The Dodgers are going nuts with deferred-money contracts; fans shouldn't be

The Los Angeles Dodgers signed fan favorite Tommy Edman to a five-year, $74 million contract extension Friday. It's a perfectly reasonable extension for a 29-year-old super utility player who is coming off a stunning National League Championship Series — a .407 average, 11 RBIs in six games — that resulted in him taking series MVP honors.

It's also a contract that continues the Dodgers' trend of offering deferred payouts to players. The habit caught the attention of many (including California lawmakers) when Shohei Ohtani agreed to defer $680 million of his $700 million contract until after his 10th and final season in Los Angeles.

Since then, the Dodgers have agreed to deferred-money deals with Teoscar Hernandez, Will Smith, and Blake Snell. They were already deferring at least $8 million of Mookie Betts' annual salary from 2033-44. Freddie Freeman is getting at least $4 million every July 1 from 2028-40, after his time under contract to the Dodgers ends.

Many fans enjoy sports specifically because it frees us from thinking about money. There's no rule that says we have to care about when or how much our favorite athletes get paid.

Others don't consider analyzing contract details a burden during baseball's long winter months. For those trying to wrap their head around all the money the Dodgers are deferring, this has become polarizing topic of debate. It shouldn't be.

Let's start by taking a big step back. The Dodgers are owned by Guggenheim Baseball Management. Before he bought the team, Dodgers Chairman Mark Walter made his money as the CEO of Guggenheim Partners, which was described in a 2015 profile as "a sprawling enterprise that specializes in asset management, largely for insurance companies." Simply put, the men who own the Dodgers are experts in investing large sums of money.

After Guggenheim's purchase of the Dodgers closed, a number of questions were posed (in the press and in court) about the fiduciary responsibility of an insurance firm investing in a baseball team.

For the purposes of this discussion, we'll set aside the individual questions and point to some variation of an answer the Guggenheim folks would likely provide in response: Guggenheim paid $2.15 billion for the Dodgers in 2012. Eight years later, Steve Cohen bought the Mets for $2.4 billion. In March, Forbes estimated the Dodgers' value at $5.45 billion. Even if the evidence didn't support it at the time, a well-funded MLB team was a safe investment for those who could afford it in 2012.

So, 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? Because they can pocket the deferred money owed to Ohtani, Betts, Freeman, Smith, Snell, and now Edman, invest it in one of their preferred vehicles, and end up richer in the end.

This isn't rocket science. The Dodgers aren't the only team capitalizing on deferred payouts to star players. 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.

This is a feature, not a bug, of the Collective Bargaining Agreement. It's something smart teams do.

If we assume that every person (or group) that owns a major professional sports franchise is good with money, there's no reason every team shouldn't be incentivized to defer as much money as possible. It's an owner-friendly contract clause.

The better question is, why would any player defer salary?

In finance, as in baseball, we ought to treat Ohtani's case as separate from the others. He's deferring more than 97 percent of his $700 million contract, enough to lower its estimated value at the time it was signed closer to $460 million. (That's why, for the purposes of baseball's competitive balance tax, the Dodgers' annual payout to Ohtani was assessed at $46 million from 2024-33. More on that in a bit.)

Tim Dierkes of MLB Trade Rumors explained the Ohtani contract situation well. His motivation for deferring salary, according to Ohtani's agent and the team, was to not burden the Dodgers' front office with current salary obligations so long as he was under contract.

Ohtani hadn't made the postseason over his first six years in Anaheim. Not only did the Dodgers win the National League West in Ohtani's first year, they made it all the way to the World Series and beat the Yankees. And they've been able to add plenty of salary as needed over the last 12 months.

Take away Ohtani's $680 million in deferrals, and the Dodgers are still responsible for roughly $300 million in deferred salary payouts to other players. We could assume that these players have motives much like Ohtani's — that they understand deferring a portion of their salary allows the Dodgers to spend more freely while they're on the team's active roster.

There's another benefit to players who defer payouts: guaranteed income after their baseball careers end. We shouldn't assume players have the same investment acumen as Mark Walter. (This was the animating principle behind Bobby Bonilla agreeing to get $1,193,248.20 from the New York Mets every July 1 from 2011-35.) Need that money upfront all of a sudden? Loan officers are much more amenable to lending money if you can offer paper proof that you can pay the loan back in the future.

So, back to Ohtani and the Dodgers. They're on a very short list of teams that can afford to defer $680 million in future payouts. Ohtani is perhaps the only player who would willingly take $2 million a year rather than $46 million (or $70 million) simply because his massive endorsement earnings allow it.

The terms of the deferred-money deals for Edman, Snell, and the others are much more modest. Contract terms like theirs were available to most (if not all) major league teams, should they choose to accept them. There's nothing in the CBA even intended to prevent it, so let's stop calling it a "loophole."

For those still up in arms about the Dodgers not being taxed on a $70 million a year valuation over the life of Ohtani's deal, that would be unfair too. Simply put, $70 million in 2024 is not worth $70 million in 2033. In that sense, allowing contract deferrals is a very team-friendly feature of the CBA.

And yet, Lindsey Adler of the Wall Street Journal reported that MLB proposed limiting deferrals in prior CBA negotiations, but the MLBPA declined those limits because deferrals allowed the players so much flexibility in negotiations.

If fans still feel icky about deferred-money contracts even though players and teams clearly benefit from their allowance in the CBA, sure. But there are leftovers in your refrigerator right now that will be much ickier in a few days.

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