The Dodgers deferred future and Guggenheim Partners

WEB DESK: Fans of Major League Baseball (MLB) have been upset at the Los Angeles Dodgers for what some believe to be an abuse of a system which allows teams to defer payments. So are they truly cheating?

The total deferred payments for the Dodgers rose above $1 billion on Tuesday with Blake Snell’s and Tommy Edman’s latest contracts. Now the 2024 World Series Champions will owe seven players millions each from 2028 to 2046.

Blake Snell’s $182 million, of which 66 million is deferred and payable through July 1 2045, and Edman’s 74 million, of which 25 million is deferred and payable through July 1 2044, are the latest of the Dodgers multiple deferred contracts. Others include World Series MVP Freddie Freeman, Will Smith, Teoscar Hernandez, and Mookie Betts. However, the largest contract of them all, and the one that spawned slews of complaints, was the one given to Shohei Ohtani.

Ohtani was signed to the largest Major League Baseball (MLB) contract of all time, as he was given $700 million. However, 680 million of the contract was deferred, meaning the Japanese superstar will be paid 2 million annually, until 2035, when he will begin to receive annual payments of 68 million.

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Deferring contracts has allowed the dodgers to sign more players, such as Japanese pitcher Yoshinobu Yamamoto and Teoscar Hernandez, which helped them to reach and win this last season’s World Series.

And all of this is well within the rules set out by the MLB’s collective bargaining agreement.

In fact, other teams have done the same. The Boston Red Sox deferred $75 million and $50 million of Rafael Devers’ and Chris Sale’s respective salaries. Not only do deferred payments allow for more money to be spent on additional players, it also helps teams stay under the Competitive Balance Tax, MLB’s alternative to the salary cap seen in other leagues such as the National Basketball Association (NBA). For example, when looking at the Red Sox’s 2023 CBT payroll, Devers’ contract saved the Red Sox over $2 million, while Sale’s contract saved them $3.4 million.

(2023 payroll referenced as Sale was traded before the 2024 season)

Similarly, Ohtani’s deferred payments lowers his average annual value from $70 million to $46 million. But, this didn’t save the Dodgers from clearing the highest tier of the CBT for the 2024 season, forcing them to pay a luxury tax of over $67 million. While the Dodgers’ 2024 payroll was 209 million, deferred payments and stipulations in the CBT, such as paying higher taxes depending on how many years the team has been over the limit, which the Dodgers have for the last three, brings their total to $388 million, according to Sporting News.

The Dodgers will continue to pay an immense amount in taxes even with the deferred payments for the foreseeable future. So, how do the Dodger’s do it? How do they pay their yearly payroll plus the CBT without worrying about the future where they owe over a billion dollars?

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GUGGENHEIM PARTNERS

According to Forbes, Guggenheim Partners is the Dodgers secret weapon. Mark Walter, the founder and CEO of the global investment and advisory firm, bought the Dodgers in 2012. And now insurance money from his company is allowing the Dodgers to fund their future payments.

“If a company like Guggenheim holds treasuries in conjunction with an insurance policy, the interest income grows tax-free.” – Forbes

In essence, the firm will reinvest the money saved from the deferred contracts, betting on the belief that they will be able to generate enough tax-free returns, to fund their future. The support that Guggenheim partners provides is the Dodgers’ true ace in the hole. The Dodgers can minimize risks by utilising the special tax advantages that the firm has access to.