Ken Kendrick: "Dodgers are Not Gaming the System with Ohtani Deferrals"
Diamondbacks principal owner and Managing General Partner Ken Kendrick answered questions from the media today immediately following the Eduardo Rodriguez introductory press conference. The first topic everyone wanted to know about was his thoughts on the Shohei Ohtani contract and the deferments.
As has been reported here and elsewhere, Ohtani signed a 10-year, $700 million contract with the Los Angeles Dodgers. He will only receive two million of that per year for the first 10 years however. Following the contract's expiration in 2034, Ohtani will receive $68 million per year for the next 10 years. This mechanism allows the Dodgers to account for just $46 million against their Competitive Balance Tax Payroll, instead of the $70 million yearly average. Kendrick explained that $24 million difference, if taxed at 20%, amounts to an actual savings of just $4.8 million dollars. In the context of hundreds of millions of dollars that is not a very significant amount.
Kendrick insisted that the Dodgers are not gaming the system, and that they're playing by the rules. What Kendrick lamented, and what has been under reported, is that the Dodgers still have to set that $68 million that is deferred aside each year in an escrow account.
The one element that seems to be missing [in the reporting] there is the theme that all of this money, [the $68 million] the Dodgers are going to have that money to spend. Well, they won't. And that's not being reported. That money has to be sequestered in an account and held on the behalf of the player.
As such the Dodgers won't have that money to go into the market this year and the years beyond and buy additional players. Kendrick explained further how this system works.
All of us have done deferred contracts. So under the CBA you're required to set up an account, you can't access that money. It's certified by MLB annually on behalf of the collective bargaining agreement. You can earn interest on the money.........they could earn whatever the market rate of interest and that interest is OK for them to spend. So there's value, but it's being overplayed at this point to create the viewpoint there is an economic windfall for them beyond what they will be getting.
Kendrick was emphatic. The Dodgers do not have an extra $68 million to spend. They'll have roughly the $4.8 million they'll save on the luxury tax plus the interest earned on the $68 million they set aside each year.
Kendrick also is looking forward to hosting the Dodgers for seven home games in 2024 and in the years beyond. There will surely be an attendance bump. But he also tried to put Ohtani's presence on the Dodgers in perspective.
He's a great player. Actually I think it's good for us that we get to compete against him. Last I looked he's one of nine. Also last I looked, he's a designated hitter. He's a great player. Is he the second coming? I would suggest not. Would you like to have a player of that talent on your team? Of course everyone would. We'll have fun competing against him.
Other highlights from Kendricks media session
2024 Payroll:
Kendrick reiterated the playoff run windfall and added interest in the team going into next season has set the team up with greater revenue streams and he's putting it back into the team. As we wrote about the other day, the Diamondbacks will surely have a franchise record payroll in 2024. The team is already right around $130 million, give or take a few million depending on the accounting. The franchise record was $131 million in 2018.
"We have more to do and [Mike Hazen] has been given the authority to go make the team better than it is as we sit here today"
T.V. Revenue:
In addition to the streaming options Kendrick indicated the team may be close to finalizing deals to make the broadcasts accessible to fans. "We'll have a very viable regional television deal going into next year". Kendrick also hinted at some type of hybrid setup where some games could be broadcast over the air as well as via a regional cable package.
Chase Field and Relocation
Kendrick said the more likely event was that the team stays at Chase Field and they renovate the stadium. But that decision is not final. Kendrick took the opportunity to push on the local political leaders.
I'd like to think that our success does resonate with not only with the fans, but with the political establishment and that they would want to see a team here playing in the valley, whether it's here [in Chase Field] or some other place in the valley, I guess to be determined.
The D-backs have flexibility with their lease, which runs out in 2027, allowing them to leave before then with one year notice. The prospect of moving out of the state altogether came up, but Kendrick quashed that notion.
We have the freedom to move today with no penalties at all (provided they give one year notice). It's probably not appropriate to go there, but we could leave Arizona and there are some penalties if we were to do that. Well, that ain't gonna happen. [nervous laughter].... I don't want to be ridden out of town on a rail....with tars and feathers, which is probably what would happen.
Listen to the full session down below:
