What is Deferred Money? Definition, Formula, and Example
Deferred money is salary a player agrees to be paid in future years — often long after the contract ends — lowering the deal's present-day cost and luxury-tax hit.
What is Deferred Money?
Deferred money is compensation a player earns during a contract but agrees to receive in later years, frequently well after the contract has expired. Instead of paying a star his full salary in the season he plays, the team pays a portion now and the rest on a schedule that can stretch a decade or more into the future. Because a dollar paid in 2040 is worth less than a dollar paid today, deferrals let teams sign enormous headline contracts while reducing the real, present-day cost — and, critically, the contract's competitive balance tax (luxury tax) hit.
How Deferred Money Is Calculated
MLB's collective bargaining agreement requires deferred salary to be discounted to present value for luxury-tax purposes. The league applies a discount rate (tied to a federal mid-term rate) to figure out what future payments are worth today:
Present Value = Future Payment / (1 + r)^n
where r is the discount rate and n is the number of years until payment. The contract's average annual value (AAV) for tax purposes is based on the present value of total compensation, not the raw face number, divided by the contract length.
Worked Example
Shohei Ohtani's December 2023 deal with the Dodgers is the landmark case: $700 million over 10 years, but $680 million of it deferred. Ohtani is paid just $2 million per season from 2024–2033, then collects $68 million per year from 2034–2043 with no interest. Discounting those deferred payments dropped the contract's luxury-tax AAV from a face value of $70 million to roughly $46 million — saving the Dodgers tens of millions in tax exposure every year.
The original cautionary tale is Bobby Bonilla. The Mets deferred his 2000 buyout and now pay him $1,193,248.20 every July 1 from 2011 through 2035 — "Bobby Bonilla Day" — at 8% interest on the original balance, long after he retired.
Why Deferred Money Matters
Deferrals are a roster-building lever. They let a team sign a megastar while keeping current-year payroll and luxury-tax AAV manageable, freeing cash to add complementary players. For the player, deferrals can offer tax planning advantages and long-term financial security. Front offices use them to thread the needle between fan-facing "we paid $700M" headlines and the financial reality of staying under or near tax thresholds.
Limitations and Common Misconceptions
Deferred money is not a discount the player "gives away" — the player still receives the full nominal sum, just later. The team's savings come purely from the time value of money and tax accounting, not from paying the player less in total dollars. A common error is treating the headline figure as the contract's true value; Ohtani's deal is reported at $700M but is worth closer to $460M in present-day terms. Deferrals also carry long-tail risk for franchises, committing future ownership to payments on players who may be retired — exactly the Bonilla scenario. Finally, the CBA caps how aggressively deferrals can be used by mandating present-value discounting, so teams can't defer their way out of the tax entirely.
Related Terms
In Legends Deck, deferred-money mechanics power the franchise mode's salary-cap math: signing a marquee card with deferrals lowers its present-day cap hit, letting you stack talent now while a balance sheet tracks the future payments you'll owe when those cards age out of their prime ratings.