Cubs sign Edwin Jackson, four years/52 million

[DavidH]

I guess not.

And even more so if MLB had a cap cause I don't think bonus money would affect that.

Well, in terms of the luxury tax (which is sort of like a cap, or at least as close as baseball gets) I believe the AAV is what counts. The additional $2M/year will be counted, regardless of how the contract is structured.

[CUBluejays]

Then please explain to me, with some modicum of logic, how the scenario where you hand Edwin Jackson a check for $8M today beats taking your $8M, investing it, and paying Edwin Jackson that money as $2M a year for 4 years.

If they pay the money later, they have essentially given themselves an interest free loan for those 4 years and can make themselves money with that money.


Paying off things up front is a great option for people who can't manage their money properly and will blow it off frivolously if they don't pay off their purchases immediately. Major League Baseball teams don't need to operate this way.

Since the money will be needed in the short term the best you can do with it is put it in a low interest CD or something similar. Your looking at 1-2% at best. Depending on the current tax rate the Cubs pay, they may be better of paying the bonus and decreasing their taxes for this year.

[gocubs2118]

The big mystery to me is always going to be why this is 8th team and why he got no love in his two trips through free agency.

Last year he turned down multiple multi-year deals to sign a one year deal with the Nationals. It was a risk that payed off for him.

[northsider]

Well, in terms of the luxury tax (which is sort of like a cap, or at least as close as baseball gets) I believe the AAV is what counts. The additional $2M/year will be counted, regardless of how the contract is structured.

I didn't think that affected the AAV.

[DavidH]

Last year he turned down multiple multi-year deals to sign a one year deal with the Nationals. It was a risk that payed off for him.

Yea. I wanted us to sign him last year.

[DavidH]

Since the money will be needed in the short term the best you can do with it is put it in a low interest CD or something similar. Your looking at 1-2% at best. Depending on the current tax rate the Cubs pay, they may be better of paying the bonus and decreasing their taxes for this year.

That's a fair argument. They probably have better (albeit riskier) ways to invest their money, though.

Or they could, theoretically, "invest" it in the team in ways that might, say, increase revenue down the line.

[BobTheAutomator]

Since the money will be needed in the short term the best you can do with it is put it in a low interest CD or something similar. Your looking at 1-2% at best. Depending on the current tax rate the Cubs pay, they may be better of paying the bonus and decreasing their taxes for this year.

Yeah, I think I agree with this. Ricketts was a bond trader on the CBOE and has an MBA so I think his understanding of the opportunity cost is up to snuff.It's more than that, thought, it does have an effect on the Cub's taxes which can be a reflection of Ricketts' personal tax situation. Do you know how you can tell farmers had a good year? They all have brand new pickups trucks and they buy them in December.

That being said, I actually don't doubt the bonus was requested by Edwin's team, especially if it's payable this tax year. I do not believe anything other than the total contract value won this deal, however.

We have a historically low payroll obligation and can absorb a bit more this year, so take it and free up space in future years.

[CUBluejays]

That's a fair argument. They probably have better (albeit riskier) ways to invest their money, though.

Or they could, theoretically, "invest" it in the team in ways that might, say, increase revenue down the line.

It's short term money, investing it in more risky asset classes isn't something you should do, because there isn't enough time to overcome any losses that
might occur. Plus if you paying federal corporate taxes plus Illinois your looking at upwards of 30-40%. Tough to beat that in the market.

They could certainly put the money back into Wrigleyville or Wrigley itself and do the same thing.

[bulldog312]

lol

Humor me. Where does the unspent money go?

Possibly the owner's pocket. Possibly the signing of some extra depth that I really don't give a damn about for 2013. Maybe an investment in the park. Bottom line is teams don't simply just bank money now to use for later. The front office gets a budget for every year, and they can't just simply roll it over from one year to the next. If it doesn't get used, it will just be extra profit.

[Doogolas]

I can explain it: His lower salary means that he can be more valuable in a future trade to a contending team if we: A) No longer have a place for him. B) Suck super hard and are trying to trade one or two of our good SP or C) He starts to suck/gets hurt and we want to be rid of him.

[bearfanrp]

I can think of a few reasons why the paying up front might be a benefit in this case, not as a general rule

1) It might have been a demand from Jackson either to sign to begin with and/or not get a NTC
2) It may have reduced the overall value of the contract (ie pay him 8 now versus 9 spread out over time)

[Rynoplasty]

Then please explain to me, with some modicum of logic, how the scenario where you hand Edwin Jackson a check for $8M today beats taking your $8M, investing it, and paying Edwin Jackson that money as $2M a year for 4 years.

If they pay the money later, they have essentially given themselves an interest free loan for those 4 years and can make themselves money with that money.


Paying off things up front is a great option for people who can't manage their money properly and will blow it off frivolously if they don't pay off their purchases immediately. Major League Baseball teams don't need to operate this way.

You're looking at it from the owner's point of view, considering purely his financial bottom line. From that position, you're certainly right. From a baseball operations point of view, there may be benefits that simply outweigh inflation/interest. Having a more easily moveable player in the last year(s) of the contract and having greater payroll flexibility to add players at the deadline in a year the team finds itself in striking distance of the playoffs are two that come readily to mind.

The front office would seem to prefer those benefits to the small amount of interest Ricketts could otherwise accrue.

[KyleJRM]

You can also use the money you saved, with interest, to pick up his salary and make him more tradeable.

As long as MLB doesn't have literal cap room that you can't carry over, this line of thinking will remain incorrect.

[CUBluejays]

You can also use the money you saved, with interest, to pick up his salary and make him more tradeable.

As long as MLB doesn't have literal cap room that you can't carry over, this line of thinking will remain incorrect.

I think it has zero to do with making him more tradeable and has far more to do with the tax situation of the Cubs/Jackson.

[Rynoplasty]

You can also use the money you saved, with interest, to pick up his salary and make him more tradeable.

As long as MLB doesn't have literal cap room that you can't carry over, this line of thinking will remain incorrect.

Does that interest really cover the cost of going over the luxury tax? I have a hard time imagining that it does.