Quote:
Originally Posted by Jason14h
Deferral doesn’t save the team money. The player signs a deal for current day money/ rates and then applies an interest rate and spreads it out over many years
It’s done to provide the player tax favourable future strategies (mostly)
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It does in the present. Ohtani even said one of the reasons he was interested in a deffered contract was so that the Dodgers could add players. There's no salary cap in MLB but there's the luxury tax.
What ChatGPT says:
MLB teams often defer money in player contracts as a financial strategy to manage cash flow, salary cap flexibility, and long-term planning. Here’s why it’s beneficial:
Spreading Out Cash Flow: Deferring payments allows teams to keep more cash on hand in the present, which can be reinvested into team operations, player development, or other areas. This approach can make large contracts more financially manageable, especially for teams with tighter budgets.
Reducing Annual Salary Obligations: Deferred payments can lower a player’s annual salary cap or luxury tax hit, allowing teams more flexibility to sign other players. For example, if a team defers part of a star player’s contract, they might have more room in their current payroll to stay under the luxury tax threshold or to pursue additional players.
Easing Payroll Impact for Aging Players: Deferring part of a contract can reduce the team’s immediate payroll burden and help spread out payments to players who may still receive compensation even after retiring. This structure is attractive for retaining marquee players without straining the team's current financial situation.
Player Incentive: Some players prefer deferred contracts as they can receive a steady income stream over a longer period, which offers financial security after retirement. This approach, popularized by deals like Bobby Bonilla's with the Mets, can help players earn substantial interest on deferred money, making it financially advantageous.
Deferring money in MLB contracts essentially allows teams to plan for the future and stay competitive while managing immediate financial responsibilities.