more money out of the Lakers by negotiating. I’d try to figure out where the sweet spot is for the Lakers. I mean the point at which the 11 year stretch clears enough cap space for the Lakers to achieve their objectives. Let’s say for sake of discussion that the sweet spot is $15M guaranteed. My goal would to be to get as much of that money as possible for my client. If I can get $12M, or even $9M, it’s a win.
If Deng’s agent is worth anything, that’s how it would go down.
I’ll say again that if the Lakers want to play this game, they need to do it sooner instead of later. If they wait until next July, the risk greatly increases that the league will find circumvention. |
Aeneas this is off topic but is their a rule of thumb in short term versus long term. The first person who came to mind was bobby Bonilla. They are paying him 1.19 million every July first through 2035.
The Mets owed Bonilla $5.9 million for the 2000 season and no longer wanted him. So the club negotiated with Gilbert to attach an 8 percent annual interest rate to that money. With the clock starting in 2000, that adds up to $29.8 million. The first installment of the payout came on July 1, 2011, and the Mets will pay their sixth installment on Friday.
The Mets have never really talked about the deal, but it is well known that their owners, the Wilpons, had many accounts with investor Bernie Madoff. Madoff was returning 12 to 15 percent a year in what we now know were fictional returns. So deferring deals wasn't a problem because the payout would occur years later and the interest rate would be lower than the money they were (fictionally) getting back from Madoff. To see the deal as the Mets would have seen it, let's say the Wilpons put $5.9 million into a Madoff account in 2000 and got a conservative (by Madoff standards) 10 percent annual return. By 2011, when they would have to pay Bonilla for the first time, they would have already grown their pot to $16.83 million. Even with paying off Bonilla every year, they would wind up with a $49 million profit on the deal. Of course, the Madoff returns weren't real, which complicates this hindsight.
Assuming he could have made the 10 percent he would have came out better not deferring and investing. |
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WindyCityLakerFan
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| Posted: Thu Nov 16, 2017 5:54 pm Post subject: |
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| emplay wrote: | | The owners didn't cancel the cp3 trade |
David stern did. Did the owners have some influence?
Perhaps no issue was more controversial than the Lakers trade in early December of 2011. Los Angeles had a deal in place with the New Orleans Hornets, which would have sent point guard Chris Paul to the Lakers in a three-team deal that also involved the Houston Rockets. The Lakers would have sent out Pau Gasol and Lamar Odom. The trade had been made public and received immediate disapproval from the other team owners in the NBA. Ultimately, then-Commissioner David Stern vetoed the deal, famously citing ‘basketball reasons.’ |
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 6:07 pm Post subject: |
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| emplay wrote: | | Deng's representative is going to push for the one that gets the player the greater gross = greater commission. |
I don't know how payments to agents work in this situation. Are they all up front, or paid out over time? I have no clue. If it is a payment stream over time, then the agent has the same considerations as Deng. If it is a lump sum up front, then that partially negates the offset waiver. |
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 6:15 pm Post subject: |
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| WindyCityLakerFan wrote: | | I was thinking the lakers dont have a chance after the owners canceled the cp3 trade but if they don't do it first someone else might beat them to it. If the thunder want to resign George they could do the same thing to Andre Roberson to lessen the luxury tax. Washington has Mahimi, jr smith in Cleveland ,Evan turner in Portland and Delladova with a Parker extension coming could also use the same loophole |
Yes, this is a legitimate concern for the league. Suppose that OKC decides to get rid of Carmelo, but he exercises his player option for $28M. Could OKC enter into a sham extension with him and then stretch him for 11 years?
I don't mean to get into the specifics of the Carmelo situation in OKC. That's just an example. There is never a shortage of bad contracts in the NBA. |
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 6:19 pm Post subject: |
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| WindyCityLakerFan wrote: | | Aeneas this is off topic but is their a rule of thumb in short term versus long term. The first person who came to mind was bobby Bonilla. They are paying him 1.19 million every July first through 2035. |
I don't know of a rule of thumb. I know only a little bit about the Bonilla deal, and it was pretty weird. |
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Omar Little
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| Posted: Thu Nov 16, 2017 6:33 pm Post subject: |
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| Aeneas Hunter wrote: | | WindyCityLakerFan wrote: | | Aeneas this is off topic but is their a rule of thumb in short term versus long term. The first person who came to mind was bobby Bonilla. They are paying him 1.19 million every July first through 2035. |
I don't know of a rule of thumb. I know only a little bit about the Bonilla deal, and it was pretty weird. |
Future money costs you on two fronts: Inflation, which makes the value of a present dollar less over time, and opportunity cost, the lost ability to invest and gain a return on money paid later. So the rule of thumb would be to do an analysis of the future value of the two revenue streams by looking at the return on investment expectations, inflation, and any possible tax implications. Generally speaking, money paid out over time requires a significant jump in the total dollars to offset possession over a shorter term.
In the case of Deng, getting paid three million more over 11 years vs getting 3 mil less over 5 is very near to half the future value of present money (it's like getting paid a bit more than half as much in value even when paid more in absolute dollars), so he'd need a significant offset from a new contract.
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Aeneas Hunter
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| Posted: Thu Nov 16, 2017 6:48 pm Post subject: |
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| Omar Little wrote: | | In the case of Deng, getting paid three million more over 11 years vs getting 3 mil less over 5 is very near to half the future value of present money (it's like getting paid a bit more than half as much in value even when paid more in absolute dollars), so he'd need a significant offset from a new contract. |
Right. Let's assume that Deng wants to play for two more years and that he could command the vet min, for a total of $5M over those years. So it is $8M + the existing contract over 11 years, with $5M in the first two years, vs. the existing contract over five years. That could get close from a PV perspective, if you pick the sort of low discount rates that Eric is kicking around.
However, as my thinking has developed on this issue, I think we're looking at it from the wrong perspective. This is not a take-it-or-leave it scenario for Deng. The Lakers need to make this deal, and that gives Deng a lot of leverage if he plays it well. That's the point of my post about negotiations. The real question is how much Deng could extract from the Lakers to go along with this scheme, not how little the Lakers could dangle to make Deng jump. |
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