Today’s epic pre-Winter Meetings mailbag gets into the Dodgers’ deferrals, the golden AB idea, traded Padres prospects, the Blue Jays’ failure to extend Vladimir Guerrero Jr., Triston Casas and Boston’s paths forward, the Cubs’ plans, the Giants and draft pick forfeiture, and much more.
Elden asks:
I recently read that the Dodgers now have over $1 billion in deferred salaries on the books even if the sign nobody else. I admit that they have some pretty deep pockets and can weather almost any financial storm but how is this not a manipulation of the CBT rules? Granted that prices go up all them time but their deferred money alone is 4X the first tax threshold How is this good for baseball?
Not to pick on Elden, but fans don’t have a seat at the collective bargaining table between owners and players, so “good for baseball” is largely irrelevant. At that table, there is “good for owners,” and “good for players.”
The players like having the option of deferring money. In February, union leader Tony Clark told Jack Harris of the L.A. Times, “We want the players and their individual representation to have as many tools in the tool bag to work with teams to find common ground.”
Plenty of teams like having this option as well. Yes, the Dodgers have deferred a ton of money, more than any club in recent memory. But all kinds of contracts have included significant deferrals, for example Boston’s Rafael Devers extension or the Nationals’ signing of Max Scherzer. Dodgers president of baseball operations Andrew Friedman correctly said, “I think the Shohei one was just very extreme. But if you set the Shohei contract aside, the rest are all within the norm and standard operating procedure that a lot of teams have done. But I think the Shohei one is just jarring to people because it’s so different and I think that the others just unfairly get lumped into that, but I think it’s kind of a lazy narrative.”
If there’s one thing casual fans love, it’s a good lazy narrative. But why are the Dodgers doing so much of this? Fabian Ardaya and Ken Rosenthal of The Athletic wrote about it in March, suggesting benefits such as “reducing their short-term cash obligations, enabling them to discount luxury-tax numbers and creating flexibility in negotiations with players.”
I am not a finance expert, but I’d say the main benefit is reducing short-term cash obligations. After two years, teams have to put the average annual value in an escrow account, but they can invest all of that and grow it until the player needs to be paid. And of course, if you’re only actually paying Shohei Ohtani $2MM right now, you can spend more on players than if you were paying him $46MM.
It’s worth considering, too, that the bill eventually comes due. If the Dodgers owe retired players, say, $150MM in 2035, that seems like it could reduce their flexibility even if the money was invested along the way. But what about the Dodgers’ competitive balance tax manipulation?
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