MLB Deferred Money Contracts: What You Need to Know
Major League Baseball (MLB) teams have been using deferred money contracts for several years now to lock in top talent while managing their payroll. But what exactly are these contracts, and how do they work?
Deferred money contracts are basically agreements between the team and player, in which a portion of the player`s salary is delayed and paid out over a longer period of time, often after the player has retired. This arrangement benefits both parties: the team can offer a larger overall salary to entice players to sign, while the player enjoys the security of knowing they will receive guaranteed income in the future.
These contracts are particularly helpful in situations where a team wants to sign a top player, but cannot afford to pay them the full amount of their desired salary in one season. For example, a team might offer a player $20 million per year, but instead of paying them $20 million every year for the duration of their contract, the team may offer a deferred payment of $5 million per year over the same period. This way, the team can still afford to sign the player without putting too much strain on their budget.
So, what are the potential downsides to accepting a deferred money contract? For one, the player will not receive the full value of their contract until years after retirement, which can be a disadvantage for younger players who may prefer to have immediate access to their earnings. Additionally, deferred payments are subject to taxes in the year they are paid, rather than the year in which they were earned. This means that depending on the tax code at the time of payment, players may be subject to higher tax rates than they would have been if they had received the payment in the year it was earned.
Despite these potential downsides, many players have taken advantage of deferred money contracts in recent years. For example, in 2012, the Detroit Tigers signed Miguel Cabrera to an eight-year contract worth $248 million, with $30 million of that total being deferred until 2024. Similarly, in 2015, the Washington Nationals signed Max Scherzer to a seven-year contract worth $210 million, with $105 million of that amount being deferred until 2028.
Overall, deferred money contracts are a useful tool for MLB teams looking to manage their payroll while still signing top talent. While they may not be the best option for every player, those who are willing to accept deferred payments can reap the benefits of a larger overall salary. As always, it`s important to carefully weigh the risks and rewards before signing any contract.