MLB News: Dodgers’ Deferred-Money Contracts Stir Controversy

The Dodgers built a championship roster in 2024 thanks in large part to contract language included in their deals with Mookie Betts, Freddie Freeman, Shohei Ohtani and Will Smith. Each player has a portion of his annual salary deferred until after their contract expires.

Why would the Dodgers choose to defer more than $900 million in present-day contract obligations to players who are no longer on their active roster? Several reasons stand out:

• The Dodgers’ owners can pocket the deferred money owed to Ohtani, Betts, Freeman, Smith, Snell, and now Tommy Edman, invest it in one of their preferred vehicles, and have more money to pay their players when the checks come due.
• Deferring money lowers the present-day value of a contract, which is directly tied to the team’s competitive balance tax calculation. Ohtani’s contract, for example, is for 10 years and $700 million, but the team is assessed a tax on only $46 million each year of the contract (based on its present-day value of $460,767,680 under the formula required by baseball’s Collective Bargaining Agreement).
• Players who live and work in California, where high earners face the largest income tax rates in the country, can pay lower tax rates on their deferred salaries simply by moving out of state — a point that helps the Dodgers, and the other four California-based MLB teams, when negotiating salary terms with free agents.

Former Angels pitcher Jered Weaver articulated the latter point on his Twitter/X account Saturday.

As Weaver notes, there is a controversy around the practice of teams deferring players’ salaries. Many fans have called it a “loophole” in the CBA.

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Ken Rosenthal of Fox Sports and The Athletic explained why deferring salaries are beneficial to both MLB players and owners in the latest episode of “Foul Territory.” But he too suggested there was a loophole to be closed in the next round of CBA negotiations around how deferred-money deals are calculated toward the competitive balance tax.

“Shohei Ohtani’s contract, for example — $70 million for 10 years — that $70 million should count against the luxury tax, not the present-day value,” Rosenthal said. “That would prevent the Dodgers from playing games with this. It’s not that they’re doing anything illegal. It’s perfectly legal. But it would prevent them from skirting the luxury tax calculation in that fashion.”

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Ohtani’s contract is exceptional for a couple reasons. He’s perhaps the only player who could afford to defer 97 percent of his salary because his endorsement earnings dwarf every other player’s. He’s also responsible for the vast majority ($680 million) of the Dodgers’ deferred payouts.

And while Ohtani also made the terms of his contract with the Dodgers available to the runners-up to sign him last winter (the Toronto Blue Jays and San Francisco Giants), the Dodgers are getting singled out by critics for taking advantage of salary deferrals. This flies in the face of the facts as noted Friday by The Big Lead:

The Washington Nationals are paying Stephen Strasburg (who’s already retired) $26.7 million every July 1 from 2027-29. Francisco Lindor is deferring $50 million of the $341 million he’s slated to get from the Mets. Boston Red Sox star Rafael Devers is deferring $75 million.

As long as the Dodgers are getting their World Series rings, they might as well be fitted for the targets on their backs afforded to every championship team too.

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