The Metropolitan: Opening Delay
Lindor speaks, COVID strikes & all the day’s news
Good Morning,
Today we’ll talk all about the upsetting postponement of Opening Day, and Francisco Lindor’s record contract.
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And with that, let’s start with the news.
⏰ Catch me up in 60(ish) seconds…
🛑 BUZZKILL: Just as Mets fans were getting ready to celebrate Opening Day after Francisco Lindor had agreed to a massive contract extension, what felt like an April Fool’s joke turned into reality: the game was postponed due to several Nationals players testing positive for COVID-19.
🗓 WHEN WILL THEY PLAY? At this point, it feels like a guess. While the Mets appear to be tentatively planning to play on Saturday, with manager Luis Rojas saying he feels pretty confident they will, Nationals manager Mike Rizzo told reporters late on Thursday that he’s not sure if they’ll play this weekend, as basically his whole team is under quarantine. After an initial positive test, two more Nats players tested positive for COVID-19 yesterday.
⏭ WHAT’S NEXT: If the Mets can’t play in DC, they will presumably travel to Philadelphia to start their season on Monday. The silver lining with that is they could return to their plan of skipping the 5th starter’s first turn in the rotation by bringing back deGrom on regular rest next Saturday since next Friday is another off day. If the Mets do in fact play tomorrow, it would mean deGrom would be scheduled to pitch in the team’s home opener on Thursday, but the Mets would need to use a fifth starter.
😁 ALL SMILES: Francisco Lindor met with the media on Thursday to discuss his historic contract extension with the Mets.
LEARNING THE NEWS: Lindor told reporters he received a call from his agent on Wednesday night with the $341 million number that sealed the deal. He immediately started calling and texting family and friends, including Utah Jazz star Donovan Mitchell. Manager Luis Rojas said he learned the news while he was in bed.
SURREAL: Lindor relayed a conversation he had with his father about his initial reaction: “You know when you drive down the highway and you see the billboard for the Powerball that says $300 million? You’re going to tell me you’re not going to scream? I’m going to scream. I want to scream.”
DINNER: Lindor and Cohen famously had dinner last weekend to negotiate terms on the contract, which Lindor said, “It helped a lot because obviously we got a sense of where we both were.”
SWAGGER: When asked what kind of player he thinks he will be at the end of the contract when he is 38, Lindor quipped, “A bad motherf*cker.”
FRANKLY: Asked by radio voice Howie Rose whether he likes the nickname Frankie, Lindor replied: “I prefer Francisco. I like my name. Frankie, it’s a little Americanized for me. It was fine, I never complained… but now I want my name, Francisco. My mom named me Francisco, my grandpa was Francisco, so Francisco it is.”
🍎 ROSTER MOVES: The Mets announced that Carlos Carrasco (grade 1 hamstring strain), Seth Lugo (right elbow), and Drew Smith (right shoulder soreness) have officially been placed on the 10-Day IL, retroactive to March 29. The Mets also placed José Martinez on the 60-Day IL (torn meniscus in his left knee), which temporarily opens up a 40-man roster spot.
📚 April 2, 1972: After playing a round of golf in West Palm Beach with his coaches on Easter Sunday, Mets manager Gil Hodges suffers a fatal heart attack. Yogi Berra is named manager when the strike-delayed season begins.
Breaking down the Lindor contract
🧓 by Jeffrey Bellone
It felt like Steve Cohen spent the offseason sitting (and tweeting) next to a DuckTales pile of money with a red carpet rolled out in front of it for a superstar player to walk down, only to have the top free agents decide to go elsewhere. But after missing out on Trevor Bauer and a few other top players Mets fans coveted (like George Springer), Cohen was finally able to splurge on a new star player in Francisco Lindor.
There are 4 ways to look at Lindor’s contract:
As a normal person
As an accountant
From a luxury tax standpoint
From a baseball perspective
As a normal person
The value normal people will talk about is $341 million. That is why it was important to make the deal worth $1 million more than what Fernando Tatis Jr. signed for earlier this offseason. We will discuss deferrals and taxes in a second, but none of that matters when people talk about his contract on Twitter or over a few beers in a post-COVID New York City bar. Lindor is the richest Met in franchise history. And his contract ranks as the third most expensive in baseball history behind Mike Trout and Mookie Betts. At the end of the day, those designations matter as much as anything.
As an accountant
The value an accountant would talk about is a bit more complicated and related to the value the CBA uses in determining how the contract is allocated for luxury tax purposes.
But first, from an actual tax perspective, Lindor probably has an accountant helping him keep as much money as possible away from Uncle Sam. Michael McMann of Sportico wrote an excellent article yesterday about the tax implications of Lindor residing in Florida (where they have no income taxes) versus New York. He estimates the superstar shortstop can save $20 million in taxes by making the sunshine state his home address.
Building off that point, Lindor will reportedly receive a $21 million signing bonus as part of his new extension. While that gives him a sh*t ton of money in the near term, it’s also a useful tax shelter. Since Major League players are taxed based on where they “work,” or where each game is played, their annual salary is taxed at a different effective rate than a signing bonus, which Lindor could avoid paying income taxes on by making his primary residence in Florida.
A good accountant would also talk to Lindor about the “time value” of money. The basic idea is that a dollar is worth more today than it is tomorrow because you can invest that dollar. And if you’re Steve Cohen, you feel pretty confident in turning that dollar into a high return.
In other words, by deferring $50MM of Lindor’s contract, Cohen is paying less in real terms than if it was funded over ten years. Uncle Steve’s accountant probably values Lindor’s $341 million extension at a net present value that comes close to the original $325 million offer, if not lower. And that’s why the Mets were able to change their offer without feeling like they lost the negotiation.
From a luxury tax standpoint
However, the “net present value” calculation outlined above isn’t exactly the same as what is used to determine the average annual value of the contract for luxury tax purposes. The CBA defines the interest rate used to determine present day value and the conditions that allow teams to discount the AAV.
The logic is surprisingly straight-forward: if the compensation is deferred within a defined interest rate range, there is no reason to discount the AAV since the contract’s face value theoretically represents its true value by applying interest to make up for the delay in payouts. However, if the compensation is deferred without interest (or outside the defined range), then the AAV is discounted to reflect the lower present day value of the contract.
For example, the Mets were able to save some tax burden on Jacob deGrom’s contract by deferring $52.5 million of his salary without interest. We don’t know if Lindor’s deferred compensation carries an interest rate or not, but if it doesn’t, the Mets will receive a discount on his tax hit as well.
What would that discount be? Assuming the contract is officially signed this month, Lindor’s deferred compensation would be discounted using the federal mid-term rate from March. Since the country is still battling through a pandemic, interest rates are incredibly low right now. This means the Mets would not reap the same benefits they did with deGrom when interest rates were higher.
By my calculations, the Amazins would only save about $300,000 per year in AAV savings if $50 million of Lindor’s contract is deferred without interest between 2032-2041. So whether the deferred compensation is paid with interest or not, his luxury tax hit will be around $34 million.
From a baseball perspective (aka, Let’s talk about baseball!)
Ok, so enough about where the contract ranks in baseball history and taxes and deferrals and blah blah blah, let’s talk about Francisco Lindor as a baseball player.
We know he is really really good. He is seemingly made for New York with his $341 million smile and workman-like consistency on the field. How do you put a number on that? Well, we could use WAR and projections to come up with a value. Dan Szymborski of FanGraphs used his ZiPS projections to value a Lindor extension around $280 million over nine years. If Lindor meets his 90th percentile projection, that number jumps to $371 million over ten seasons.
Of course, evaluating Lindor’s value relative to replacement level on the Mets or relative to what he would be worth to another team is a bit tricky in baseball. Since there is no real salary cap, the value of a player’s salary on one team is different than it would be on another club.
For a team like Cleveland, Lindor’s average annual value would represent about 50% of their total payroll right now. And we know his replacement value is whatever you project Andrés Giménez and Amed Roasario to be over the next several seasons.
For the Mets, we have confidence to believe they will continue to spend in the future, and therefore, Lindor’s AAV is a relatively smaller percentage of their overall payroll, and if he had decided to walk, his replacement could theoretically be someone even better. So the comparison really boils down to whether Lindor at $34 million AAV over ten years provides more value to the Mets than, say, Carlos Correa at $27 million.
BOTTOM LINE: The Mets secured one of the game’s brightest stars for the rest of his career. We can break the contract down six ways from Sunday, but it leads to the same conclusion: superstars are expensive, and with Steve Cohen calling the shots, the New York Mets can have expensive tastes. It’s an exciting time to be a Mets fan.
⚾️ Cody Bellinger hit a 2-run home run that turned into a 1-run single since he passed Justin Turner (who thought the ball was caught so was retreating back to first base) while rounding the bases, and was therefore called out.
⚾️ The Angels extended second baseman David Fletcher on a five-year, $26 million deal.
⚾️ The rest of the National League East started their season yesterday, with the Phillies beating the Braves 3-2 in 10 innings and the Rays blanking the Marlins 1-0.
🔗 Postponed Mets opener a harsh reminder of ongoing COVID-19 battle, by Ken Davidoff, NY Post: “Rather than soar, Rojas’ group stands in a holding pattern. 0-0 still with Cohen and Lindor aboard. Fingers crossed that they can get going soon, that 2021 will present smoother sailing off the field (and better play on it, for these Mets) than 2020, that this delay will wind up as an isolated incident.”
🔗 The Mets have fixed the vibes. All it took was money, by Dennis Young, NY Daily News: “Cohen isn’t warm and fuzzy, and he won’t hand out market-wrecking contracts. (Just ask Michael Conforto.) But unlike the Wilpons, he is rich as hell. And unlike the other 29 owners, including his stubbornly under-the-tax neighbors in the Bronx, he is willing to admit it.”
🎧 Music fans: SNY has collaborated with Julian Casablancas, lead singer of The Strokes and The Voidz (and an avid Mets fan), on a new opening spot for the 2021 Mets season. Listen here.
And we leave you with the full Francisco Lindor press conference from yesterday…
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Buzzkill is the operative word LOL