The Los Angeles Dodgers have made an art of deferred contracts.
The team currently has $1.01 billion in deferred contracts extended to eight players, including $680 million to Shohei Ohtani, and smaller amounts to pitcher Blake Snell, infielder/outfielder Tommy Edman, and reliever Tanner Scott, all of whom signed last offseason with the Dodgers.
“It’s a beautiful thing,” Bobby Bonilla, who boasts one of the most well-known deferred contracts in Major League Baseball, said about the Dodgers deferred deals. “It’s a reminder that I did the right thing by putting the money away.”
Bonillia has the granddaddy of all deferred deals, and July 1 is his biggest day of the year. The date has become synonymous with the former Major League outfielder, who now works for the MLB Players Association, because he will receive his deposit of $1.2 million from the New York Mets, the 15th of 25 payments that will extend annually to 2035.
“It’s bigger than my birthday,” Bonilla said when reached via phone at his home on the west coast of Florida. “People know this date more than they know my birthday. I think it’s very cool. People are just happy that I put the money aside.”
For the record, his birthday is Feb. 23, and he’s 62 years old. Bonilla’s 16-year career ended in 2001, but he’s more famous for his deferred contract than he is for his 287 homers and .279 batting average across eight teams.
Bonilla’s deal, arranged by his then-agent Dennis Gilbert, worked well for the cash-poor former Mets owner Fred Wilpon at the time—but it worked even better for Bonilla, who will ultimately earn about five times the $5.9 million cash value of what was left on the contract because of an 8% interest rate. Bonilla collected his first dividends from the plan in 2011, and he’s scheduled to earn precisely $1,193,248.20 from the Mets each year until he’s 72 years old.
Bonilla, who was born and raised in the Bronx, said spending a lot of money as a player was never a big deal for him. The deferred money was not meant to protect him from squandering money.
“It was just being sure I put money away,” Bonilla said. “I wasn’t that much of a big spender. I never needed five of the same car or 17 houses. I never overdid anything. But the most important thing with Dennis, and I expressed that as a young player, I just wanted to have when I retired.”
Bonilla’s contract was not the first deferred contract paid by a club to a player. The San Diego Padres, under then-president Ballard Smith, signed shortstop Garry Templeton and closer Goose Gossage to long-term deals tied to annuities in the 1980s. In 1984, reliever Bruce Sutter inked a six-year, $9.1 million contract with the Braves that paid out $47 million, thanks to a 12.3% interest rate.
According to MLB rules, clubs must invest or set aside deferred money as if it is actually being paid in real time to the player, who doesn’t have to pay taxes on it until he begins to collect. Another way to circumvent the luxury tax process is to give players large upfront signing bonuses. Six of L.A.’s deals since signing Mookie Betts in 2020 include $207 million in bonuses, most of them up front, although the $65 million is being paid to Betts over 15 years. Ohtani didn’t get a bonus.
As far as the luxury tax is concerned, deferred money is discounted annually during the term of the contract. Bonuses are actually amortized equally each year rather than being credited as a lump sum in the year paid.
For example, Ohtani’s $70 million over 10 years is being charged as $41.6 million toward the luxury tax because of the decreasing value of the dollar each year of the deferral.
In the modern game, Bonilla gets the credit for getting it all started.
“A lot of times they call it the greatest contract of all time in a lot of people’s minds,” Bonilla said. “It wasn’t the first of its kind. I’m not going to say that before me people didn’t put money away. And now Dodgers players are doing it to their advantage. But my contract got particular traction, maybe because of the circumstances. It’s a fun day.”
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