Restructure Braun

[Harry Doyles JD]

Is it possible, and would it be smart to try and get Ryan to restructure his remaining deal to heavily front-load it? I'm thinking if possible, it'd be smart to retire as much Braun debt now while there is hardly any other payroll, to give more financial flexibility for signings and re-signings down the road.

[KCBrewerfan34]

His contract is OK

[Outlander]

I really don't know why they would do that especially with no salary cap or cap hit or anything like that to worry about. The Brewers could pocket the money now and pay later.

[Harry Doyles JD]

I guess I should say that this thought was born of the possibility of adding pitching at the break...pitching that will become costlier before Braun's contract is up.

[KCBrewerfan34]

We have one of if not THEE lowest payroll in baseball. Owner would probably add 20-30 million this month if DS and him think it would make sense.

 

 

Money shouldn't stop us from adding unless you're thinking about Verlander and others.

[igor67]

It only makes sense in our kind of vague every year they have a budget sort of mindset. From a pure econ stand point, unless it would involve him taking less overall to front load more this year with the deal already in place you want to wait as long as possible to pay. For example if Braun were to suffer an insured career ending injury at some point in the future all of that front loading would cost the owner millions in savings from the insurance. He might retire and forfeit remaining salary. Perhaps the most likely is that there are some goofy tax laws for baseball teams and if Mark decided to sell Braun's contract has some significant tax advantages.

[MrTPlush]

No that would just make his contract more costly than it is. A dollar today is worth more than a dollar tomorrow. Not sure how much frontloading you are talking, but it could cost us millions more. If you are worried about payroll concerns I doubt Braun's contract will ever be a big deal. Mark Attanasio and Co. would never do such a thing.

[logan82]

Braun is making $15m tops per year. No reason to touch his contract unless ge will take less overall and there is no way the union would let that happen.

[LouisEly]

No that would just make his contract more costly than it is. A dollar today is worth more than a dollar tomorrow. Not sure how much frontloading you are talking, but it could cost us millions more. If you are worried about payroll concerns I doubt Braun's contract will ever be a big deal. Mark Attanasio and Co. would never do such a thing.

Almost all businesses operate on a budget, usually annual. Braun's salary in future seasons will be a part of that budget, unless it gets moved sooner as a "prepaid expense".

 

If the Brewers pay it earlier then they would discount that for the time value of money - it wouldn't cost "millions more". Discounting $19M (2019 salary) for two years at 5% per year yields a net present value of ~$17,200,000, or a difference of $1.76M. If you were to offer to split that with Braun evenly it would cost $880K, and I'm sure Braun would jump at it. Discounting Braun's 2020 salary ($17M) by three years at 5%/year yields $14,685,000 net present value.

 

I don't think the OP was intending to entirely pre-pay it, but to front-load some of it so the future salaries (that will count against future budgets) will be reduced, allowing for the addition of more players/salary expense in those future season's budgets.

[FVBrewerFan]

Not a CPA here, but couldn't they "account" for the 2019 and 2020 seasons this year on the books, yet not actually pay Braun? With the salary so low this year, just add $36MM to the books this year, basically as pre-paid salary or whatever you want to call it. Then Braun is essentially "free" the last two years. That would also make it easier to part ways before the 4 years are up, if that becomes necessary.

[Harry Doyles JD]

No that would just make his contract more costly than it is. A dollar today is worth more than a dollar tomorrow. Not sure how much frontloading you are talking, but it could cost us millions more. If you are worried about payroll concerns I doubt Braun's contract will ever be a big deal. Mark Attanasio and Co. would never do such a thing.

I understand the time value of money. I'm talking if they add a pitcher like a Gray/Quintana/random that may be acquired and is re-signed/extended, would it not make more sense to become as flexible as possible in 2019, 2020.

[MrTPlush]

Yes, but it is moot because I doubt we are maxing out our budget in 2020(which is guess would float in the $110mil range). If our payroll is that high holy cow what did we do? If we have him just pay him on schedule. We don't need that payroll flexibility.

[Harry Doyles JD]

No that would just make his contract more costly than it is. A dollar today is worth more than a dollar tomorrow. Not sure how much frontloading you are talking, but it could cost us millions more. If you are worried about payroll concerns I doubt Braun's contract will ever be a big deal. Mark Attanasio and Co. would never do such a thing.

Almost all businesses operate on a budget, usually annual. Braun's salary in future seasons will be a part of that budget, unless it gets moved sooner as a "prepaid expense".

 

If the Brewers pay it earlier then they would discount that for the time value of money - it wouldn't cost "millions more". Discounting $19M (2019 salary) for two years at 5% per year yields a net present value of ~$17,200,000, or a difference of $1.76M. If you were to offer to split that with Braun evenly it would cost $880K, and I'm sure Braun would jump at it. Discounting Braun's 2020 salary ($17M) by three years at 5%/year yields $14,685,000 net present value.

 

I don't think the OP was intending to entirely pre-pay it, but to front-load some of it so the future salaries (that will count against future budgets) will be reduced, allowing for the addition of more players/salary expense in those future season's budgets.

Well-stated Louis, thank you. Yes, this is what I meant.

[RightFieldCoder]

I'm pretty sure the union would demand every contract restructure include more real money in the deal. If the Brewers wanted to do this they should just "pay Braun" by putting it in a bank account they control and pay him from that money in the future. Then it earns interest for the Brewers and allows insurance to take care of any injuries later. I assume MA would know how to do this from his day job.

[Thurston Fluff]

No that would just make his contract more costly than it is. A dollar today is worth more than a dollar tomorrow. Not sure how much frontloading you are talking, but it could cost us millions more. If you are worried about payroll concerns I doubt Braun's contract will ever be a big deal. Mark Attanasio and Co. would never do such a thing.

Almost all businesses operate on a budget, usually annual. Braun's salary in future seasons will be a part of that budget, unless it gets moved sooner as a "prepaid expense".

If the Brewers pay it earlier then they would discount that for the time value of money - it wouldn't cost "millions more". Discounting $19M (2019 salary) for two years at 5% per year yields a net present value of ~$17,200,000, or a difference of $1.76M. If you were to offer to split that with Braun evenly it would cost $880K, and I'm sure Braun would jump at it. Discounting Braun's 2020 salary ($17M) by three years at 5%/year yields $14,685,000 net present value.

 

I don't think the OP was intending to entirely pre-pay it, but to front-load some of it so the future salaries (that will count against future budgets) will be reduced, allowing for the addition of more players/salary expense in those future season's budgets.

 

Most businesses set their budget based on how much they have to spend. If they take the same money they are saving now and invest it that money will grow so they can set a higher budget later. If they just give it to Braun now all the money that investment would have made is lost.

[A Swing and A Drive]

Well this is out of left field....(no pun intended)

[Point Beer Is Best]

As others have said, there's really no benefit (and a lot of detriment) to doing this from a cash management standpoint. When payroll is low, use the money to invest in projects that will yield dividends in the future (which is arguably what they attempted this winter with the new concessions capital project). The idea there is that when it comes time to pay Braun, you ought to have more revenue-generating projects in place which give you more cash incoming than you would have had if you paid Braun off early.

 

Giving Braun more money now is really bad idea from a working capital standpoint.

 

- a CPA in private industry

[Harry Doyles JD]

No that would just make his contract more costly than it is. A dollar today is worth more than a dollar tomorrow. Not sure how much frontloading you are talking, but it could cost us millions more. If you are worried about payroll concerns I doubt Braun's contract will ever be a big deal. Mark Attanasio and Co. would never do such a thing.

Almost all businesses operate on a budget, usually annual. Braun's salary in future seasons will be a part of that budget, unless it gets moved sooner as a "prepaid expense".

If the Brewers pay it earlier then they would discount that for the time value of money - it wouldn't cost "millions more". Discounting $19M (2019 salary) for two years at 5% per year yields a net present value of ~$17,200,000, or a difference of $1.76M. If you were to offer to split that with Braun evenly it would cost $880K, and I'm sure Braun would jump at it. Discounting Braun's 2020 salary ($17M) by three years at 5%/year yields $14,685,000 net present value.

 

I don't think the OP was intending to entirely pre-pay it, but to front-load some of it so the future salaries (that will count against future budgets) will be reduced, allowing for the addition of more players/salary expense in those future season's budgets.

 

Most businesses set their budget based on how much they have to spend. If they take the same money they are saving now and invest it that money will grow so they can set a higher budget later. If they just give it to Braun now all the money that investment would have made is lost.

Which is what the calculation he did allows for...part of it is inflation, part of it is opportunity cost. It would have to be a bigger number than 5%, but the calculation can be made.

[LouisEly]

As others have said, there's really no benefit (and a lot of detriment) to doing this from a cash management standpoint. When payroll is low, use the money to invest in projects that will yield dividends in the future (which is arguably what they attempted this winter with the new concessions capital project). The idea there is that when it comes time to pay Braun, you ought to have more revenue-generating projects in place which give you more cash incoming than you would have had if you paid Braun off early.

 

Giving Braun more money now is really bad idea from a working capital standpoint.

 

- a CPA in private industry

Invest in better players = better product on the field = higher attendance/merchandise sales = increased revenue = projects that will yield dividends in the future.

 

- Recent graduate from a Top-10 public university MBA program

[MrTPlush]

As others have said, there's really no benefit (and a lot of detriment) to doing this from a cash management standpoint. When payroll is low, use the money to invest in projects that will yield dividends in the future (which is arguably what they attempted this winter with the new concessions capital project). The idea there is that when it comes time to pay Braun, you ought to have more revenue-generating projects in place which give you more cash incoming than you would have had if you paid Braun off early.

 

Giving Braun more money now is really bad idea from a working capital standpoint.

 

- a CPA in private industry

Invest in better players = better product on the field = higher attendance/merchandise sales = increased revenue = projects that will yield dividends in the future.

 

- Recent graduate from a Top-10 public university MBA program

 

Yes, but restructuring Braun's deal does not allow any extra investment for better players. There is no gain to be had here in my opinion because his salary will not make us max out our budget in the future. If that is the case there is no purpose to restucturing when financially it would have a negative impact(or none if we alter it to be less to equal what the percieved present value is).

 

The only argument to be had is if you think Braun's contract will cause us to avoid spending money on other players(or other means) between now and the start of the 2020 season. I just don't see that when our payroll should be nowhere near a max budget north of $100mil.

[Outlander]

Right, they can already invest in other players and could spend more if they desired. Money isn't holding them back they are choosing not to spend more.

[FVBrewerFan]

Not a CPA here, but couldn't they "account" for the 2019 and 2020 seasons this year on the books, yet not actually pay Braun? With the salary so low this year, just add $36MM to the books this year, basically as pre-paid salary or whatever you want to call it. Then Braun is essentially "free" the last two years. That would also make it easier to part ways before the 4 years are up, if that becomes necessary.

 

Judging from the crickets, guessing this is not a viable option?

[KeithStone53151]

Not a CPA here, but couldn't they "account" for the 2019 and 2020 seasons this year on the books, yet not actually pay Braun? With the salary so low this year, just add $36MM to the books this year, basically as pre-paid salary or whatever you want to call it. Then Braun is essentially "free" the last two years. That would also make it easier to part ways before the 4 years are up, if that becomes necessary.

 

Judging from the crickets, guessing this is not a viable option?

 

That's not proper accounting, and you'd surely get in big trouble if the IRS found out as you'd basically be severely understating your income by kicking his whole contract to expense without good reason. And there's no logical reason to do that anyways. What's more realistic is to earmark a chunk of profit during these low payroll years through strategic planning and spend more as needed when we compete. I would be very surprised if they haven't done that the last few years.

[Point Beer Is Best]

Not a CPA here, but couldn't they "account" for the 2019 and 2020 seasons this year on the books, yet not actually pay Braun? With the salary so low this year, just add $36MM to the books this year, basically as pre-paid salary or whatever you want to call it. Then Braun is essentially "free" the last two years. That would also make it easier to part ways before the 4 years are up, if that becomes necessary.

 

Judging from the crickets, guessing this is not a viable option?

 

That's not proper accounting, and you'd surely get in big trouble if the IRS found out as you'd basically be severely understating your income by kicking his whole contract to expense without good reason. And there's no logical reason to do that anyways. What's more realistic is to earmark a chunk of profit during these low payroll years through strategic planning and spend more as needed when we compete. I would be very surprised if they haven't done that the last few years.

 

Right, you'd basically be confusing normal business accounting rules with a NFL style salary cap accounting, which doesn't really apply here. Even then, you can't accelerate recognition of that expense under salary cap accounting without paying out the cash. You can manipulate salary cap accounting to recognize the expense LATER, but under both situations (recognizing the expense now vs recognizing it later) require you to pay out the cash now.

[Point Beer Is Best]

As others have said, there's really no benefit (and a lot of detriment) to doing this from a cash management standpoint. When payroll is low, use the money to invest in projects that will yield dividends in the future (which is arguably what they attempted this winter with the new concessions capital project). The idea there is that when it comes time to pay Braun, you ought to have more revenue-generating projects in place which give you more cash incoming than you would have had if you paid Braun off early.

 

Giving Braun more money now is really bad idea from a working capital standpoint.

 

- a CPA in private industry

Invest in better players = better product on the field = higher attendance/merchandise sales = increased revenue = projects that will yield dividends in the future.

 

- Recent graduate from a Top-10 public university MBA program

 

Ok... but what does that change from my argument? How does accelerating the expense of Braun's contract equate to investing in better players?

 

As a side note, I have to spend a lot of my time at work explaining financial details in laymen's terms to non-finance MBA's.