The Dodgers Have Certainly Caused a Stir for the Upcoming Negotiations
The highest payroll in Major League Baseball (MLB) is currently held by the Los Angeles Dodgers at $383 million, according to FanGraphs. This far surpasses the second-highest team, the New York Mets, who are $81 million shy of the Dodgers at $302 million. These two teams are the only ones to crack the $300 million mark, while nine teams have payrolls over $200 million, and six teams have payrolls below $100 million.
Unless you are a Dodgers fan, the payroll situation in baseball likely infuriates you. Like most of the readers of this paper, I am a Toronto Blue Jays fan, a team that decidedly benefits from the current system—they have the fifth highest payroll—yet I still hate it.
Every other major sport has a salary cap and floor. The only organization close to the MLB cap-wise is the National Basketball Association (NBA). But it imposes harsh taxes and penalties to teams that exceed the salary cap; there are about a hundred different rules in place to stop you from exceeding the cap by much anyway. The National Football League and National Hockey League both have strict salary caps and floors that cannot be exceeded or gone under, and the NBA also has a floor.
MLB has none of these things—you can spend or not spend however much money you like. So, we end up in situations where the Miami Marlins are facing the Dodgers, whose payroll is more than five times what the Marlins have—compare the Marlins’ $67 million to the Dodgers’ $383 million. The reality is that some teams likely could never spend like the Dodgers do, as they do not pull the same revenue or audience that the team does.
In 2026, a new collective bargaining agreement (CBA) is coming up for the MLB. The previous CBA, negotiated in 2022, had barely reached an agreement prior to an official lock-out occurring. Major rule changes were made to things like the pitch clock, playoff format, rookie call-ups, and the draft. The major concern of the MLB at the time was the marketing of the game itself. Baseball became slow and boring to the average audience, with offence dipping and games taking upwards of three hours to complete. The changes have generally succeeded in making games more exciting, with earned run averages down for pitchers and the pitch clock forcing games to be faster. The expanded playoffs also give more teams hope. The 2023 World Series champion, Texas Rangers, would not have even qualified for the playoffs under the old format.
This time around, many believe that the issue of a salary cap and salary floor will dominate the CBA negotiations. Even the New York Yankees owner, Hal Steinbrenner, commented on how difficult it is for most teams to spend, like the Dodgers. Whether you believe him or not, the fact that the owner of the richest team in the sport is complaining about the spending indicates some kind of friction with how it is going down.
The real issue that may be debated, outside of salary caps and whatnot, is deferred money. MLB player contracts allow for money paid to players to be deferred. These deferrals have gone on for a long time, but more recently, the Dodgers have taken it to an extreme. Shohei Ohtani signed a $700 million contract with the Dodgers but deferred $680 million of it—more than 97% of his earnings. This knocks down the contract’s average annual value to $460 million in present-day terms. The Dodgers get to pay the best player in the majors $2 million a year for ten years and then pay him the rest over ten years following that contract’s technical conclusion in 2034. The Dodgers have signed other superstars and similarly deferred their salaries, with players like Freddie Freeman, Mookie Betts, Will Smith, Teoscar Hernandez, and Blake Snell all deferring money on their contracts. If you add them all up, the Dodgers have deferred $989 million.
Why do these deferrals matter? Well, MLB attempts to circumvent the disparity in spending through the competitive balance tax (CBT). The CBT imposes tax penalties on teams that exceed a certain team payroll with increasing penalties based on tiers of spending and how long the team has been within the tax threshold. The money the teams are taxed is then dispersed throughout the rest of the league to the other team’s owners. This way, at least in theory, no one is hurt by teams spending more money.
The issue is that deferred money knocks down the value of the contracts while still giving players the money they want. For the Dodgers payroll, Ohtani’s contract is not $70 million per year, but instead $46 million per year since that is the present-day conversion. They essentially circumvent the CBT through deferred money and can sign players to mega deals other teams could not, whilst not owing those teams the money they should through excessive payrolls and the CBT. The Jays are guilty of this as well, signing Anthony Santander and deferring over $60 million of the contract’s $92.5 million value.
The real issue, though, is convincing players to take deferred money. Players are now lowering their payments to their various league-wide duties as part of their contract’s salary structure and taking less real money today in exchange for making the team “more competitive.” Is it a stretch to say Ohtani’s contract pissed off the player’s union? I would not think so. Now, he has set a precedent that other players should take deferred payments to make the team more competitive. After all, the best player in the world did it. Why should you not? Deferrals have markedly increased since this signing, and here we are.
The lack of a salary cap and floor will likely dominate the media of the next CBA negotiations, even if it does not end up being the main issue. Owners of teams like the Dodgers and Jays will likely not want a cap, and cheap teams like the Rays and Marlins will not want a floor. Watch out for deferrals, as that may become an issue. Things like the pitch clock and recent increases in pitcher injuries may be a debate topic, too.
Owners always want more playoff games, but what will the players be willing to forgo to give the owners that larger revenue stream? Deferred money? It is hard to tell exactly how for now, but the Dodgers have certainly caused a stir for the upcoming negotiations.
