MLB’s Move to Prevent the Dodgers’ Use of Controversial Deferred Contracts

In a groundbreaking shift in Major League Baseball (MLB) operations, the league is preparing to prevent the Los Angeles Dodgers from utilizing their controversial deferred contract technique moving forward. This move stems from growing concerns among team owners, executives, and players regarding the long-term ramifications of such financial arrangements. At the heart of this issue lies the practice of deferring large portions of player salaries, a technique that has garnered both support and criticism over the years.

The Deferred Salary Structure: A Longstanding Practice

Deferred salaries have existed in baseball for decades. They allow teams to reduce their immediate financial obligations while spreading out the cost of player contracts over an extended period. Typically, players agree to receive portions of their salary during the years following their contract’s expiration. For teams, this provides financial flexibility by lowering payroll expenditures in the short term while enabling them to maintain roster depth. For players, it offers a sense of financial security, though the payments can be disbursed many years after their playing days are over.

One of the most high-profile examples of deferred salaries in MLB history involves the New York Mets and Bobby Bonilla. Bonilla’s contract with the Mets was famously deferred, and every July 1st, Bonilla receives a payment of $1.19 million, which will continue until 2035. While Bonilla’s contract is perhaps the most well-known, numerous players have also negotiated deferred salary agreements, and teams have often employed these arrangements to manage their finances.

The Los Angeles Dodgers, however, have been one of the most prominent teams to make use of this technique, especially in recent years. Under the ownership of Guggenheim Baseball Management, the team has adopted deferred contracts as a primary tool in structuring deals with high-profile players. These deferred salaries have allowed the Dodgers to build star-studded rosters while keeping their current payroll within manageable limits. But as the team continues to reap the benefits of such financial strategies, it has also faced increasing scrutiny.

The Dodgers’ Use of Deferred Salaries

For the Dodgers, deferred salaries have been integral to their player acquisition strategy. By deferring large chunks of contracts, they have been able to navigate MLB’s competitive balance tax (CBT), which is designed to prevent teams from exceeding a certain payroll threshold. Deferring salaries allows the team to spread out the financial impact of high-value contracts, making them more manageable in the short term. This, in turn, allows the Dodgers to remain competitive by signing top-tier talent while minimizing their immediate payroll burden.

A few notable players who have had deferred salaries with the Dodgers include Clayton Kershaw, Mookie Betts, and even past stars like Zack Greinke. These deals have typically included large signing bonuses or structured payments that take place years after the players’ contracts end. While the Dodgers have not been entirely transparent about the specific amounts or timelines for these deferrals, reports suggest that the total amount involved in deferred contracts could be significant.

For instance, Kershaw, one of the best pitchers of his generation, signed an extension in 2018 that included deferred money, a technique that allowed the Dodgers to maintain payroll flexibility in the short term while keeping one of the game’s top pitchers. Similarly, Betts, one of the most highly paid players in MLB, also reportedly had deferred payments included as part of his contract, providing the Dodgers with additional financial leeway as they built a roster around him.

While this strategy has worked in the short term, it has created long-term liabilities that many have come to question. Deferring large portions of a player’s salary means that the Dodgers could still be paying off these contracts for many years after the players have retired. For example, if Kershaw’s deferred payments extend for several years after his playing days are over, the Dodgers will continue to owe money despite no longer benefiting from his performance on the field.

Why MLB Is Cracking Down

While deferred contracts have been around for years, they have come under increasing scrutiny due to concerns about their fairness and impact on the overall financial structure of the league. A former MLB executive recently revealed that the league is preparing to prevent the Dodgers from using this financial technique in future contracts. The reasons behind this decision are multifaceted, but they center on issues related to competitive balance, long-term financial stability, and transparency.

Competitive Balance and the Luxury Tax

One of the most significant concerns surrounding deferred contracts is their potential to skew the competitive balance in MLB. Teams that have the financial flexibility to sign players to long-term, high-value contracts with deferred payments may gain an advantage over smaller-market teams that cannot afford such deals. The luxury tax system, designed to impose a penalty on teams with high payrolls, is supposed to create a more level playing field. However, by deferring a portion of salaries, teams like the Dodgers can circumvent the spirit of the luxury tax system, reducing their current payroll and avoiding penalties while still paying players at a high level.

This issue has drawn the attention of other team owners and executives who believe that the use of deferred salaries undermines the fairness of the league’s financial structure. In their view, teams that exploit these techniques could be gaining an unfair advantage in roster construction, especially when smaller teams with fewer financial resources are unable to compete with such financial strategies.

Long-Term Financial Implications

Deferred salaries create a significant long-term financial burden. While a team like the Dodgers might be able to handle these obligations in the short term, the financial implications down the road can be substantial. The use of deferred salaries often leads to a situation where teams are still paying players years after their contracts have expired. This creates an ongoing financial obligation that may limit the team’s ability to make future moves in the market.

For example, if the Dodgers continue to use deferred contracts, they could find themselves financially hamstrung in the future, even if they are no longer benefitting from the players’ contributions on the field. Teams that engage in this practice may also find themselves struggling to manage their payroll when they are still paying out substantial sums to former players. This could limit their flexibility in free-agent markets, force them into difficult roster decisions, and even impact their ability to invest in scouting, player development, or international talent.

Transparency and Accountability

Another issue raised by the increased use of deferred contracts is transparency. While MLB teams are required to submit detailed payroll information to the league, the specifics of deferred salaries are often kept private. This lack of transparency makes it difficult for players, executives, and fans to fully understand the financial ramifications of these deals. It also raises concerns about whether the teams are being fully accountable for their financial commitments.

Critics argue that by allowing teams to defer salaries, the league is enabling financial practices that are not fully disclosed to the public or even to other teams. In an era of increased financial scrutiny and calls for greater transparency in all aspects of business, the use of deferred contracts without clear disclosure is becoming increasingly untenable.

What’s Next for the Dodgers?

As MLB prepares to implement changes to prevent the Dodgers from using deferred contracts, the team will need to adapt. Moving forward, the Dodgers will likely be forced to find alternative ways to manage their payroll while maintaining their competitiveness in the league. This could involve more traditional contract structures, trade strategies, or even focusing more heavily on player development to create cost-effective talent pipelines.

At the same time, this move could prompt other teams to reconsider their use of deferred salaries as well. If the league enforces restrictions on the practice, it could lead to a significant shift in how teams approach player contracts, especially in terms of financial flexibility. Teams that once relied on deferred payments to stay under the luxury tax threshold may be forced to adjust their strategies or look for new avenues to manage their finances.