How Do the Dodgers Continue to Dominate the Free Agent Market?
The Los Angeles Dodgers and their spending on free agents have been the hot-button topic in baseball for the past few offseasons, and this winter has been no different. The Dodgers have once again crushed the competition in the free agent market this winter, and they have received an uptick in criticism from other teams and fans around Major League Baseball. The popular question circulating around the league has been something like this: “Why do the Dodgers get to sign everybody they want? There is no salary cap, so can’t other teams do the same thing?” While it is true that there is no salary cap in Major League Baseball, there is a thing called the luxury tax. This tax is calculated by taking the average annual value of contracts as opposed to the actual amount of cash that is paid out each year. So, how do the Dodgers use this to their advantage, and why isn’t every other team doing it? Well, the answer is not as straightforward as one might think.
Contract Deferrals
The concept of deferring contracts has been around in baseball for a long time, but no one has utilized it quite like the Dodgers. Basically, all a contract deferral does is allow the team to pay large portions of a player's salary well into the future after the contract is complete. The Dodgers have used this tool for a number of their big-name players. Blake Snell signed a $182-million contract with $60 million deferred, Tanner Scott signed a $72-million contract with $21 million deferred, Freddie Freeman signed a $162-million contract with $57 million deferred, and Teoscar Hernández has signed two contracts with the Dodgers totaling over $89 million guaranteed and $31.5 million being deferred. The deferral amounts frequently fly under the radar when these deals are announced, and the only numbers that are usually seen are the total dollar amounts. This makes it seem as though the Dodgers are paying their players much more in the present than they really are. Los Angeles also used deferrals for key extensions like Mookie Betts, who has $115 million of his $365-million contract deferred, Tommy Edman ($25 million of his $74-million contract is deferred), and Will Smith ($50 million of his $140-million contract is deferred). Obviously, the biggest use of this concept was when the Dodgers signed superstar Shohei Ohtani last winter to a $700-million contract, with an astounding $680 million of it being deferred. This contract made headlines for obvious reasons, with the most prominent being that the best player in baseball was going to be getting paid an annual salary of about $2 million for the majority of his contract.
Signing Bonuses
The other key ingredient to this empire that the Dodgers have been able to build is their use of signing bonuses. Los Angeles has offered an enticing signing bonus to many of its key signings in order to make its offer much more appealing to the player, given that it is delaying a large portion of its salary in the future. Snell, Hernandez, Smith, Edman, and Betts all received large signing bonuses that totaled a significant percentage of their total contracts mentioned above. The Dodgers also used signing bonuses to secure other key players who did not have any deferrals in their contracts, specifically starting pitchers Yoshinobu Yamamoto and Tyler Glasnow. Yamamoto received a $50 million signing bonus when he signed his $325-million contract, and Glasnow got a $10 million signing bonus in his $136.5-million extension. In total, the Dodgers have dished out $295 million in signing bonuses over the past five years. This tool is something that a majority of other teams just simply can't compete with when it comes to persuading big-name free agents. The other key factor that signing bonuses can have, other than being very enticing to players, is that they counterbalance the contract deferrals perfectly. While the deferral diminishes the value of the current contract, the signing bonus serves as an effective way to get a big payday while not skyrocketing the value of the actual contract.
In total, the Dodgers have accumulated over $1 billion of deferred salary in the past five years, which is by far the most in Major League Baseball. The New York Mets and Boston Red Sox are the only other teams in the League that have over $50 million in deferred salary. The luxury tax threshold for the 2025 season is expected to be $241 million, and the Dodgers payroll for the upcoming season currently stands at around $372 million, but after the use of deferrals, their actual cash payroll is expected to be around $312 million. Even taking the deferrals into account, the Dodgers cash payroll is still the most in the league by a pretty significant margin, meaning that they are still spending the most in current dollars, even with all the deferred money down the road. However, the Dodgers’ president of baseball operations, Andrew Friedman, understands the potential consequences, and he believes his team is well prepared for the future with this contract structure. “We're not going to wake up in 2035 and be like, 'Oh my God, that's right, we have this money due,'” Friedman told Jack Harris of Yahoo Sports. “We'll plan for it along the way." So, to answer our original question, what the Dodgers are doing is not exclusive to only them. Other teams that generate less money may not be able to structure as many contracts the way that the Dodgers are, but every team in baseball has the ability to use this structure. The reality of the situation is that the Dodgers have perfected this system, and they are undoubtedly going to continue to use it regardless of what people on the outside have to say about it. As a result, as the salaries continue to pile up in Los Angeles, so will the wins.
