How you pay for Yu Darvish

by JonasDaMute on Dec 10, 2011 7:01 PM EST

Darvish is going to be a beast, but a lot of people assume the cost will be too much. However, because of the posting fee, you can structure the payout to not be excessive at all.

Let's just say Darvish wants $78M over 6 years, or $13M per year. And let's say the posting fee ends up being around $60M. $138M is a lot to give to someone who hasn't thrown an inning of ML ball, but here is how you mitigate the cost.

Step 1, David Glass sets up a company called Darvish Inc. He funds the company with $60M, the amount of the posting fee. Then he loans the money to the Royals to pay for the fee.

Step 2, Darvish Inc. creates bonds to be put onto the market. The payouts will be once a year for 20 years and will carry a 3% annual interest. The annual bond payout will be equal to the annual payment from the Royals to Darvish Inc. for the loan.

Step 3, the Royals pay the $60M posting fee to the Nippon Ham fighters to negotiate with Darvish.

Step 4, as part of the contract, Yu Darvish is given the first 6 years worth of bonds, or $19.99M, leaving the Royals to pay him $58.01M over 6 years in salary.

Step 5, the remaining bonds are sold on the market for $42M (or Glass could keep them himself/sell to the next owner as part of the purchase of the franchise), which cost the Royals $63.04M over the course of the remaining 20 years.

Glass would lose $18M on this deal, but if 10000 extra fans came to each of Darvish's 16 homes starts at $40 per fan, you would make that up in under 3 years. Not to mention anything in Japanese advertising.

The Royals only pay $78M over the course of Darvish's contract, and Darvish gets the money he's looking for.

The extra $3.69M to $5.42M from 2018-2031 will not hurt as much as there will be a new TV deal at some point, and inflation in total salary, or the stadium naming deal could be allocated towards this.

The contract is doable.

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BFIB

by tiquanunderwear on Dec 10, 2011 7:06 PM EST reply actions 7 recs

I may be wrong

but basically this happens:
1. Glass makes a new company and loans the Royals $60 million.
2. Royals use that to post for Darvish.
3. Glass sells the $60 million in debt, and gives some of it($18 million) to darvish to help pay his contract, essentially doubling down on the post money.
4. Royals pay off the rest of it slowly.

Essentially this saves the royals about 18 million on Darvish, which is however about the extra in interest they would have to pay off later.
However since the interest later would be worth less due to inflation having the extra money now would be nice, and the idea is that the payoff from having Darvish would more than cover the interest later.

But as Retro says below, this is basically exactly what happened to the housing market. Not saying the Royals couldn’t afford it, but it’s morally questionable and legally dubious.

"We don’t have guys with a long history of being effective in the seventh and eighth innings."
~Trey Hillman, master of understatements.

by RoyalPug on Dec 10, 2011 8:05 PM EST up reply actions

why can't i close this :(

by xrayxtals on Dec 10, 2011 8:51 PM EST up reply actions

so sorry

BFIB

by tiquanunderwear on Dec 10, 2011 8:56 PM EST up reply actions

That's a funny gif

Hang on to it for a while- we maay just need this 1…. Repeatedly

"Stay Classy Kansas City"

by Mas Cervezas on Dec 10, 2011 10:19 PM EST via mobile up reply actions

I have it saved

for when Getz comes in for “defense” in the 8th

BFIB

by tiquanunderwear on Dec 10, 2011 11:17 PM EST up reply actions 1 recs

You're having a hell of a run lately.

tiquanunderwear>Tebow

I'm waiting for my wave of talent to arrive.

by mitchfreakingmaier! on Dec 12, 2011 10:49 AM EST up reply actions

Thank you for not capitalizing it

It’s not Tiquan….it’s tiquan

BFIB

by tiquanunderwear on Dec 12, 2011 11:14 AM EST up reply actions

I rewound myself and fixed it before posting.

I'm waiting for my wave of talent to arrive.

by mitchfreakingmaier! on Dec 12, 2011 12:34 PM EST up reply actions 2 recs

All the years of Kendall-watching has finally paid off

BFIB

by tiquanunderwear on Dec 12, 2011 12:58 PM EST up reply actions

And this is how

Mortgage-backed securities made on risky loans to unworthy creditors wrecked the entire financial system.

Relive Royals History at royalsretro.blogspot.com

by RoyalsRetro on Dec 10, 2011 8:02 PM EST reply actions

The Royals aren't an unworthy creditor

15% debt to value. And as with the Mets, Rangers and Dodgers, backed by MLB.

by JonasDaMute on Dec 10, 2011 8:38 PM EST up reply actions

Aren't they?

You’re relying on pretty speculative future revenues.

Doesn’t this open you up to all kinda of SEC snooping?

Relive Royals History at royalsretro.blogspot.com

by RoyalsRetro on Dec 10, 2011 9:21 PM EST up reply actions

Yes

Or at the very least, a host of state securities regulation. They would have to either be registered (when the SEC/Missouri Securities Division would get involved), or qualify for an exemption to registration under Rule 144/Reg D. And if they were private placements, they couldn’t be resold, which obviously limits your pool of buyers.

by Sweep_the_Leg on Dec 12, 2011 10:55 AM EST up reply actions

And then you could create derivative asset-backed securities off of them...

what could go wrong?

by Loose Seal on Dec 12, 2011 11:10 AM EST up reply actions

If it's complicated, it must be sound

by kcdc1 on Dec 11, 2011 1:02 AM EST up reply actions

"That doesn't make sense to me. But, then again, you are very small"

If women only slept with nice guys...guys would only be nice. And they don't. And we're not.

by setupunchtag on Dec 11, 2011 8:22 AM EST up reply actions 1 recs

No. Way.

by Andrew Kane on Dec 10, 2011 8:30 PM EST reply actions

Just trade Soria and Butler

by 102win on Dec 10, 2011 8:43 PM EST reply actions

wut

BFIB

by tiquanunderwear on Dec 10, 2011 8:56 PM EST up reply actions

He meant Hosmer and Perez... Relax

"Stay Classy Kansas City"

by Mas Cervezas on Dec 10, 2011 9:51 PM EST via mobile up reply actions

Good, good

BFIB

by tiquanunderwear on Dec 10, 2011 10:03 PM EST up reply actions

Also, Myers.

Also, Moose, Gordon and the Frank White statue.

by Dadunca on Dec 10, 2011 11:00 PM EST up reply actions

As long as Getz remains

BFIB

by tiquanunderwear on Dec 10, 2011 11:07 PM EST up reply actions

We trade them all for Gordon Beckham,

@and sign Yuni @

I'm waiting for my wave of talent to arrive.

by mitchfreakingmaier! on Dec 12, 2011 10:50 AM EST up reply actions

So Glass is out $18M, the Royals pay Darvish $58M, and Darvish Inc (Glass) pays bondholders $63M. Sounds a lot like Darvish still costs $140M.

by kcdc1 on Dec 11, 2011 1:07 AM EST reply actions

He does

But it’s in magic future money which isn’t as valuable in normal today money. Plus his presence on the team would hopefully mitigate that.
It’s still probably a bad idea to spend that much on one guy whose never played in the majors, but this does save the royals some money and hopefully mitigates the contact

"We don’t have guys with a long history of being effective in the seventh and eighth innings."
~Trey Hillman, master of understatements.

by RoyalPug on Dec 11, 2011 1:30 AM EST via mobile up reply actions

you lost me at "darvish is gonna be a beast"

by Loose Seal on Dec 11, 2011 2:05 AM EST via iPhone app reply actions

I was thinking the same thing.

I'm waiting for my wave of talent to arrive.

by mitchfreakingmaier! on Dec 12, 2011 10:52 AM EST up reply actions

There are so

many things wrong with this, I simply cannot address them all. The fuzzy math, the idea that the team would even entertain the idea of spending more money on the next 6 years of Darvish than the Angels spend the next 6 years on Pujols. ($60 million up front, $138 overall, is more than $25 million per year because of TMV and lost income on the money they spend up front)

But the funniest part is David Glass loaning himself money that he will lose $18 million on. Actually more than that, because if Glass had $60 million sitting around, there is no way he doesn’t make at least $20 million (minimum) or more from that money over the next 6 years. That’s at least a $38 million loss. This is the same guy that personally shot down a downtown ballpark proposal because it called for the team to pay $41 million of the cost, now he’s going to take a personal hit the same size for one player? That was my best laugh of the day for sure.

The 2nd funniest part was the notion that somehow 10,000 extra people will be at the ballpark for every one of Darvish’ s starts. There is no pitcher in history that has had that big of an attendance affect. There never will be.

The most famous one year occasion of a pitcher affecting attendance was in 1981 LA, Fernandomania. In the greatest affect any pitcher ever had (and ever will have) on ONE season’s attendance, Fernando drew 7519 more fans to his home starts than the other average home starts. (This was only about an 18.4% increase, as the Dodgers drew well that year.) Pedro attracted only 1234 extra fans per start to his home starts in his famed 2000 year. Zack came as close as any of the pitchers I looked at, as he added 3207 extra per start in his magical 2009. (14.9% more- Zackmania!!) This past year there were 589 LESS people at Verlander’s home starts in Detroit.

But I still come back to David Glass. Willfully pulling $60 million out of his own pocket. Purposefully taking a $38 million (or more) loss. Still risking more than $120 million of his small market team’s money on an unproven if intriguing player who could blow out his arm tomorrow. And I chuckle again.

"Trying is the first step to sucking" -Jimmy Chance

by KHAZAD on Dec 11, 2011 6:27 AM EST reply actions 4 recs

I'm guessing the number wasn't sustainable

But in his rookie year, Strasburg was averaging 36,435 and average Nats attendance was 23,426. Of course, that was only 6 home starts—and 10 total starts, but the reaction was on pace to be the greatest in history by a pretty wide margin. SO IT CAN HAPPEN ANDTOTALLYCOULDWITHYUDARVISH!!!!

And you didn’t want to commit fraud…ha. You’re so stupid!

by dejezeus on Dec 13, 2011 2:43 PM EST up reply actions

There are ways to do it...

I read somewhere about an MLB team being able to view the posting fee as a depreciating asset over the terms of the contract.

If you read some of the Deadspin stuff on the New Jersey Nets, you can see how there are some valuable tax reasons for having this offset. Paper losses for the IRS (and for the purpose of Glass saying he ’didn’t make a profit’) do not necessarily mean actual losses for the team.

I hope they are in on Yu, we could have the opportunity to sign a below market contract for a top 1-2 pitcher who doesn’t have a choice about coming to KC, unlike every other FA pitcher in the next few years.

by Cleveland on Dec 12, 2011 11:01 AM EST reply actions