You should be mad about the Dodgers spending — but not for the reasons you think

Well, there go those Tanner Scott bolstering the backend of the Cubs bullpen hopes and dreams:

There is reporting this morning that the Cubs were second and close. This wasn’t a situation where Jed Hoyer offered pennies on the dollar plus the beauty and lore of historic Wrigley Field. In fact, when you consider the time-value of money and the amount of money deferred in the Dodgers contract, the Cubs four-year, $66 million offer is worth substantially more than the Dodgers four-year, $72 million.

It’s an ominous sign and not just for the Cubs. Despite how close these franchises were to each other just eight years ago when they last met in the National League Championship Series, the Dodgers are now light years ahead of the Cubs in terms of competitive success, systemic resources and more. The Dodgers are so far ahead of the Cubs that Scott made a perfectly rational decision to take less money from the Dodgers to play for a super team. It’s a decision that multiple free agents made this winter and there is no indication that the incentive structures guiding those decisions will change any time soon. So today let’s look at why the Dodgers model is particularly poisonous for the sport and why a salary cap would not solve the problem.

It goes far beyond Scott and yes, beyond Roki Sasaki (the rookie phenom who also took less money to sign with the Dodgers rather than the Toronto Blue Jays, San Diego Padres, and yes, the Cubs). It goes beyond the Dodgers adding five of the top 50 free agents available, (10 percent of the best free agents signed with the Dodgers so far this offseason, according to MLB Trade Rumors). They also signed Blake Treinen (an honorable mention on MLB Trade Rumors list) and a five year extension for Tommy Edman. All of those deals except Treinen and Kim include significant deferrals.

• Blake Snell 5 years/$182 million
• Teoscar Hernández 3 years/$66 million
• Tanner Scott 4 years/$72 million
• Hye-seong Kim 3 years/$12.5 million
• Michael Conforto 1 year/$17 million
• Blake Treinen 2 years/$22 million
• Tommy Edman 5 years/$74 million (extension)

In fact, the Dodgers have now deferred more than $1 billion in future salaries. You can see a list of the players and their deferred money below, originally compiled by The Athletic with Scott and Conforto added (both signed after the piece was published) to illustrate exactly how much money the Dodgers have deferred into the future:

One note: I found multiple references that indicated “part” of the $8.5 million signing bonus for Conforto was deferred. I did not find a source with the exact amount of that deferral. But this is close enough for our purposes here today.

More than 30 percent of the Dodgers’ 26-man roster has made a decision to take less actual money in real value for the chance to play on a super team. The financial beneficiaries of that decision are the members of Guggenheim Baseball Management, an investment and advisory firm with more than $270 billion in assets, according to Wikipedia. How exactly do they benefit? I’m so glad you asked, here’s a concise writeup on how deferrals are accounted for according to Sportico:

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.

Put slightly differently, the team must set aside the present value of the money they’ll pay later, but are allowed to invest the remainder and profit off those investments. In other words, the players get less than fans think they are getting and the billionaires at the helm profit on the interest off the difference in that money.

What could possibly be more American than the richest people in the room profiting off the desire of their workers to be more successful?

I want to be very clear, deferrals are not new and are explicitly allowed in the Collective Bargaining Agreement, but it’s worth noting that they basically ask star players to sacrifice contract value in the name of competitive success while billionaires profit on the interest generated on the difference. It’s also worth noting that no other team has exploited this loophole to the extent the Dodgers have.

Deferrals benefit billionaire owners beyond the interest they earn on salary differences because they confuse the narrative on player contracts in ways that likely benefits owners when it comes to negotiations. For example, no one discusses Shohei Ohtani’s contract in its actual value terms as a $462 million contract, they discuss it as a $700 million “largest contract” of all time and use the latter headline to bemoan the lack of a salary cap. As Mike Petriello noted on Bluesky yesterday [link to Bluesky]:

This is a significant messaging problem for the MLBPA that arises during every CBA negotiation, as I detailed during the last CBA kerfuffle. You can actually already see the messaging problem in the current narrative. No shade to Al, who did awesome work this morning on his write up of the Dodgers situation and questions about a salary cap. It’s solid reporting and you should read it, especially because many sites and fans are screaming for a salary cap as a solution here. The problem is a salary cap does nothing to solve the problem at the core of what the Dodgers have exploited in the CBA.

For starters, the Dodgers could game a salary cap system the same way they are gaming the competitive balance tax system. All they need to do is defer enough money to get the present-value numbers under the cap. How do you do that? Convince players to take less actual money than their contract states in order to be more competitive. The roster of the Dodgers right now is a pretty compelling argument that lots of players would accept those terms.

It’s clearly not that big of an ask. Baseball players want to win. And while it’s easy to forget that people making millions of dollars are likely operating from a first-generation wealth perspective, they are. It’s a radically different mindset than the billionaires signing those checks when it comes to determining the amount of money you should make.

What exactly is the value difference of a few million dollars in Tanner Scott’s pocket now vs. a few years in the future for a person and family guaranteed tens of millions of dollars during that time? I’d imagine not much, and whatever dollar value it has doesn’t bump Scott and his family to a significantly different lifestyle either way. The players get the benefit (and costs during CBA negotiations) of a higher nominal price tag for perception purposes, the same lifestyle they would have enjoyed anyway and a better shot at a World Series ring: priceless.

The real beneficiaries here from a financial sense, like every other aspect of American finances, are the billionaires hoarding cash through every investment trick they possibly can use. Just consider the absurdity of the idea that Shohei Ohtani should make a hundreds of millions of dollars interest free loan to his employer: the $270 billion Guggenheim Group — but that’s the reality of deferrals as NBC News notes:

Upon closer inspection, however, factoring in the ravages of compound inflation and Ohtani’s unprecedented agreement to defer massive sums of interest-free cash, the deal is still a record breaker — but one that’s probably more in the neighborhood of $462 million in current value, financial planners told NBC News on Thursday.

“That $700 million is a big headline number,” said certified financial planner Colin Gerrety, vice president and client adviser at Glassman Wealth Services in Vienna, Virginia. “But at the end of the day, it’s going to be worth less just with inflation, and the fact that it’s essentially an interest-free loan to the team.”

Additionally, there are no players crowing for a salary cap. That’s an ownership ask and has been for decades. So once again the billionaire class gets to foment unrest between fans and players while they take their profits to the bank. How lucrative are those profits? Well, it’s hard to say without access to MLB franchise books, which almost no one has. However, Travis Sawchick did an admirable job analyzing revenues and salaries in 2024 for The Score:

Let’s address the elephant in the room first. Unless you’re a Mets fan (and based on what I know of y’all, that’s unlikely on a Cubs blog) every team can and should be spending more money — yes, even the Dodgers, as Baseball Prospectus’ Marc Normandin argued last December. It’s pretty obvious that there needs to be a salary floor, possibly tied to revenue to ensure players get their fair share of the money they generate with their talent. The Chicago Cubs should be embarrassed by their standing here, as should a bunch of other teams.

Let’s just stipulate that every ownership group except the Mets should spend more.

But there is actually a limit to the deferral accounting trick for smaller market teams because they have to set the present value of that money aside. So allow me to go out on a rather strong limb and suggest that while it’s possible for a $270 billion management fund to defer more than $1 billion it’s unlikely a $2-5 billion organization would be able to do the same due to another aspect of money at these levels Sawchik captures:

And there is a scarcity problem.

One is there are only so many billionaires. There are 759 in the United States, and of those, how many are interested in owning a sports franchise? How many of them would be willing to operate like Cohen?

Even though someone might have a net worth of, say, $4 billion, most of that wealth is likely tied to owning a company or other nonliquid assets. There isn’t $4 billion sitting in a checking account.

Until there is a mechanism forcing more payroll parity (hello, salary floor), talent will go where the money is. The have-nots will need to build from within and hope for playoff chaos.

This is not to excuse the Cubs, Rays, White Sox or, well, you get the point, a couple of dozen other franchises from their currently absurdly low rates of spending. It is certainly not to excuse their miserly aversion to spending a single cent on the more robust competitive balance tax in the most recent CBA. But it is to acknowledge that there is a Grand Canyon-sized difference between the estimated net worth of Bob Nutting at an estimated $1.1 billion (just shy of the amount of the Dodgers total deferrals) and Steve Cohen’s $19.8 billion estimated net worth. There’s another unworldly chasm between Cohen’s net worth and the $270 billion Guggenheim Baseball Management estimate noted above. (Full disclosure, the ranking list I used for the Nutting and Cohen estimates the Dodgers “owner” as Mark Walter and does not consider the resources of the full Guggenheim Group).

Takeaways

There is a tipping point somewhere between where most teams are deferring contracts (in the tens to a couple hundreds of million dollars range) and the more than $1 billion range the Dodgers and their vast wealth have exploited. It is not actually possible for every team to do what the Dodgers are doing, although it is certainly possible for every MLB franchise to spend substantially more on players.

A salary cap wouldn’t resolve any of the disparity driving the angst of 29 other fanbases who can and should spend more money on players. But it makes no sense to pretend 29 other teams all have access to the liquidity that would allow them to mimic the accounting tricks that the Dodgers have exploited. It is true that deferrals are theoretically available to other teams, but it is also true that the maximum value of those deferrals are limited by liquidity. Assuming players continue to prioritize competitive success, that makes it very difficult for all but a handful of franchises to actually compete with the Dodgers for elite talent.

Furthermore, and perhaps most importantly, this is just one more very American example of the talented workers who drive an industry earning less than what they are owed due to valuing things other than money — like quality of life or winning. The real winners are once again the billionaire owner class, who profit off exploiting their workers and will have no compunction about leveraging the easier to understand sticker value of a contract against labor in the next CBA. It’s appalling, and every person who works for a paycheck in order to afford their rent, food and livelihood rather than living off capital gains and the interest on investments should be furious.

Unfortunately, the system is deliberately opaque, which masks all of the above and keeps the rest of us angry about things that are much easier to understand, like a man being paid $700 million to play a game. America’s pastime, indeed.

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