The Los Angeles Dodgers have caused quite a stir with their usage of deferred salaries in the contracts of Shohei Ohtani, Blake Snell and Tommy Edman, among others.
Delaying payments down the line is not a novel concept in baseball as it has been around since at least 1974, when the Oakland Athletics and Catfish Hunter agreed to a contract that had deferred payments. However, the Athletics ultimately did not fulfill money owed to Hunter.
The Arizona Diamondbacks ownership also ran into some financial trouble in 2004 thanks to their use of deferred money, which ultimately concluded with co-owner Jerry Colangelo being outed from his stake in the team.
MLB addressed the issues that led to those events, but it has still left a bad taste in their mouths. Which is why during an appearance on Questions For Cancer Research, MLB commissioner Rob Manfred expressed his reservations with the growing rise of deferred salaries:
“Deferrals at some point can become problematic. Historically, we did have one franchise, Arizona, that got itself into financial difficulties as a result of excessive deferrals. We’ve strengthened our rules in terms of the funding of deferred compensation in order to avoid that kind of problem. But, you know, look, obviously the bigger the numbers get, the bigger the concern.”
The way MLB regulated the use of delaying payments to players is by requiring the deferred salary to be placed in escrow, which ensures the player who signed the contract will receive his money:
“That assures that the money’s going to be there for the player to get paid. It doesn’t solve all of the ownership-side issues in terms of, you go to sell the club, you’re selling a club with a big mortgage on its future.”
It is the same concept that the NFL employs in regard to guaranteed money in their contracts. If an NFL franchise signs a player to a three-year, $50 million contract with $20 million of it guaranteed, then that total must be placed in escrow the day the contract is signed.
As Manfred alluded to, there are still some risks that come with MLB’s current system but it shouldn’t be a problem for the Dodgers’ ownership group who are extremely flush with cash at the moment and show no signs of selling the team anytime soon.
Andrew Friedman confused by MLB outrage
When recently asked by DodgerBlue.com why he believed the Dodgers were receiving such sharp criticism over deferred money in contracts, president of baseball operations Andrew Friedman surmised it stemmed from Ohtani’s unique deal but otherwise was at a loss.
“If you set the Shohei contract aside, the rest are all with the norm and standard operating procedure that a lot of teams have done,” Friedman noted.
“I think the Shohei one is just jarring to people because it’s so different. And I think the others get unfairly lumped into that. I think it’s kind of a lazy narrative, but don’t spend too much time on it. Not really worried about it.”
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