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Members of the Los Angeles Dodgers celebrated on the field after their triumphant victory in Game 5, securing the 2024 World Series against the New York Yankees at Yankee Stadium on October 30, 2024.
As Major League Baseball (MLB) embarks on its spring training, the Dodgers find themselves reflecting on a nearly flawless offseason following their World Series win in October. The team not only retained essential players but also acquired sought-after free agents while deferring over $130 million in new contracts, sparking debate among baseball enthusiasts about the implications of such financial maneuvers.
The concept of deferring payments, which involves delaying a portion of players’ salaries until after their contracts expire, was first criticized in 2023 when the Dodgers signed Shohei Ohtani to a record-breaking 10-year, $700 million deal, deferring $680 million of that contract. This offseason, the practice has escalated criticism to a boiling point, with accusations that the Dodgers are exploiting MLB’s salary framework to create an overwhelmingly talented roster.
Deferred contracts have been increasingly adopted throughout MLB, yet the Dodgers stand out for their aggressive use of this strategy. According to Spotrac, out of approximately $1.5 billion in deferred salaries for active MLB contracts, the Dodgers are responsible for around $1.04 billion, representing an astounding two-thirds of the total.
Experts in sports business have indicated that contract deferrals can benefit both players and franchises, but the practice has also intensified discussions about the fairness of MLB’s economic structure. Fans express frustration not only with the Dodgers’ financial tactics but also with the broader implications for teams that cannot match the spending power of franchises like Los Angeles.
“The Dodgers are operating in a realm all their own regarding these deferral deals,” noted N. Jeremi Duru, a law professor at American University.
Advantages of Salary Deferrals
Teams often choose to defer salaries to better manage their current financial obligations while maintaining a competitive roster. This strategy allows them to prioritize immediate success over future liabilities.
Unlike other major professional sports leagues, MLB operates without a strict salary cap, though it enforces a “competitive balance tax” that imposes penalties on teams exceeding a designated payroll limit. The fee varies based on how much a team’s payroll exceeds the threshold.
For the purposes of luxury tax calculation, a team’s payroll is determined by the average annual values of contracts, which benefits teams that utilize salary deferrals, as the deferred amounts often reduce the payroll figure for tax assessment. For instance, under standard conditions, Ohtani would earn $70 million annually; however, with deferrals, his reported annual salary for tax purposes is reduced to $46 million, as explained by FanGraphs.
While many teams would hesitate to defer over $1 billion in salaries, the Dodgers’ strong financial status and continual success—highlighted by their leading home attendance every season since 2013 and their valuation as the second-most valuable MLB team, following the New York Yankees—allow them to navigate this financial strategy efficiently.
David Carter, a sports business professor at the University of Southern California, emphasized that the Dodgers possess the “firepower” to secure expensive yet deferred contracts, buoyed by their flourishing media deals, sponsorship opportunities, and ticket sales.
The advantages of deferrals for players can be complex. While teams benefit by reducing immediate tax burdens, players may face financial drawbacks from delayed payouts. However, some players, like Dodgers stars Freddie Freeman and Mookie Betts, have willingly accepted substantial deferrals in the past to aid the team’s championship aspirations.
Freeman and Betts accepted a total of $172 million in deferrals prior to Ohtani’s contract, illustrating a willingness among players to temporarily sacrifice financial gain in favor of building a competitive team.
Moreover, players can engage in strategic negotiating tactics, such as securing signing bonuses, to manage their tax liabilities effectively. These bonuses are taxed based on a player’s state of residence, allowing those in lower-tax jurisdictions to retain more of their earnings. Players may even benefit from relocating to avoid state taxes on deferred income, particularly since federal laws protect non-residents from state taxes on retirement income.
Current Landscape of MLB
The Dodgers’ extensive use of deferred contracts has sparked discontent among some baseball fans, particularly as reports surfaced regarding multiple free-agent signings that included deferred payments. Critics have likened the Dodgers’ financial strategy to “buy now, pay later” services like Klarna, suggesting they are circumventing competitive balance measures.
Despite the backlash, industry experts affirm that the Dodgers adhere to league regulations and are not the first team to utilize deferred payments. Many current and former players still receive deferred salaries from deals made years ago, with Bobby Bonilla’s agreement with the New York Mets being one of the most famous examples.
The Dodgers’ financial practices have reignited discussions about competitive balance in MLB. Even with deferrals allowing for reduced immediate tax liabilities, the Dodgers are projected to pay a record $142 million in luxury taxes in 2025, as noted by Spotrac. This ongoing debate reflects a broader concern that wealthier franchises can leverage their financial strength to maintain dominance in the league.
“There’s certainly widespread concern that this dynamic jeopardizes the competitiveness of baseball,” Duru stated.
While complaints about wealth concentration within MLB are not new, the league’s revenue-sharing mechanisms are designed to assist less affluent franchises. However, recent trends have exacerbated these worries. MLB teams derive significant portions of their income from regional sports networks, many of which have faced recent financial struggles.
In contrast, the Dodgers enjoy a robust broadcasting agreement, reportedly valued at as much as $8 billion over 25 years, established in 2013 with Time Warner Cable (now part of Charter Communications).
The Dodgers are also spearheading MLB’s efforts to expand its international presence, particularly in Asia. The team, home to multiple high-profile Japanese players, has capitalized on its global recognition, broadcasting games in Japan and even opening the 2025 season in Tokyo.
According to Steven Bank, a business law professor at UCLA, the Dodgers resemble international soccer “superclubs,” blending historical success with expansive fan engagement. Striking a balance between the successes of marquee teams and the competitiveness of the league is crucial, he noted.
“There’s a persuasive argument that the visibility of superclubs benefits the league as a whole,” Bank observed.
For example, viewership for the Dodgers-Yankees World Series in 2024 surged by 67% compared to the previous year’s championship, reaching historic ratings in Japan.
Ultimately, while MLB aims to foster competitiveness, it must also consider the value of its franchises—often resulting in a system where certain teams gain greater advantages than others.
Future Implications for MLB
The topic of salary deferrals is poised to remain a point of contention within MLB, especially ahead of the expiration of the current collective bargaining agreement in 2026.
The league previously attempted to eliminate deferrals in negotiations for its recent CBA, which commenced in 2022. Commissioner Rob Manfred has expressed concerns regarding the potential issues that could arise from deferrals, referencing a repayment crisis experienced two decades ago when the Arizona Diamondbacks deferred $250 million in salaries to assemble a championship roster but later faced financial challenges that forced them to raise ticket prices and trade star players.
Following that episode, MLB mandated that teams must have funds for deferred salaries fully accessible within 18 months of signing contracts, as outlined in the current collective bargaining agreement.
“We have bolstered our regulations regarding the funding of deferred salaries to prevent issues like that from reoccurring,” Manfred stated, acknowledging that as contract figures escalate, concerns may intensify.
MLB directed requests for comments to Manfred’s remarks.
Efforts to curtail deferrals might encounter resistance from the players’ union, suggesting that prolonged disputes over the issue could lead to unrest within the league. In the meantime, the prevalence of deferrals is expected to persist. Raiola predicts that more teams in high-tax states may adopt similar deferred compensation strategies in the future.
The Dodgers are not alone in their push for deferred salaries this offseason. Noteworthy examples include Alex Bregman, who deferred $60 million of his $120 million contract with the Boston Red Sox, and Anthony Santander, who will receive $61.75 million of his $92.5 million deal with the Toronto Blue Jays as deferred compensation.
Concerns about deferred contracts extend beyond the baseball community. Some California lawmakers are advocating for change due to the potential tax implications affecting state revenue if players decide to retire outside California. In March 2024, state Sen. Josh Becker introduced legislation aimed at capping deferred compensation. Although the bill, which highlighted Ohtani’s extensive contract and its potential tax savings, initially gained traction in the state Senate, it was ultimately withdrawn due to insufficient support in the Assembly.
“Ohtani’s evasion of taxes is like dodging curveballs,” Becker remarked. “Everyone else is abiding by the rules.”
Becker argued that the concept of deferred compensation was designed for typical workers rather than for elite athletes, and he intends to reintroduce the bill in the future.
California’s state controller, Malia Cohen, who sponsored the bill, emphasized the outsized impact of wealthy individuals on state tax revenue, asserting that they should contribute fairly to the state’s financial well-being.
At the forefront of the deferral discussion, the Dodgers and players like Ohtani are navigating complex financial landscapes that could lead to significant changes in how MLB conducts its business. Until structures shift, the Dodgers remain in a favorable position to continue their aggressive financial strategies.
“Everyone appears to be operating within the current framework,” Carter commented. “Unless circumstances change, this issue is not likely to be revisited actively.”
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