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Dodgers’ Deferred Deals Infuse New Cash Into Old Tactic
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- Dodgers’ Deferred Deals Infuse New Cash Into Old Tactic
DALLAS — The last time we saw the Los Angeles Dodgers , they came back from a 5-0 deficit to win Game 5 and the World Series over the New York Yankees at Yankee Stadium.
Since then, they've been rebuilding the clubhouses at Dodger Stadium, have added free agent pitcher Blake Snell to their depleted rotation and re-signed Tommy Edman to a long-term contract that both included substantial deferred money. On Sunday, they came to terms with outfielder Michael Conforto , according to multiple media reports.
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With the annual Winter Meetings set to open for three days here Monday, they are not done. They could still re-sign pitchers Walker Buehler and Clayton Kershaw , plus left fielder Teoscar Hernandez , who are all free agents. Add Japanese pitcher Roki Sasaki, who's about to be posted by his Nippon Professional Baseball team. They also were in the mix of the Juan Soto derby.
LA's ownership group, Guggenheim Baseball Management, is itself owned by a $500 billion hedge fund, so the Dodgers can spend whatever they want. They are one of the richest teams in Major League Baseball, if not all of sports, valued earlier this year by Sportico at $6.3 billion with $637 million worth of local revenue in 2023 alone. Both figures are second in MLB behind the Yankees. Their 25-year regional sports network contract is worth $8.35 billion.
"From our standpoint, in each and every year we're trying to win, and it's hard," president of baseball ops Andrew Freidman said this week at the press conference introducing Snell at the Dodger Stadium construction site. "While it's hard to win, what it's even harder to do is repeat. But that's the commitment from our ownership group."
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To that end, the Dodgers already have an MLB-leading tax payroll of $284.5 million for 15 players, according to figures from Spotrac .
The signings of Snell for five years at $182 million and Edman for five years, $74 million were controversial, because $65 million of the Snell deal and $25 million of the Edman contract were deferred.
That gives the Dodgers $1.01 billion in deferred contracts paid out to eight players, the whopper being the $680 million deferred portion of National League MVP Shohei Ohtani 's $700 million, 10-year contract signed last year. It should be noted that when pitcher Yoshinobu Yamamoto came over from Japan last season, none of his 12-year, $325 million contract was deferred. The Dodgers also paid a $50.6 million posting fee to his NPB team. They would have to pay a posting fee as well if they sign Sasaki.
Deferred contracts generally are not controversial. They have a long history and are permitted under the Collective Bargaining Agreement negotiated by MLB and the MLB Players Association. They give a club some breathing room under the luxury tax rules.
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For example, in Ohtani's case each season, his $70 million annual salary is credited as $46 million toward the phase one luxury tax threshold, which rises to $241 million in 2025.
The required funding is discounted by 5% each year of the deferred payment schedule. The money must be put aside for the sole purpose of funding the deferred obligation, but owners have flexibility in how they can invest those funds. The Basic Agreement says the funds can be kept in cash or cash equivalents, but teams can also invest in "registered and unrestricted readily marketable securities."
Another provision allows clubs to invest funds in "alternative forms" with written permission from MLB. Clubs must certify quarterly to the commissioner's office on the funding of deferred compensation obligations.
There are myriad examples of deferred contracts in MLB's free-agency era.
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In 1984, reliever Bruce Sutter signed a six-year, $9.1 million contract with the Atlanta Braves that ultimately paid out $47 million, thanks to a 12.3% interest rate. Likewise in the 1980s, the San Diego Padres offered deferred contracts to stars Rich Gossage and Garry Templeton.
Ahead of the 2000 season, the New York Mets released Bobby Bonilla, but still owed him $5.9 million.
Bonilla and his agent, Dennis Gilbert, offered to defer the payment for a decade and stretch it out over 25 years at an 8% interest rate. Then-owner Fred Wilpon accepted the deal, thinking his double-digit investment returns with Bernie Madoff—later convicted for masterminding a Ponzi scheme—would continue. They didn't, but the payments remain.
The high interest rate meant a $1.19 million payout every July 1—enshrined as Bobby Bonilla Day —from 2011 through 2035, when he will be 72 years old, totaling $29.8 million. The Mets previously did a deferred deal with pitcher Bret Saberhagen that paid $250,000 annually for 25 years.
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In 2000, Ken Griffey Jr. had half of his $112.5 million contract extension with the Cincinnati Reds deferred at 4% interest. It meant $5 million a year starting in 2009 with the final payment due this past season. According to his longtime agent Brian Goldberg only four players on the Reds' 2024 roster made more.
About 25 years ago, Arizona Diamondbacks managing partner Jerry Colangelo negotiated contract deferrals for many of the stars who won the 2001 World Series. Colangelo didn't secure the deferred payments, and when he was ousted three years after the World Series win, new managing partner Ken Kendrick was saddled with more than $250 million in contracts to pay off, which he said affected the team's payrolls. The D-backs had to borrow money from MLB and sell minority shares in the franchise to raise those funds.
MLB codified its rules shortly after the Colangelo situation. The current Basic Agreement states: "Deferred compensation obligations incurred in a Contract executed on or after Sept. 30, 2002, 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."
There are no limits on how much of a contract can be deferred, as long as players are receiving the MLB minimum salary, which was $740,000 in 2024 and increases to $760,000 this coming season.
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Aside from Ohtani, Snell and Edman, the Dodgers currently have big deferrals for Mookie Betts ($115 million of his 12-year, $365 million deal), Freddie Freeman ($57 million of his six-year, $162 million pact), and Will Smith ($50 million of his 10-year, $140 million contract).
All this gives the Dodgers flexibility to spend, which they will continue to do under any circumstances. That's one of the reasons Snell signed with them.
"This is where you want to play," he said at his introductory press conference. "I don't think there's a better situation to be in than to be right here."
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