Deferred contracts were once baseball’s annual joke played on the New York Mets.
They released veteran third baseman Bobby Bonilla after a dismal season in 1999. But rather than pay the $5.9m left on his contract as a lump sum, the club offered a 25-year deferred deal at a munificent 8% interest rate.
Bonilla retired in 2001. Since 2011 he has picked up an annual cheque from the Mets for nearly $1.2m, as he will through to 2035, the year he turns 72. The notoriety of this ludicrous arrangement may help explain why deferred deals have since been used sparingly in Major League Baseball. But the Los Angeles Dodgers are making the strategy famous again.
Shohei Ohtani deferred all but $20m of the 10-year, $700m deal he signed with the Dodgers before the 2024 season. The 30-year-old makes $2m a year until 2034 then $68m annually for a decade. It’s an exceptionally team-friendly arrangement for a megastar in his prime. And it’s far from the only time the Dodgers have deployed the win-now, pay-later strategy amid a staggering and controversial signing spree that is building them into baseball’s sole super-club, with a squad that’s America’s answer to European soccer’s galacticos.
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In the past five years Los Angeles have committed more than $1bn to eight players in deferred salaries while also paying hefty signing bonuses and being among the league leaders in annual payroll in the here-and-now. Since cruising past the New York Yankees in last year’s World Series the Dodgers have strengthened their already-deep squad, with the reported signing of 37-year-old reliever Kirby Yates to a one-year, $13m contract taking their off-season spending to more than $450m.
Spring training does not begin until mid-February but rivals are already pessimistic, perhaps even panicked, about their prospects of stopping the Dodgers, who also won the World Series in 2020 and have topped the National League West division in 11 of the past 12 seasons.
Even MLB’s most valuable franchise, the Yankees – hardly impecunious and so dominant in the late 1990s and early 2000s that the then-Boston Red Sox president nicknamed them the Evil Empire – appear to be throwing in the towel. “It’s difficult for most of us owners to be able to do the kinds of things that they’re doing,” club executive Hal Steinbrenner grumbled to the YES Network this week.
In 2013 the Dodgers netted a 25-year, $8.35bn regional broadcast deal that hands them a significant financial advantage over other teams in the league. They also enjoy by far the largest average attendance in MLB. Most important, though, is the determination of their owners to assemble the best possible roster despite MLB rules designed to hit the brakes on runaway spending to promote competitive balance.
It’s not often you find billionaires so eager to pay a punitive tax rate. But at the end of January, one payroll tracker, Cot’s Baseball Contracts, projected the Dodgers’ 40-man 2025 payroll at $389m for the purposes of MLB’s “luxury tax”, which brings down the financial hammer on clubs that spend over $241m a year. Adding roughly $110m in penalties will take Los Angeles’ likely outlay this year to about $500m, ESPN reported.
The Philadelphia Phillies ($308m), Yankees ($303m), Mets ($300m), Toronto Blue Jays ($254m) and San Diego Padres ($249m) are also poised to exceed the threshold, a year after a record nine teams went over the limit. At the other end of the scale, baseball’s cheapest club, the Miami Marlins, have a miserly estimated payroll of $84m. The Dodgers are set to pay more in tax penalties than at least five teams will spend on salaries.
As the only North American major league without a salary cap, MLB is uniquely vulnerable to the climate of inequality that has taken hold in European soccer in recent decades, with a handful of big clubs dominating thanks to overwhelming financial superiority.
When owners tried to institute a hard salary cap in 1994 players went on strike and the World Series was cancelled. Mindful of that calamity, today’s complex arrangement is a form of compromise, designed to create a climate where players can get rich, owners can keep a lid on costs and any team, more or less, can dream of postseason glory. The luxury tax – formally known as Competitive Balance Tax – was introduced in 1997, with the pot going towards player benefits and team revenue-sharing.
But what if owners come along who don’t much care about cost controls or economic conventions? The former Arsenal manager Arsène Wenger coined the term “financial doping” to describe the way Chelsea spent their way to success in England in the mid-2000s thanks to the largesse of a billionaire owner, Roman Abramovich. While not illegal, Chelsea’s strategy, to Wenger, was unsporting because they were living beyond their “natural resources”.
In the way that their blitz is upending baseball’s financial norms, the Dodgers’ tactics are “definitely the same thing,” says Raymond D Sauer, economics professor emeritus at Clemson University in South Carolina. “The Dodgers are clearly pushing the limits. The league has incentives to curtail it, pretty strong disincentives to overspend beyond a certain level … [But] if you’re willing to mortgage the future and spend now, that would have been a good strategy for most of the last couple of decades.” He elaborates: “They’re paying more than market for the best aggregation of talent on a club. It doesn’t mean they’re going to win the World Series but it means they get a much better chance.”
Such a large deferral ostensibly reduces Ohtani’s earnings, since inflation means that a dollar today will be worth less in the future, but the ultimate value of the deal to him will depend on the tax regime of wherever he’s living when the big bucks arrive. It has disturbed some California lawmakers: one state senator proposed changing the tax laws, arguing that the structure will potentially allow the Japanese slugger and pitcher to avoid $90m in state taxes.
Crucially for the Dodgers, it helps their cashflow and luxury tax obligations in the present, giving them more flexibility to add to their roster, though they can’t fully evade the tax – Ohtani’s salary counts as $46m a year for its purposes – and must put much of the deferred money in low-risk liquid accounts, a rule intended to ensure teams can pay future bills.
“There are times where that deal lines up in a more straightforward way, there’s times where it’s less straightforward. Including deferrals helps as a lever to find that overlap,” Dodgers president of baseball operations Andrew Friedman told reporters in December. “It’s been a useful tool for us. But we have no hard-and-fast rule. We just like to get deals done.”
While the Dodgers are on the hook for more than $1bn between 2028 and 2046, the next-biggest deferrers, the Mets, owe $137m down the line, the Red Sox $131m and no other team more than $50m, according to Spotrac figures cited by ESPN.
Back in 1999 the Mets’ principal owner agreed to the Bonilla pact confident his investments with a financial guru named Bernie Madoff were about to pay handsome dividends. It’s reasonable to think the Dodgers are a little wiser: they are controlled by Guggenheim Baseball Management, an investment group led by Mark Walter, a billionaire financial asset manager. They bought the Dodgers in 2012 for $2.15bn, almost doubling the then-record price for a North American franchise. Some economists felt they had overpaid wildly. But the Dodgers’ value has probably trebled and success only adds to the asset’s worth.
Their appealing location and winning reputation also gives the Dodgers an edge when competing for widely affordable free agents such as the Japanese pitcher Roki Sasaki. He chose them ahead of the Padres and Blue Jays, who reportedly offered him more money. But Sasaki called the Dodgers’ array of talents “incredible”.
That said, Walter and his fellow Dodgers owner, Todd Boehly, are also co-owners of Chelsea, acquired from Abramovich in 2022. Chelsea have spent about $1.3bn on transfers in the Boehly era yet are presently sixth in the Premier League table, level on points with Bournemouth, one of the division’s lowest spenders. Is that a warning for LA?
Sauer points out that baseball’s playoffs add uncertainty. It wouldn’t be a surprise if the Dodgers break the Seattle Mariners’ modern-day record of 116 wins in a 162-game regular season, set in 2001. But the Mariners didn’t even reach the World Series that year, losing to the 95-win Yankees. Indeed, the team with the best regular-season record usually don’t win the World Series.
Among American major leagues, baseball is “the most similar” to European soccer in its structural enabling of inequality, Sauer says, “but we turn the championship into a cup competition… So that randomises the outcomes a little bit more than you have in leagues like the Premier League or La Liga.”
The unheralded Arizona Diamondbacks ousted the Dodgers in the 2023 postseason before losing the World Series to another unlikely contender, the Texas Rangers. Texas and Arizona did not even reach the playoffs in 2022 or 2024. “Once you get to the postseason, anything can happen,” Steinbrenner told YES. “We’ve seen that time and time again. We’ll see who’s there at the end.”
The Yankees are among a handful of teams deep-pocketed enough to challenge the Dodgers if ownership chooses to flash the cash, but there remain cheaper routes to glory, such as developing young players and unearthing hidden gems from untapped markets – although, as it happens, the Dodgers are pretty good at that too.
The Houston Astros won their first World Series in 2017, beating the Dodgers in a triumph later tarnished by a sign-stealing scandal. All the same, the Astros assembled a very talented side for roughly half the price of the Dodgers’ roster, in part because of an extensive Latin American scouting network that helped them find prospects such as Venezuela’s Jose Altuve.
“The approach with Houston was more grassroots, it was going to players, families, trainers and going to the fields, going to the homes and one by one … spending time to explain our commitment to the player and to the market, and our commitment to develop the player to his full potential,” says Oz Ocampo, the former Astros international director and former Marlins assistant general manager. “We focused mostly on the Dominican Republic, Venezuela, Cuba and Mexico.”
Baseball’s wealthiest owners may become targets of fan ire for a perceived lack of ambition compared to Los Angeles. But it could suit them for the Dodgers to be outliers, the new Evil Empire, if growing resentment can be channeled into greater restrictions. Were the Dodgers to retain the World Series this year and next while continuing to outspend and out-defer everyone else, becoming the first team to win three in a row since the 1998-2000 Yankees, it’s possible that MLB, worried that predictability hurts profitability, will feel compelled to act with the goal of maintaining competitive balance. The current collective bargaining agreement expires after the 2026 season.
“I think a hard salary cap would be challenging just given the history of labour negotiations to this point,” says Ocampo, now a global sports professor at Rice University in Houston. “Competitive balance is something that has been a priority for MLB and something that has in part driven a lot of the collective bargaining agreements over the years,” he adds. “You could see MLB and the players’ association trying to get to an agreement that allows for that competitive balance to remain one of the priorities.”
Owners who are less inclined to spend than the Dodgers would love a salary cap. “The owners will try again, I’m sure, if they have a chance,” Sauer says. “A ‘three-peat’ by the Dodgers – if we get that you might see some negative reaction and the owners trying to capitalise on that negative public sentiment to put more stringent restraints on the market.” And that is a fight that could lead to a work stoppage placing the 2027 season in jeopardy. No joke.
