2014 Rotation

[FSP]

MLR,

 

You seem to have dealt with some of this payroll stuff before so maybe you could explain why both the posting fee and the contract have to be considered over the life of the contract because I certainly don't get it. The posting fee is a one time payment to a team in Japan, the contract is a yearly payment to the player. They are payed to different entities, for different reasons, over differing amounts of time, and possibly out of different accounts, so why would they both be tied to the length of the contract in the eyes of the IRS.

[Physics Guy]

Tanaka will most likly not be 20mil, due to the fact his comparison (Yu Darvish) got only 9.5 mil per year. Of course though with the success of Darvish will help bring the value higher priced maybe 11-16mil at highest, but there are the dodgers who have so much money it's falling out of there pockets they would be the team to hand him 20mil.

 

You are right in that Tanaka will not personally get $20M per season, but the Twins would most likely have to pay that out. ($50M posting to team + $50M/5yr contract as an estimate). Rangers paid just over $50M posting fee and $60M/6 yr contract. The fact that only the player contract goes against the cap does not diminish the fact that the Twins will most likely view the entire amount in their budget.

[Major League Ready]

MLR,

 

You seem to have dealt with some of this payroll stuff before so maybe you could explain why both the posting fee and the contract have to be considered over the life of the contract because I certainly don't get it. The posting fee is a one time payment to a team in Japan, the contract is a yearly payment to the player. They are payed to different entities, for different reasons, over differing amounts of time, and possibly out of different accounts, so why would they both be tied to the length of the contract in the eyes of the IRS.

 

I am not a tax specialist either. This type of thing comes up from time to time in the consulting I do and a tax specialist is consulted. However, I can tell you that generally accepted accounting princples (GAAP) require that expense recognition match the benefit period or revenue generation. In this case I think it is very clear that the benefit period is over the life of the contract. You can Google "GAAP matching principle" or "GAAP expense recognition". I copied the section below from an internet search on the subject.

 

Matching Principle

Special consideration must be given to how revenues and expenses are related. Recall that an expense is the using up of an economic resource to generate a product or service. Those products and services will later be sold and recognized as revenue. GAAP has established a special rule for this relationship known as the matching principle. The matching principle requires that expenses must be recognized in the same period as the related revenues.

[Trevor0333]

Tanaka is not happening, the Yankees are determined to snag him & I believe the posting/bid fees dont apply to the payroll as they are determined to stay under 189M/year & retaining Cano.

 

The Twins should be looking at signing 1 SP like Colby Lewis & trading for a guy who is in the last year of their deal and hopefully they can get him without giving up a big time prospect.

 

Bailey, Lester, Anderson... etc

[nicksaviking]

Has SF come out and said they are giving him a QO? I honestly don't see it. He certainly hasn't been 14M good for a couple years now, and if SF wants to pay him that much, and he wants a short term deal, I see nothing preventing him from accepting it, sans perhaps him asking for an agreement not to do the same next year. I agree with you here, he's going to have a tough time finding work if a 2nd round pick is being added to the discussion.

 

Jon Heyman says they will give him the qualifying offer:

 

Giants to make qualifying offers to Pence, Lincecum; they won't accept - CBSSports.com

 

Obviously he could be wrong, but he usually has a pretty good feel for this stuff.

[nicksaviking]

There is no way that Hughes is worth 12.5M a year, try more like 6M a year

 

Clearly, but since when are free agent pitchers paid what they are worth? I think he gets less than 12.5M per year but it will be much higher than 6M I suspect.

 

If you want pitching, you have to overpay or develop it yourself. It's just the rules of the game, and unfortunately the Twins aren't able to develop it themselves.

[Physics Guy]

Tanaka is not happening, the Yankees are determined to snag him & I believe the posting/bid fees dont apply to the payroll as they are determined to stay under 189M/year & retaining Cano.

 

The Twins should be looking at signing 1 SP like Colby Lewis & trading for a guy who is in the last year of their deal and hopefully they can get him without giving up a big time prospect.

 

Bailey, Lester, Anderson... etc

 

I would be more than fine with replacing one of the FA signings with Bailey, contingent on him signing an extension. I doubt Boston lets Lester go. He is their #1 pitcher and they can afford to keep him. Anderson is a good pitcher, but his injury history is not good. If you can get him on the cheap, fine.

[JB_Iowa]

We might care because if the team actually decides to spend the percentage on payroll they normally would, as explained by Jim Pohlad, and the posting fee gets spread out on payroll over the next 5 years, it means less talent to be able to get.

 

It would seem to me that they could recognize that the quality of their product this year was abysmal and that they had a cost savings given actual payroll versus their "52%".

 

By using those cost savings up front, it would reduce any amount that might need to be spread out over the next few years.

[Ultima Ratio]

Not so bold prediction:

 

The only FA signed this winter will be Pelfrey.

 

Ergo:

 

Correia, Pelfrey, Deduno, Gibson, Worley

 

This sadly but likely will be the rotation.

[Shane Wahl]

Somebody should probably compile a list of the mlbtr predictions for starting pitching FAs. I don't think they have done one for Lincecum or Hughes yet, however. I know they have done one for Jimenez, Feldman, Kazmir, Hernandez (Carmona), Arroyo, and a few others.

[Oldgoat_MN]

Last 3 years

Player A: 411.2 IP, WHIPs of 1.487, 1.265, 1.455, bWARs -0.1, 1.9, -0.7, total: 1.1

Player B: 510.1 IP, WHIPS of 1.390, 1.298, 1.419, bWARs 0.1, 0.2, 1.6, total: 1.9

 

Player A: 2013 FIP 4.50, xFIP 4.39 (Fangraphs)

Player B: 2013 FIP 4.40, xFIP 4.24

 

Player A is Phil Hughes.

Player B is Kevin Correia.

 

We already have one of those.

[YourHouseIsMyHouse]

1. Ubaldo Jimenez, 4 years 60 million

2. Scott Kazmir, 2 years 11 million

3. Samuel Deduno, -

4. Kevin Correia, -

5. Josh Johnson, 1 year 6.5 million

 

 

Gibson in the wings to replace who struggles (and I'm sure one these guys will).

[Oldgoat_MN]

1. Ubaldo Jimenez, 4 years 60 million

2. Scott Kazmir, 2 years 11 million

3. Samuel Deduno, -

4. Kevin Correia, -

5. Josh Johnson, 1 year 6.5 million

 

 

Gibson in the wings to replace who struggles (and I'm sure one these guys will).

 

I think you are being optimistic about Jimenez and Kazmir. People keep saying it's a pretty thin FA market this year.

 

But I sure like the pitchers you've selected!

[tmerrickkeller]

The biggest PR splash would be Tanaka, and in a way, the lowest risk given his age and incredible track record. I posted this elsewhere (but in an old thread) but I think the math necessary to sign him does not take him out of the Twins' equation. You determine what you would be willing to pay to him as a free agent (and my suggestion is that is 10 years/$150 million because this team needs to make a splash and have an anchor pitcher). Then you decide how much you'd have to spend to get him for that amount of time on a contract (and I suggest that might be 10 years/$80 million for the length of the deal) and you throw the remaining money as a posting fee ($70 million) which - even if you don't get him, which I think you would - you would broadcast loudly to your fan base. Winning the posting fee also means that Tanaka will feel a lot of pressure from the Japanese club to sign so they get their money, which makes the 10 year/$80 million possible. A huge, huge risk that is outside of TR's comfort zone? Certainly. But this kid's size, velocity, nastiness, and the success of Darvish all point to it being a reasonable gamble for a franchise that won't need to spend much on others in a few years because their roster is almost entirely in the minor leagues and will be pre-arb.

[Chance]

I have a sneaky feeling the Twins will sign Chris Narveson to a minor league deal with the opportunity to compete for a spot in the rotation. Anyone else see this as a good possibility?

[ChuckPaine]

1) Dan Haren 2yrs/17M

2) Phil Hughes 2yrs/13M

3) Kevin Correia

4) Samuel Deduno

5) Gibson/Worley/Diamond/Albers

 

It really doesn't make sense for the twins to sign anyone more expensive than Haren or Hughes, except for Tanaka, who is out of our price range.

[YourHouseIsMyHouse]

I think you are being optimistic about Jimenez and Kazmir. People keep saying it's a pretty thin FA market this year.

 

But I sure like the pitchers you've selected!

 

I agree with you and was hesitant, but I think we have to pull the trigger. I've never been a fan of Jimenez, but I checked his fip and xfip and both are actually very good career wise (even in his down years). It would be such a relief to have just one above average pitcher and I'm 50/50 he can provide that. Tanaka is a long shot and after him I think Jimenez is the best choice. Kazmir put a slightly above average season, so a Correia-like payday (better performance, higher risk) seems fair and I'd like to think this wasn't a fluke. Josh Johnson is coming off of one really bad year and right now he'd be a bargain. Can't forget he had a 3.81 ERA in 2012 with 180IPs. Injuries are his biggest concern for sure.

[jokin]

1) Dan Haren 2yrs/17M

2) Phil Hughes 2yrs/13M

3) Kevin Correia

4) Samuel Deduno

5) Gibson/Worley/Diamond/Albers

 

It really doesn't make sense for the twins to sign anyone more expensive than Haren or Hughes, except for Tanaka, who is out of our price range.

 

I think it's within the Twins wherewith-all to sign Haren, Hughes and Tanaka. If all 3 were signed at the numbers you propose, you're looking at $8.5/yr for Haren, $6.5/yr for Hughes and let's say $10M/yr for Tanaka. That's only $25M per year and seems entirely do-able.

 

I just don't like the thinking that Tanaka should be considered automatically out of our price range, Target Field was built for just such an acquisition. Season Ticket sales and International marketing revenues would skyrocket for Terry Ryan for taking Jim Pohlad at his word...and finally firing the Shot Heard Around the World. Both Haren and Hughes, and an impact FA target like Ellsbury might be immediately more inclined to consider the Twins and Jim Pohlad's sincerity in "spending money" to avoid future embarrassment as rock-solid-sentiment.

 

Heck, you could also trade Correia for prospects or combined in a package deal for a First Baseman.....and now you've knocked down your annual cost for the SP acquisitions to $20M and helped fill a hole at another spot. Throw in Ellsbury and the payroll still comes in well under $100m.

[glunn]

I am not a tax specialist either. This type of thing comes up from time to time in the consulting I do and a tax specialist is consulted. However, I can tell you that generally accepted accounting princples (GAAP) require that expense recognition match the benefit period or revenue generation. In this case I think it is very clear that the benefit period is over the life of the contract. You can Google "GAAP matching principle" or "GAAP expense recognition". I copied the section below from an internet search on the subject.

 

Matching Principle

Special consideration must be given to how revenues and expenses are related. Recall that an expense is the using up of an economic resource to generate a product or service. Those products and services will later be sold and recognized as revenue. GAAP has established a special rule for this relationship known as the matching principle. The matching principle requires that expenses must be recognized in the same period as the related revenues.

 

There is a recent IRS Field Advisory Memorandum that states the IRS position -- here is a link to a discussion of the IRS position.

[Oldgoat_MN]

There is a recent IRS Field Advisory Memorandum that states the IRS position -- here is a link to a discussion of the IRS position.

 

Thank you glunn. That was very kind of you to find and post that.

 

Please don't be offended if we don't all run off and read exactly what the IRS has to say on the matter.

 

Peace

[ashbury]

Thank you glunn. That was very kind of you to find and post that.

 

Please don't be offended if we don't all run off and read exactly what the IRS has to say on the matter.

 

Peace

 

Fair enough, and I guess your post is at least somewhat tongue-in-cheek. But the linked article is IMO pretty readable. "Amortize" was the hardest word in it that I couldn't just skip over, and anyone who's ever signed for a mortgage probably has an inkling about that.

[ashbury]

There is a recent IRS Field Advisory Memorandum that states the IRS position -- here is a link to a discussion of the IRS position.

 

That treatment pertains to bonuses, which go to the player. (Well, minus the agent's fee, and so forth.) I think the intent is to cut down on financial game playing in how the player is compensated - to make it all the same under tax law, whether lump sums are paid or not.

 

Since a posting fee goes to a third party, I'm not certain that the same logic applies - it's not financial gamesmanship, and it could be treated as a cost of doing business that year. There's no option (to my knowledge) to spread out the actual cash payment of the posting fee to the same number of years as the player contract. IANAL but if I were I'd probably want to pursue that a bit further with the IRS.

[Major League Ready]

That treatment pertains to bonuses, which go to the player. (Well, minus the agent's fee, and so forth.) I think the intent is to cut down on financial game playing in how the player is compensated - to make it all the same under tax law, whether lump sums are paid or not.

 

Since a posting fee goes to a third party, I'm not certain that the same logic applies - it's not financial gamesmanship, and it could be treated as a cost of doing business that year. There's no option (to my knowledge) to spread out the actual cash payment of the posting fee to the same number of years as the player contract. IANAL but if I were I'd probably want to pursue that a bit further with the IRS.

 

The primary guidelines for how assets are treated is the matching principle I posted earlier. Clearly, the benefit of a posting fee is realized over the course of the contract. I doubt the fact that the posting fee goes to a 3rd party matters. If the Twins purchased a piece of equipment for maintaining target field from one company, and the attachments from another company, the expenditures would be treated the same.

 

Of course, the posting fee is not going to show up as part of the salary and a team would not be obligated to pay it if they traded for the player. However, the organization would be required to amortize the cost over the course of the contract.

[Mike Sixel]

Do we think the Pohlad's primary concern is whether the posting fee is part of the 2013 or other years' tax calculations? I don't.

[PSzalapski]

I like the original post's vague idea (I had a similar one), but they need to improve their lineup as well. Too many holes, and Ryan and Pohlad, I'm afraid, aren't committed to do anything drastic to make enough of a difference.

[ChuckPaine]

I think it's within the Twins wherewith-all to sign Haren, Hughes and Tanaka. If all 3 were signed at the numbers you propose, you're looking at $8.5/yr for Haren, $6.5/yr for Hughes and let's say $10M/yr for Tanaka. That's only $25M per year and seems entirely do-able.

 

I just don't like the thinking that Tanaka should be considered automatically out of our price range, Target Field was built for just such an acquisition. Season Ticket sales and International marketing revenues would skyrocket for Terry Ryan for taking Jim Pohlad at his word...and finally firing the Shot Heard Around the World. Both Haren and Hughes, and an impact FA target like Ellsbury might be immediately more inclined to consider the Twins and Jim Pohlad's sincerity in "spending money" to avoid future embarrassment as rock-solid-sentiment.

 

Heck, you could also trade Correia for prospects or combined in a package deal for a First Baseman.....and now you've knocked down your annual cost for the SP acquisitions to $20M and helped fill a hole at another spot. Throw in Ellsbury and the payroll still comes in well under $100m.

 

Yeah, but you're forgetting that Tanaka will also require at least a $40M posting fee, in addition to $10-$12M a year. Lets say that Tanaka gets a $50M posting fee and a 5/$50M contract. Technically that's $20M per year, which, in theory, leaves the twins with $20M left to spend. It would be great, but it won't happen.

[glunn]

Thank you glunn. That was very kind of you to find and post that.

 

Please don't be offended if we don't all run off and read exactly what the IRS has to say on the matter.

 

Peace

 

I am not offended. The link was intended mainly for those who were talking about the tax issue.

[jokin]

Yeah, but you're forgetting that Tanaka will also require at least a $40M posting fee, in addition to $10-$12M a year. Lets say that Tanaka gets a $50M posting fee and a 5/$50M contract. Technically that's $20M per year, which, in theory, leaves the twins with $20M left to spend. It would be great, but it won't happen.

 

Agreed. I didn't forget that and I understand that that is the case. But the posting fee doesn't count towards the payroll, and all the advantages that it entails. Pohlad is on public record that the embarrassment must stop, and that he will open the checkbook- and the last 2 years of cost-cutting, the various windfalls of revenue streams from Target Field, coupled with the "found money" from the new media deal makes paying out a one-time posting fee go from feasible to very do-able....but of course, we resume our in-kind agreement.....

 

it won't happen/

[Major League Ready]

Agreed. I didn't forget that and I understand that that is the case. But the posting fee doesn't count towards the payroll, and all the advantages that it entails. Pohlad is on public record that the embarrassment must stop, and that he will open the checkbook- and the last 2 years of cost-cutting, the various windfalls of revenue streams from Target Field, coupled with the "found money" from the new media deal makes paying out a one-time posting fee go from feasible to very do-able....but of course, we resume our in-kind agreement.....

 

it won't happen/

 

So what does it count toward? It won't show up it whatever source might list "payroll" but it is part of cost associated with that player. The Twins are going to recognize it as payroll expense. You are confusing how MLB views this expense for luxury tax vs how it has to be accounted for as a business. The short version is that the Twins are not going to pretend a posting fee is not part of the cost of a given player. They are going to include any posting fees and/or bonus expenditures in their 52% budget for payroll expense.

[gobirds]

I'm guessing the Twins end up with none of the pitchers speculated on in this thread (with the possible exception of Narveson). Some posted the Giants wouldn't give Lincecum the $14 mil qualifying offer, but he ended up getting more than that. The prices are going to be high this off-season, and the Twins just don't seem to want to win bidding wars. Especially when it comes to long contracts for pitchers on the downside of their career. And I think this is pretty astute.

 

Look for them to sign someone like Jake Westbrook to a one or maybe a 2 year contract. I believe the Cardinals will decline his option. He'd provide a veteran to help bridge the gap to the Twins prospects, but there will not be a bidding war for him. No one will be excited by the signing, but the Twins aren't making the playoffs next year. I'm not saying this is a great move, but it matches the Twins philosophy more than going out a signing guys from the top of the market.