Buying the Dodgers: Deferred Compensation, Tax, and Ownership Risks

There has been no shortage of discussion concerning the use of deferred player contracts by the Los Angeles Dodgers to build a championship roster. After the Dodgers’ signing of Kyle Tucker last offseason, reports suggest that approximately $1.0945 billion of nominal deferred compensation was outstanding to 10 Dodgers players, with payments extending from 2028 through 2047, including $680 million for Shohei Ohtani, $120 million for Mookie Betts, $66 million for Blake Snell, $57 million for Freddie Freeman, and $30 million for Kyle Tucker.

Although the Dodgers reportedly owe approximately $1.0945 billion of deferred player compensation through 2047, the amount does not represent a $1.0945 billion unfunded liability that a buyer should automatically deduct from the purchase price. Article XVI of the 2022–2026 Major League Baseball Basic Agreement (“2022–2026 MLB CBA”) requires the Dodgers to maintain assets funding the present value of covered deferred compensation before the future player payments become due.

A hypothetical sale of the Los Angeles Dodgers would require a buyer to look beyond the Club’s headline valuation and determine how its existing obligations, funding assets, and other transaction risks affect equity value. For purposes of determining equity value, the more relevant calculation is the present value at Closing of deferred compensation attributable to player services performed before Closing, reduced by the value of qualifying Article XVI funding assets that remain with the Club and are available to satisfy those obligations. Separately, Buyer would need to evaluate whether the remaining compensation obligations under each player contract exceed the expected economic value of the player services Buyer will receive after Closing, including where a player’s production has declined, the player is no longer expected to contribute meaningfully to the roster, or the Club otherwise remains obligated to pay substantial compensation for limited expected post-Closing production. The combined effect of the Dodgers’ net pre-Closing deferred compensation exposure and the economics of the remaining player contracts could materially affect the valuation of the Club and, ultimately, the price Buyer is willing to pay Seller by hundreds of millions of dollars.

Adjusting the equity value to account for deferred compensation would be only one part of the transaction analysis. A buyer also would need to determine how the Club’s existing contracts and payroll history affect its competitive balance tax exposure, whether ownership-related financing or creditor risks could reach the Club or the assets being acquired, and how the potential expiration of the 2022–2026 MLB CBA could affect valuation, financing, MLB approval, transaction timing, and the economic risks assumed at Closing. Together, these issues would determine how the Dodgers’ reported enterprise value should be converted into the equity value payable to the Seller.

How Would Deferred Salary Affect a Dodgers Sale?

2022–2026 Major League Baseball Basic Agreement, Art. XVI

“Deferred compensation obligations incurred in a Contract executed on or after September 30, 2002 must be fully funded by the Club, in an amount equal to the present value of the total deferred compensation obligation, on or before the second July 1 following the championship season in which the deferred compensation is earned. For purposes of this Article XVI, full funding of the present value of deferred compensation obligations shall mean that the Club must have funded, for the duration of and without interruption in each year, the current present value of the then outstanding deferred payments, discounted by 5% annually.”

The timing of deferred compensation funding under Article XVI of the 2022–2026 MLB CBA is critical to the M&A analysis because it determines when a Major League Baseball organization (“Club”) must fund compensation that may not be paid to the player until years later.

Article XVI permits Clubs to defer player compensation without limiting the amount or percentage that may be deferred. A Club is not required to fund the deferred compensation when the player contract is signed or even when the compensation is earned. Instead, the Club must fully fund the present value of the deferred compensation on or before the second July 1 following the season in which the compensation was earned and thereafter continuously maintain the current present value of the outstanding payments until they are paid. The required funding amount is calculated using the CBA’s 5% annual discount rate (although Article XVI permits MLB and the MLB Players Association to revisit the rate for a succeeding July 1 if the J.P. Morgan Chase Bank prime rate on the preceding November 1 is 7% or higher). Accordingly, compensation earned during the 2024 season had to be fully funded by July 1, 2026, while compensation earned during the 2025 season must be fully funded by July 1, 2027.

Applying Article XVI’s 5% present-value methodology to the Dodgers’ publicly reported deferred-compensation terms, the following schedule estimates the present value of deferred compensation that first becomes subject to the CBA’s funding requirement on each July 1:

July 1 Funding Deadline	Estimated New Funding Obligation
2026	$64.7 million
2027	$77.8 million
2028	$87.3 million
2029	$94.0 million
2030	$79.6 million
2031	$74.4 million
2032	$56.2 million
2033	$56.2 million
2034	$56.2 million
2035	$49.4 million

 

For a potential Buyer, the more important issue is the cumulative Article XVI funding exposure at Closing, not any single annual funding amount required thereafter. The Buyer would need the actual Uniform Player Contracts, compensation earning dates, payment dates, applicable Article XVI discount rates, quarterly funding certifications, custodial statements, and investment records to determine the required funding balance at Closing and to identify compensation earned before Closing whose second-July-1 funding deadline occurs afterward. 

Additionally, any Article XVI funding analysis must account for the relationship between the deferred payments and the player services that produced the obligation. Buyer’s assumption of the Club’s outstanding deferred compensation obligations at Closing will result in Buyer inheriting substantial future payment and funding obligations that may come due after a player’s peak performance years have passed, when the player is expected to provide declining production, or after the player is no longer on the roster. At the same time, the player’s pre-Closing services may already have increased attendance, sponsorship revenue, media value, postseason success, and overall franchise value, benefits that may be reflected in the enterprise value Buyer is paying for the Club. The transaction analysis therefore must determine not only when the deferred compensation must be funded and paid, but also whether the related player services were provided before or after Closing and which party receives the economic value of those services.

Therefore, any M&A transaction should distinguish between (1) deferred compensation already earned and already required to be funded, (2) deferred compensation already earned but not yet subject to the Article XVI funding deadline, and (3) deferred compensation attributable to post-Closing player services. For each category, the parties should consider both the future funding burden and whether Buyer will receive the corresponding player services or is already paying through enterprise value for benefits generated before Closing. Separating deferred compensation by funding status and service period allows the parties to determine what portion of the exposure should reduce Seller’s equity value, what portion accompanies future services received by Buyer, and what qualifying funding assets should be credited in the purchase price calculation.

What Assets Must the Dodgers Maintain for Deferred Compensation?

2022–2026 Major League Baseball Basic Agreement, Art. XVI

“Unless the Uniform Player’s Contract provides otherwise, a Club may fund deferred compensation obligations in such manner as it elects, provided that: (a) the funding method used by the Club must be such that the amount(s) funded are exclusively for the uses and purposes of satisfying the deferred compensation obligation(s) being funded; (b) the amount(s) funded are maintained in the form of unencumbered assets comprising cash or cash equivalents and/or registered and unrestricted readily marketable securities, unless a Club obtains the Parties’ prior written authorization of an alternative form; and (c) such amount(s) funded are subject to the claims of the Club’s general creditors.”

The composition and legal status of Article XVI funding assets are also critical to the M&A analysis because they determine whether Buyer can rely on those assets to satisfy the deferred compensation obligations assumed at Closing and how much of their value should be credited in the purchase price calculation.

Article XVI of the 2022–2026 MLB CBA does not require the Club to place deferred compensation into a specific escrow or trust. Instead, the Club may determine how to fund the obligation so long as the funding assets satisfy the CBA’s requirements concerning use, liquidity, marketability, and encumbrances. Moreover, because the funded amounts remain “subject to the claims of the Club’s general creditors,” the Article XVI funding pool is not equivalent to cash held in a bankruptcy-remote third-party escrow for the exclusive benefit of the players.

Buyer will acquire both the existing funding assets and the obligation to maintain or increase the required funding after Closing. Pre-Closing creditor claims that remain enforceable against the Club after Closing could impair Buyer’s ability to rely on the funding pool because a creditor with an enforceable lien or other right against the funding assets may be able to reach them notwithstanding their designation for deferred compensation obligations. Closing the transaction would not, by itself, eliminate those creditor rights.

Buyer therefore needs to determine what assets comprise the funding pool, who owns and controls them, where they are maintained, and whether they remain qualifying assets under Article XVI. Buyer also must determine whether any lien, encumbrance, affiliate claim, existing or potential Club liability, or insolvency proceeding could impair the assets’ availability after Closing and make their economic value to Buyer materially less than their stated balance.

How Will the Competitive Balance Tax Affect a Dodgers Sale?

The Dodgers’ competitive balance tax exposure is also a fundamental part of the M&A analysis because deferred compensation can reduce current cash salary without removing the compensation from MLB’s competitive balance tax calculation, leaving Buyer with a separate post-Closing economic burden arising from the Club’s existing player contracts and prior payroll history.

Article XXIII of the 2022–2026 MLB CBA establishes the competitive balance tax, which imposes increasing tax rates on Clubs whose Actual Club Payroll exceeds specified annual thresholds. The applicable tax depends on both the amount by which the Club exceeds the thresholds and the number of consecutive years the Club has exceeded the base threshold. For 2026, the base threshold is $244 million and the third surcharge threshold is $304 million. Under Article XXIII(B), a third-time or later competitive balance tax payor faces a 50% base tax rate, plus a 60% surcharge on payroll above the third surcharge threshold, resulting in a 110% marginal tax rate on payroll in the highest tier.

Deferred compensation does not avoid the competitive balance tax merely because the cash will be paid in a later year. Article XXIII generally attributes deferred compensation to the service seasons covered by the player contract and includes the compensation at stated value or present value when calculating the Club’s Actual Club Payroll. Deferred compensation therefore may reduce the Club’s current cash salary obligations without producing a corresponding reduction in its competitive balance tax payroll.

The competitive balance tax consequences become particularly significant at the Dodgers’ current payroll level. As of August 26, 2026, estimates placed the payroll at approximately $338.1 million, competitive balance tax payroll at approximately $428.1 million, and projected competitive balance tax liability at approximately $177.9 million. The Dodgers therefore incur approximately $21 million of incremental cost from an additional $10 million of payroll above the third surcharge threshold ($304 million), consisting of the $10 million salary obligation plus approximately $11 million of additional competitive balance tax.

Accordingly, Buyer should consider how the player contracts assumed at Closing and the Club’s inherited repeat-payor status will affect future CBT payroll and limit Buyer’s flexibility to add or retain players. Buyer may incur materially higher post-Closing roster costs even though Seller received the revenue and franchise-value increases generated by the pre-Closing payroll decisions that created those commitments and elevated tax rates. The purchase price analysis therefore should address both any accrued CBT liability and the economic burden of operating the Club under its existing payroll commitments and repeat-payor status after Closing.

How Should Deferred Compensation and Competitive Balance Tax Liability Affect the Purchase Price?

Forbes currently estimates the Dodgers at $7.8 billion of enterprise value, based on approximately $850 million of 2025 revenue and negative $20 million of operating income. However, the $7.8 billion enterprise value is not the amount Buyer would ultimately pay Seller. Buyer must still determine equity value by adjusting for debt, cash, deferred compensation exposure, competitive balance tax liabilities, and other negotiated purchase price adjustments.

Deferred compensation complicates the enterprise-to-equity calculation because the future payment obligations, the Article XVI funding assets, and the player services that generated franchise value may fall into different ownership periods. Buyer should not deduct the Club’s entire nominal deferred payment schedule dollar for dollar because Article XVI requires qualifying assets to be maintained against covered deferred compensation. Conversely, the existence of Article XVI funding assets does not eliminate Buyer’s economic exposure if the assets are insufficient, unavailable, subject to creditor claims, or required to satisfy obligations attributable to player services performed before Closing.

A more useful measure for determining equity value is “Net Deferred Compensation Exposure” at Closing. “Net Deferred Compensation Exposure” should be calculated at Closing as the present value of the deferred compensation obligations Buyer will be required to fund or pay after Closing, reduced by (A) qualifying Article XVI funding assets that remain with the Club and are available to satisfy the corresponding obligations and (B) the value of the remaining player services Buyer is expected to receive. Applying a Net Deferred Compensation Exposure formula in this manner avoids overstating or understating equity value by giving Buyer credit for deferred obligations associated with benefits realized before Closing while giving Seller credit for the qualifying funding assets and remaining player services Buyer receives.

Competitive balance tax requires a separate enterprise-to-equity analysis. Buyer may inherit both an accrued tax liability attributable to pre-Closing payroll and the consequences of the Club’s prior payroll history. Because the applicable CBT rates depend in part on how many consecutive seasons the Club has exceeded the threshold, Buyer could acquire the Dodgers subject to repeat-payor rates and incur substantially higher taxes on payroll added after Closing as a result of payroll decisions made before the acquisition. Seller may have received the revenue and franchise-value increases generated by those decisions, while Buyer bears the resulting post-Closing tax burden and reduced flexibility to add or retain players.

The equity value analysis therefore should separately address (1) Net Deferred Compensation Exposure calculated at Closing, (2) any accrued competitive balance tax liability attributable to pre-Closing payroll, and (3) the economic effect of inheriting the Club’s repeat-payor status after Closing. Separating the deferred compensation and competitive balance tax adjustments is essential to ensure that the purchase price reflects the economic burdens Buyer inherits from pre-Closing payroll and compensation decisions while preserving Seller’s credit for qualifying funding assets and future player services that remain with the Club after Closing.

How Could the Mark Walter Investigation Affect a Sale?

The investigation involving Mark Walter creates a separate category of transaction risk from the Dodgers’ player obligations and operating liabilities. Reuters reported in August 2026 that federal prosecutors and the SEC were investigating whether Mark Walter or affiliated businesses concealed financial connections while borrowing from insurance companies under common control. Public reporting has not established wrongdoing by the Dodgers, and Dodgers president Stan Kasten has stated that the investigation is not expected to affect the Club and that no sale process has begun. TWG Global similarly stated on August 26, 2026 that the Dodgers are not for sale and that the Club’s player obligations remain funded.

For M&A purposes, the investigation matters only to the extent a Walter-related obligation, creditor claim, or regulatory proceeding could reach the Dodgers’ ownership interests, Club assets, transaction proceeds, financing, or Article XVI funding assets, or could delay MLB approval or Closing. Buyer therefore would need to review Walter-related loans, guarantees, liens, equity pledges, intercompany obligations, and related-party financing to determine whether any identified exposure has a direct connection to the Dodgers or the transaction. Diligence should focus on the Club’s ownership chain, pledges of ownership interests, liens on Club assets, intercompany loans and guarantees, and the ownership and custody of Article XVI funding assets. Any identified exposure should be addressed through targeted protections in the transaction documents, such as lien releases, Closing conditions, specific representations and warranties, or a specific indemnity supported by a third-party escrow, rather than through a general purchase price reduction based merely on the existence of the investigation.

How Could a Work Stoppage Affect Signing and Closing?

The status of the next MLB collective bargaining agreement is a critical component to the M&A analysis because Buyer could agree to purchase the Dodgers under the current economic rules but acquire the Club under materially different rules. The 2022–2026 MLB CBA expires at 11:59 p.m. Eastern on December 1, 2026, and no successor agreement has been announced as of August 27, 2026. Collective bargaining is underway between the MLB and the MLB Players Association, with MLB proposing a 2027 salary cap of $245.3 million and a salary floor of $171.2 million and the MLB Players Association opposing the proposed salary-cap system. The unresolved labor dispute creates uncertainty concerning both a potential work stoppage and the economic framework that will govern the Club after Closing.

The potential effect on a Dodgers acquisition extends beyond whether games are ultimately lost. The Dodgers currently operate at payroll levels materially above the proposed $245.3 million cap, so Buyer would be underwriting the Club without knowing whether the rules governing roster construction, competitive balance taxes, deferred compensation, revenue sharing, and player contracts will remain substantially the same. A successor CBA containing a hard salary cap, materially different competitive balance tax rules, or restrictions on future deferred compensation could alter the operating model that helped produce the Dodgers’ current revenue and franchise value. Conversely, a successor collective bargaining agreement that increases competitive balance tax thresholds or otherwise permits continued high payroll spending could preserve more of the existing model.

For a Dodgers sale signed before completion of a successor CBA, the acquisition agreement should allocate both the risk of a work stoppage and the risk that the governing economic rules change between signing and Closing. The parties should specify whether Buyer must close during a league-wide labor stoppage, whether a work stoppage or material change in the rules governing the Club affects closing obligations or liability allocations, and who bears any lost revenue or increased operating costs arising before Closing. The equity value analysis also should consider the effect of any new tax, deferred compensation, or revenue-sharing rules on equity value..

Conclusion

The Dodgers’ reported $7.8 billion enterprise value would be the starting point for a potential sale, not the amount ultimately payable to Seller. Equity value should not be calculated by deducting the Club’s approximately $1.0945 billion of deferred compensation dollar for dollar or by automatically crediting the Article XVI funding assets at face value. Instead, Net Deferred Compensation Exposure at Closing should reflect the deferred obligations Buyer assumes, the qualifying funding assets that remain available to satisfy them, and the remaining player services Buyer receives. 

Deferred compensation is only part of the equity value analysis. Buyer will also likely inherit accrued competitive balance tax liabilities, elevated repeat-payor rates resulting from pre-Closing payroll decisions, and reduced flexibility to construct the roster after Closing. Walter-related obligations or regulatory proceedings could create additional exposure if they reach the Dodgers’ ownership interests, Club assets, transaction financing, or Article XVI funding assets. A successor CBA or work stoppage could further alter the economic and operating assumptions underlying the transaction.

The ultimate transaction question is not whether the Dodgers possess extraordinary value, but how much of that value should be reflected in Seller’s equity proceeds after giving Seller credit for the qualifying funding assets and the value of the remaining player services Buyer receives, while accounting for the deferred compensation, competitive balance tax, ownership, and labor risks Buyer inherits at Closing.

By Joseph R. Luna.

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