Few can argue with the Los Angeles Dodgers’ success on the field. Since 2012, no MLB team has had as many regular season victories. Their World Series championship in October was the eighth in franchise history and their second in the last five seasons.
Behind the scenes, the Dodgers have made a habit of signing players to deferred-money contracts. Shohei Ohtani offers the most famous example. The two-way star and reigning National League Most Valuable Player signed a 10-year, $700 million deal with Los Angeles in Dec. 2023.
More news: Dodgers to Sign Asian Star to 3-Year Contract
More than 97 percent — $680 million — of Ohtani’s salary will not be paid out until after the 2033 season, the last of his 10 years in Los Angeles. The upshot to the Dodgers is that, by deferring so much of Ohtani’s salary, the present-day value of his deal is reduced to approximately $461 million according to Major League Baseball’s calculation. That’s the number upon which the Dodgers’ competitive balance tax obligation is based.
For Ohtani, it ensures he’ll be paid annually for the next 20 years, long after his playing days have ended. It also enables his 2034-43 salaries to be taxed on a rate concurrent with whichever state (or country) he calls home after he’s played his final game with Los Angeles.
More news: Walker Buehler’s First Pitch For Red Sox Is to Star Free Agent
California’s top earners are taxed at 13.3 percent, according to the Tax Foundation, the highest marginal income tax rate in the U.S.
Ohtani is not the only Dodger player who is deferring salary beyond the duration of his contract. Blake Snell, Mookie Betts, Freddie Freeman, Teoscar Hernández, Will Smith, and Tommy Edman give them seven players under contract for this year who can earn more money simply by living out of state once their deferred payouts kick in.
More news: Dodgers’ Target Date for Shohei Ohtani’s Pitching Debut Revealed: Report
While critics complain the Dodgers are taking advantage of a “loophole” in baseball’s Collective Bargaining Agreement, they are hardly alone in their ability to offer players deferred payouts. Other California sports teams and athletes — not just in MLB — can take advantage of the same contract structure.
Now, one has.
Sarah Stier/Getty Images
According to TSN’s Pierre LeBrun, the Anaheim Ducks’ three-year contract extension with Frank Vatrano will defer half of his $18 million salary until 2035 or later.
Frank Vatrano’s 3-year, $18M extension is an interesting one. He will get paid $3M a year in base salary but then $9M in deferred salary. Starting 10 years from now in 2035, will make $900,000 a year for 10 years, and his plan is to live outside of California (and its tax system)…
— Pierre LeBrun (@PierreVLeBrun) January 5, 2025
LeBrun reported Sunday on Twitter/X that “starting 10 years from now in 2035, (Vatrano) will make $900,000 a year for 10 years, and his plan is to live outside of California (and its tax system) at that point in retirement. Ducks, meanwhile, benefit with deferred payments by having $4.57M AAV (instead of $6M AAV) on the deal. Creative way for both the team and player to make it work. And perhaps show other players in future way to stick-handle around California tax issue.”
Although the Ducks are hardly the first team other than the Dodgers to offer a similar salary structure to a player under contract, it’s rare for a player’s plan to deliberately skirt a state income tax to become public.
More news: Orioles Sign Free Agent All-Star to $15 Million Contract
Ohtani, for example, has not said where he will call home after his MLB career ends, leaving open the possibility that he will continue to pay California’s state income tax on his $68 million annual salary after 2033.
Nonetheless, after Ohtani’s contract became official, California State Controller Malia Cohen urged the U.S. Congress “to take immediate and decisive action to rectify this imbalance” created by “the absence of reasonable caps on (salary) deferral for the wealthiest individuals.”
More news: Former Braves, Dodgers, Blue Jays Free Agent Signs With AL Contender
Vatrano apparently has no qualms about taking advantage of the absence of a “reasonable cap” on his deferred salary, or about making public his intention to avoid paying a state income tax in 10 years.
Rather than a baseball anomaly, the Dodgers could be at the vanguard of a trend in professional sports.
For more MLB news, visit Newsweek Sports.
