Deferred deals have storied history
Shohei Ohtani’s feats on a baseball diamond created a level of performance to which no earthly being can relate.
And now the manner he’ll be compensated has shattered another norm.
Ohtani is deferring $680 million of his $700 million salary from the Los Angeles Dodgers, earning the relatively pauper’s sum of $2 million a year for 10 seasons before receiving the remaining compensation from 2034 to 2043, when Ohtani will have his 50th birthday, and not his first World Series title, in his sights.
The maneuver has inspired amazement and scorn, admiration and trepidation, what with both player and club going to great lengths to create the biggest guaranteed contract in sports history – while enabling the Dodgers much greater flexibility within Major League Baseball’s competitive balance tax.
Yet Ohtani and the Dodgers aren’t necessarily blazing a new trail – they’re just destroying the scale of deferred compensation that fans and the industry have grown accustomed.
A look at the precedent for Ohtani’s contract and how it may impact the future.
Dodgers: Deferred cash, instant offense
Perhaps the Ohtani deal came together more easily because deferring salary for superstars is now old hat for the Dodgers.
With the Dodgers, Ohtani will join Mookie Betts and Freddie Freeman to join one of the most daunting lineup trios in recent baseball history. And Betts and Freeman also landed at Chavez Ravine thanks to their willingness to defer significant salary – a combined $172 million.
The Dodgers’ Ohtani splurge has created consternation that another bigmarket team is trying to buy a championship. But the Dodgers’ luxurious spending is not constant – they fell short of the tax threshold three consecutive seasons from 2018 to 2020.
And in building a foundation with Betts and Freeman, they’ve simply leapt at the opportunity created when other big-market teams hesitated to lock up those players.
When Betts and the Boston Red Sox could not reach agreement on a longterm extension, the Red Sox – who reside
in the same revenue neighborhood as the Dodgers – traded Betts to LA in February 2020 for three players no longer with the organization.
It seemed Betts was intent on playing out his last year before free agency, but he and the Dodgers agreed on a 12year, $365 million extension in July 2020, still the third-largest guarantee in baseball history. But Betts agreed to defer $115 million in salary and, like Ohtani, will receive the payouts between 2033 and 2044, per Cots Baseball Contracts. The MLB Players Association calculated that deferrals reduced the present-day value of the contract to $306 million.
Two years later, another opportunity presented itself. Freeman, after leading the Atlanta Braves to the 2021 World Series title, remained unsigned after the
MLB lockout was resolved in March 2022. Before he and the Braves could seriously reengage in talks, Atlanta traded for All-Star first baseman Matt Olson.
Freeman was without a home. And the Dodgers swooped in on another Hall of Fame-caliber distressed asset.
They guaranteed him a sixth year on his contract, for $162 million – but with $57 million in deferred money. Freeman will receive $4 million or $5 million annually between 2028 and 2040.
The upside of the deferrals, both for the Dodgers and the competitive desires of Ohtani, Betts and Freeman?
Their salaries will count $95.7 million toward the competitive balance tax (CBT), instead of $118.5 million. That nearly $24 million difference is roughly the annual cost of a solid No. 2 starter.
Nationals: Still paying for a championship
Well before the Dodgers got deferralhappy, the Washington Nationals used the device both to snag a loitering free agent and lock down one of their own – although the practice has its limits.
In January 2015, Cy Young Award winner Max Scherzer still needed a job, agent Scott Boras frustrated by his limited market but willing to wait. The Nationals, flush with starting pitching at the time, capitalized.
They landed Scherzer with a sevenyear, $210 million package, at the time second in value only to Clayton Kershaw among starting pitchers. Yet Scherzer’s limited market meant accepting a whopping $105 million – half the value of the contract – in deferred money.
Scherzer’s contract expired after the 2021 season, but he’s still getting paid annually by the Nationals – $15 million a year from 2022 to 2028.
They were just getting started. With original ace Stephen Strasburg headed for free agency, the club agreed with him on a seven-year, $175 million extension in May 2016 – with $70 million deferred.
It was money well spent: Strasburg and Scherzer formed the core of a pitching staff that won the 2019 World Series, the only title in franchise history.
When Strasburg exercised an opt-out clause in his deal after that season, the Nationals re-upped him again: seven years, $245 million – and $80 million deferred, with 1% interest. It’s been a cursed deal – Strasburg pitched in just eight games between 2020 and 2022, and injuries have likely ended his career.
Yet the Nationals’ aggressive deferrals enabled them to stay under the luxurytax threshold while winning a championship in 2019. They also paid less than $4 million in luxury taxes while barely exceeding the threshold in 2017 and ’18.
But not all players want to wait for their money.
When franchise player Bryce Harper hit free agency after 2018, the club did make a preemptive attempt to re-sign him. But the 10-year, $300 million deal included $100 million in deferred money; The Washington Post reported that the payments stretched past Harper’s 60th birthday and that MLB expressed concern over the amount and length deferred.
Harper understandably balked – and months later he accepted a 13-year,
$330 million contract from the Philadelphia Phillies – a lower average annual value but also no deferrals, retaining the deal’s present-day value.
To each his own.
Bobby Bonilla: The gold standard
Sports fans have long been accustomed to astronomical salaries for their heroes. But something about deferred money seems to make them lose their mind.
When the New York Mets wanted to buy out the final year of the six-time AllStar’s contract in 2000, they agreed to defer the $5.9 million, stretching it until Bonilla turns 75.
And that’s always had fans agog. The concept that the Mets will in 2035 be paying a player whose last major league game came in 2001 is either sad, campy or business as usual, based on your perspective. And Bonilla set a standard that has since been shattered: He is receiving 8% interest on his deferred money, turning his $5.9 million investment into an estimated $30 million.
Nowadays, teams don’t add any interest, or, in some cases, around 1%.
Still, the game’s biggest stars often tuck a little bit away for later.
Christian Yelich, Brewers All-Star? His club-record $215 million deal includes $30 million deferred.
The Baltimore Orioles may not scrape together more than $13 million for a free agent this year – but they’re paying retired slugger Chris Davis $42 million between 2023 and 2037.
When the Boston Red Sox finally did lock down a homegrown star, they insisted third baseman Rafael Devers defer $75 million of his $313.5 million extension – paying him through 2043.
And should Mets fans tire of Bobby Bonilla Day, they can celebrate Francisco Lindor Day: The $341 million shortstop is deferring $50 million – or $5 million of his $32 million annual salary – and will get paid through 2041.
Turns out what’s new is almost always old in baseball.