With millions of dollars in deferred salary, the Washington Nationals are facing issues bigger than making payroll now. What impact will it have?
The Washington Nationals have a unique business model for the structure of contracts.
No, we are not directly talking about their relationship with Scott Boras, but the millions in future contracts deferred for years after the deal in question expires.
Barry Svrluga wrote an excellent column in Monday’s Washington Post that goes into detail on which contracts carry deferred money and what it means down the road against the competitive balance tax—the new name for the old luxury tax in the collective bargaining agreement.
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Because of the tenuous television agreement the Nats agreed to when they moved south from Montreal, they earn millions less per year than they would on the open market.
Since Washington is in the television territory of the Baltimore Orioles, the O’s hold a super-majority in MASN while the Nats get a rights fee and an increasing ownership of the channel. That was the deal struck to get the Orioles to sign off on the move and it remains a giant thorn in Washington’s side.
When the Lerner family purchased the club from Major League Baseball, they invested millions into salaries. With the highest payroll in the National League—north of $164 million this year—the Lerner’s are committed to giving you a quality product on the field.
That comes at a high price for the future.
Not only, as Svrluga explains, do the Nationals have millions tied up in revenues against future payrolls, but those deferrals count against the salary tax. Although they are roughly $30 million under the cap now, a few million here and there put them in danger of paying into revenue sharing in the future.
As with paying the groceries with a credit card, there are dangers in getting a hamburger today—like Wimpy from the old Popeye cartoons—and paying next Tuesday.
The horrible television contract and pressure to win now has the team spending millions to win, along with a decent farm system to feed future talent. There is a chance MLB in New York may pressure Orioles principal owner Peter Angelos to either change the terms of the deal or let Washington go.
The odds are up there with the Queen of England purchasing the Kansas City Royals.
As the Nationals start yet another season of being betwixt and between with finances, they play a dangerous game. To get the better players to sign here, they must defer. By deferring, they risk running into a tax situation and a cheaper on-field product to pay for the now.
Deferred contracts are not new. The New York Mets will pay Bobby Bonilla a million a year for another generation for a contract signed before 1999 season. The extent of deferrals by one team are.
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An issue worth watching for the next ten years, at least.