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Dodgers Going With The (Cash) Flow

After a day of whining, posturing, and overall confusion, here's what we know about how the latest Manny Ramirez negotiations:

The Dodgers offered a contract of two years, $45 million, including a player option for 2010. While the salary figures were $25 million for 2009 and $20 million for 2010, a large portion was deferred, such that this was the payout schedule:

2009: $10 million
2010: $10 million
2011: $10 million
2012: $10 million
2013: $5 million

Scott Boras countered the Dodgers offer with an offer of 2 years, $55 million, including deferrals not known. This angered Frank McCourt so much that he sent out a scathing email publicly challenging Boras to find other offers.

Boras submitted another proposal, at the two years, $45 million total agreed to Wednesday, only this time with no deferrals.  Dylan Hernandez of the LA Times reports:

Boras responded to the Dodgers' news release with one of his own, which ended with him stating that he was waiting for the club to respond to his counteroffer of two years at $45 million. He's still waiting.

So at this point it seems both sides seemingly agree on the $45 million over two years; it's just a matter of when it gets paid.  David Cameron of Fangraphs alluded to the small difference between the two sides in his article, but he used only the 2009 salary for his analysis.  Let's take a look at the entire contract from each side to see how close they actually are.

First, I'm using the current prime rate of 3.25% for calculation of the net present value (NPV) in 2009 dollars.  For sake of simplicity, I am only using a single annual payment.  The result won't be exact, but it will give us a rough idea of where we are at.

Dodgers Offer
Salary NPV
2009 $10,000,000
2010 $10,000,000 $9,685,230
2011 $10,000,000 $9,380,368
2012 $10,000,000 $9,085,102
2013 $10,000,000 $4,399,565
Totals $45,000,000 $42,550,266


Manny Offer
Salary NPV
2009 $25,000,000
2010 $20,000,000 $19,370,460
Totals $45,000,000 $44,370,460

The difference between the two offers is $1,820,194.  That seems like such a small amount to be bickering over, and leads me to believe a deal will get done sooner rather than later.

My main concern is this:  why are the Dodgers so anxious to defer money?  Last year's payroll was roughly $125 million.  Look, I get that the economy is in the worst shape it's been in quite some time, and there is reason to be skeptical about incoming revenues.  I can certainly understand the Dodgers wanting to cut payroll to some degree.  But giving Manny all $25 million in 2009 only pushes this year's payroll to about $111 million, still a decrease of about 10.5%.   I can understand deferring some of the money, but over half seems excessive.

The problem with deferring over half the contract is robbing Peter and not being able to pay (Xavier) Paul.  The Dodgers have stated they are willing to pay Manny a total of $45 million.  Deferring the payment over the next few years brings us into years when the celebrated young core of this club start to get more and more expensive.  A quick glance at our payroll worksheet shows the projected payroll for the next few years as:

2010:  $77 million
2011:  $79 million

2012 looks to be even higher, as the expiration of Juan Pierre's contract will be offset by raises in the final year of arbitration for Martin, Loney, Kemp, Ethier, Billingsley, Broxton, and Kuo, just to name a few.

Keep in mind that 2010 and beyond is projected, without adding any other free agents.  The young core is strong, but I would imagine whomever the GM is would probably like to add a few free agents, especially pitchers.  Deferring so much of Manny's salary that far into the future hampers that flexibility.

So that brings us back to just how close both sides really are.  The NPV of both proposals are less than $2 million apart, so a deal should get done, and soon. 

The ball is now in Frank's McCourt.