By Evan Drellich / The Athletic
To Andrew Friedman, president of baseball operations for the Los Angeles Dodgers, complaints about the $1 billion in salary deferrals given out by the team’s owners are “kind of a lazy narrative.”
Fans of 29 teams seem to believe that the World Series-champion Dodgers can sign every player they want by pushing salary payments into the future. The Dodgers, rival fans say, are using deferrals to build a super team.
But Friedman does not have a projected $309 million payroll for luxury-tax purposes in 2025, the highest in the league per Cot’s Contracts, because of some play-now, pay-later plans. In the case of the Dodgers, a rich team is absolutely getting richer, and deferrals might help a bit, but they mask what’s really going on.
The Dodgers are doing what the best big-market clubs always do: They are outspending everyone, unapologetically.
As The Associated Press reported, from 2028 to 2046, the team will owe seven players more than $1 billion combined, although Shohei Ohtani’s contract accounts for roughly two-thirds of that total.
“If you set the Shohei contract aside, the rest are within the norm and standard operating procedure that a lot of teams have done,” Friedman said. “The Shohei one is just jarring to people because it’s so different, and I think the others just unfairly get lumped into that. But I think it’s kind of a lazy narrative. I don’t spend too much time on it, and I’m not really worried about it.”
Some of the consternation is probably owed to the opaque nature of how deferrals actually work.
Deferrals are explicitly allowed in the collective bargaining agreement between players and owners. Although owners attempted to remove them during the 2021-22 negotiations, it wasn’t a big issue at the time. Deferrals are also accounted for in baseball’s luxury tax system.
For example, the Dodgers delivered just $2 million of Ohtani’s $70 million salary in 2024, with the remaining $68 million to be paid out a decade later. Yet, MLB considers Ohtani’s salary for luxury-tax purposes to be $46 million. That number isn’t arbitrary; it’s a calculation of what Ohtani’s salary is worth today.
Deferred money also cannot be deferred for as long as some might think. According to the collective bargaining agreement, virtually all of the deferred money has to be put aside no more than a year and a half after the relevant season.
If a player’s 2024 salary was deferred, it doesn’t matter whether he’s to be paid out in 2030 or 2040 or later — the team needs to put that money aside no later than July 2026 and keep it cordoned off until payment is made.
That means that by July 2026, the Dodgers have to account for virtually all of the remaining $68 million that Ohtani is owed for the 2024 season, even though he will still be eight years away from collecting it. By July 2027, they will have to do the same thing for his 2025 salary, and so on.
With any deferred contract, there’s a key number to review: the estimated present-day value of the deal. That figure allows for easy comparison of contracts both with and without deferrals.
“It’s all net present value,” Scott Boras, the agent of LA’s newly acquired pitcher Blake Snell, said at Dodger Stadium this past week.
Any of those present-value figures show that the Dodgers are still paying huge money. Ohtani’s average annual salary for tax purposes, $46 million, is a record, although Juan Soto could break it.
The five-year, $182 million deal that Snell signed included $66 million deferred and a $52 million signing bonus. His deal is worth $157 million in present value as calculated by baseball’s luxury-tax system, a $31.4 million hit annually.
Ultimately, Snell wasn’t ripped away from another team because the Dodgers were willing to do deferrals and other teams weren’t. He signed in LA because, as Boras put it, “he received a market-value offer from the team he desired the most.”
“If you get a $52 million signing bonus, deferrals are good,” Boras quipped.
Friedman said that deferrals have been most useful in closing deals, but he stops short of describing them as a full-fledged strategy.
“It’s just a lever,” he said.
The Dodgers would be expected to flex their financial muscle regardless of whether deferrals were allowed. The owners proposed getting rid of them when the 2022-26 collective bargaining agreement was negotiated, while the players wanted them to remain. Those positions will probably be the same when the next deal is negotiated, although clearly some owners don’t mind the system.
Other owners, however, feel strongly that it’s the wrong way to do business.
Arte Moreno of the Los Angeles Angels was not interested in the structure the Dodgers gave Ohtani — a unique player who himself wanted deferrals in part for potential tax benefits.
“In sport, we want the excitement of intellect to operate,” Boras said when asked if deferrals should remain. “When we have rules that prevent certain owners from doing certain things, you get the vanilla of what you see in the NBA and the NFL. Here you have chances for Goliaths. Goliaths, I think in the game, are always good. Why? Because the answer is: There’s love and hate, and that’s part of sport. I think it makes it more exciting.”
Savvy ownership groups can actually make some money by delaying payments.
The collective bargaining agreement says a team’s deferred salary “must be fully funded by the club, in an amount equal to the present value of the total deferred compensation obligation, on or before the second July 1 following the championship season in which the deferred compensation is earned.”
The agreement goes on to say that “fully funded” means a team “must have funded, for the duration of and without interruption in each year, the current present value of the then outstanding deferred payments, discounted by 5% annually.”
Owners have some choice in how they hold the money, though. Teams can invest deferred salary — although they have to be careful what investments they choose — and keep the returns.
What’s unclear right now is whether the heavy use of deferrals is a Dodgers phenomenon or something that will spread throughout the league. Players elsewhere have occasionally taken such deals before, but there have never been so many examples on one club.
At first glance, it would seem that deferrals are a tool mostly reserved for both the top players and the most well-heeled teams. It’s easier for top players to defer money, since they have more of it, and it’s easier for big-market teams to sign top players. The Dodgers’ cash flow allows them to be creative in a way other owners might consider impossible. Not every team would be as comfortable giving Snell a $52 million signing bonus, even with $66 million in deferrals. But there’s still probably room for others with less financial might to play in the sandbox.
At the end of the day, complaints about the Dodgers and deferrals might be a repackaging of an age-old gripe in the sport: that a big-market team, and any team, can spend as much or as little as it wishes.
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