The payrolls of MLB franchises are loaded with jaw-dropping statistics, some of which are almost impossible to comprehend.
When just scratching the surface, nothing seems completely absurd: sure, the Los Angeles Dodgers are spending just over $300 million dollars, but winning the World Series does cost a lot! Yes, they are spending $100 million more than the No. 7 ranked Houston Astros, but that’s why the Dodgers are a better team! Maybe the $260 million discrepancy between the No. 30 placed Miami Marlins isn’t great for competitive balance, but that’s just baseball!
That’s when I remembered that the MVP of the league, Shohei Ohtani, comprised approximately 0.007% of that $300 million figure ($2 million annually)... You may be asking: how that is possible? How could the best baseball player in the world, fresh off the free agent market, only make $2 million a year? It simply does not make sense!
Let me introduce you to the idea of “deferred money.”
Deferred money allows teams to sign a player to a contract with the promise of a certain value — for Shohei Ohtani this amounted to $700 million — but only receive a portion of that during their years under the contract. While not a novel concept at all, the manner in which we are witnessing the Dodgers manipulate their salary books is.
Unlike the other three major American Sports Leagues, the MLB has no semblance of a salary cap nor salary floor. Owners are left to their own devices when it comes to deciding how much to spend and how much to save. The only thing holding teams back from spending exorbitant amounts of money is the Competitive Balance Tax: an implementation designed to limit spending through an additional fee that teams have to pay for every dollar they spend over $241 million. However, the loophole around this comes in the form of deferrals.
There are plenty of examples in MLB history that this has been utilized, the most well-known being Bobby Bonilla. At its core, the concept of the deferral is not harmful to the competitive balance of the league. The lack of safeguards and limitations is an entirely different conversation...
However, before diving into the issues surrounding the Dodgers’ use of the deferral system, it is important to understand the context that has permitted the frankly absurd spending. The idea that the Dodgers may be able to exploit deficiencies within the structure of the MLB’s financial regulations is not at all novel, in fact it was first recognized in an article written way back in 2013.
One of the largest forms of revenue that franchises are able to raise is through their TV deals. Understandably, companies pay incredibly large sums of money for the rights to distribute and televise MLB games. Not all franchises are created equally though, and those in smaller markets: Milwaukee, Kansas City, Cincinnati, and others are not privy to the same kind of deals as those based in New York, N.Y. or Los Angeles, Calif. In order to combat this, the MLB implemented a revenue sharing scheme in which teams have to deposit 34% of their local broadcast income for revenue sharing.
In 2012, the Dodgers were purchased for $2 billion. A significant factor in the value of this purchase was the potential for a new television broadcast rights deal with the opportunity to create a regional sports network. All projections for this network were in the range of $4-6 billion dollars: a figure they managed to exceed, signing a deal worth $8.35 billion for 25 years with Time Warner Cable. The issue surrounding this comes from a bankruptcy settlement between the MLB and the former owner of the Dodgers, in which the value of the TV deal was estimated to be $84 million annually: a far cry from the $334 million that it is actually worth.
As a result of the bankruptcy settlement, the Dodgers are now only obligated to share their revenue based upon the determination of value being at $84 million annually, allowing them to pocket the rest of it. This comes at the same time that small market franchises such as the San Diego Padres have been shunned to the side with TV deals that have been rescinded by the Diamond Sports Group.
The Dodgers have effectively abused this system to the point where they are no longer subject to the same rules that the other franchises have to play by, and thus have significantly more funds that they are able to allocate and spend on the top players in the league. This comes at a time when most other franchises are being handcuffed with regard to their own deals, and thus are not able to compete for the same top players.
Returning to the initial issue of deferrals, it is much clearer now how the Dodgers have been able to buy the likes of Shohei Ohtani, Freddie Freeman and Blake Snell, among so many others. The MLB has manufactured an environment that is conducive to the Dodgers effectively hoarding the talent with minimal repercussions to the tune of over $1 billion in deferrals. Given that the Dodgers’ TV deal isn’t scheduled to conclude until 2038, it is incredibly likely that this kind of imbalance will continue for over a decade longer.
By allowing this to continue down the same path, the MLB is effectively saying that it is okay to have this inequality and that there is no issue at all. In fact, many of the most prominent talking-heads in the media spout similar rhetoric, none more blatant than Ken Rosenthal. In a recent article detailing the Dodgers moves, Rosenthal admits as much that “the game’s financial playing field is tilted”; however, he has no issue with it being such and questions if the playing field “should be blamed at all.”
When there is such an unfair advantage given to one team — arguably one with the biggest market in all of American sports — it is incomprehensible how one might come to the conclusion that it should remain unchanged.
Am I saying that the Dodgers will win every World Series between now and the conclusion of their TV deal before it is re-evaluated? Absolutely not.
Is it a guarantee that the Dodgers will win this years title? I do not think so.
Do I think that the MLB should attempt to fix this issue by implementing safeguards or parameters around the fair use of deferrals and contract manipulation? Unequivocally so.
Baseball is becoming a more popular and more global sport with every passing day. The best player in the league is from Japan. The No. 1 pick from the most recent draft is from Australia. The largest contract in league history was signed by someone from the Dominican Republic.
It is imperative that the MLB prioritizes trying to grow the game and expand the fanbase, and I believe that one of the most effective ways to do this is by prioritizing competitive balance and financial fair play.
