Are deferred contracts in MLB a loophole to be closed?
Last week J.D. Martinez finally signed a free agent contract with the New York Mets for $12M. That seems about right if not a little light for one season for a 36-year-old player who put up a 134 OPS+ in 2023 making his third straight All-Star team. The overall contract value is not the question. It’s how it’s being paid to him that, after the massive contract the Dodgers gave Shohei Ohtani deferring almost all the income by limiting his contract in 2024 to $2M. J.D. Martinez’ deferred deal indicates that the tactic of deferring contract money far into the future is back in vogue. Because it’s already been around awhile.
Bobby Bonilla Day
It probably does not make Steve Phillips smile, but it might make Bobby Bonilla giggle a little. Bonilla, 60, hasn’t played a baseball game since 2001, but he continues to be paid, (until he’s 72 years old), turning $5.9 million into $30 million thanks to a deferred contract with that included an 8% interest rate that was negotiated by his former agent Dennis Gilbert.
The Mets and Phillips, then the GM of the Mets, along with the Wilpons who owned the team at the time, signed Bonilla to a five-year contract worth $29 million in 1991, which was at the time the richest contract in team sports. The team came up with a creative way to pay Bonilla, who was thought to warrant a huge and ground-breaking contract. Bonilla was to be paid $1.19M every year on July 1 through 2035. That’s 44 years for those of you who are scoring at home. This every July 1 is playfully, (more like sarcastically by Mets fans) referred to as ‘Bobby Bonilla Day’. Bonilla who famously touted “It’ll be hard to knock the smile off my face” upon signing the contract, he lasted 3 ½ seasons before being shipped off to Baltimore in 1995. The Mets are still paying him, and Bonilla, can only still be smiling about that contract.
Is there a history of deferring money in MLB player contracts?
Deferred money is limitless under MLB’s Collective Bargaining Agreement. Teams can manipulate as much money, and the length of the contract, as all would be agreed to by player and club. The critical question is, how much money owners will want to pay down the line for players who are not on their roster anymore? That is the case with Bonilla and will be the case with J.D. Martinez who will be retired by the time he collects the final $7.5M of his contract taking in $1.5M per year from 2034–2038. Martinez will be 50 years old in 2038. There are only a limited number of Julio Francos.
There’s a history of players being given deferred contracts but it’s not common knowledge only because fans didn’t consider it important. Hall-of-Fame or will-be HOFers, Ken Griffey Jr., Todd Helton, Ichiro Suzuki, Albert Pujols, and Zach Greinke all had deferred payments as part of their contracts. Manny Ramirez retired since 2011 is still collecting $2MM plus annually from the Red Sox through 2026.
What’s different about Ohtani and now J.D. Martinez’ deferred contracts?
Ohtani’s accepting a $2M annual salary while he’s playing for the Dodgers and deferring $680M of the $700M contract until after the contract expires in 2033, is a case probably only reserved for him since he’s such a unique talent. The deferred contract was done for several reasons, allowing the Dodgers to sign Yoshinbu Yamamoto AND was an anticipation that Ohtani will move out of California by 2034 thus avoiding nearly $100M in California state tax payments. Ohtani’s off-the-field income will be at a premium over the next 10 years while he’s playing. By many counts Ohtani is making more than $50M per year off the field. After his playing career is over his endorsement income will plummet, but Ohtani will be just fine with the deferred contract income leveling out his income from now through 2043. For what it is worth, leveling off your income at $50M plus per year for 20 years or more is nearly unfathomable.
In the case of J.D. Martinez, the flexibility in paying the balance of his one-year contract 10–15 years from now, makes those dollars less costly due to (inflation.) It will have a lesser overall impact on the Mets luxury tax implications in 2034 and beyond, since the Luxury Tax threshold will be much higher than it is today.
Deferring payments on a one-year deal might be a new trend
Both Ohtani and Martinez are star players and have earned their gargantuan paydays. When it comes to the rank-and-file MLB players (non-stars but still mostly millionaires), deferring a $3M or even $5M annual salary has not yet make dollars and sense. But you can be sure that if ownership can find ways to leverage small contract deferrals, they will step up to the plate with those offers to players who have far less leverage than do stars like Ohtani and Martinez.
Here’s what I wrote about the New York Mets this week for MLBReport.com
https://mlbreport.com/2024/03/the-best-5-starting-pitchers-in-mets-history/
https://mlbreport.com/2024/03/j-d-martinez-deal-was-too-good-to-pass-on/
https://mlbreport.com/2024/03/how-close-are-the-mets-to-being-more-like-the-dodgers/
Thanks for reading!
About the Author: Mark Kolier along with his son Gordon co-hosts a baseball podcast called ‘Almost Cooperstown’. He also has written baseball-related articles that can be accessed on Medium.com and now Substack.com.
