With their groundbreaking 14-year, $500 million contract extension, Vladimir Guerrero Jr. and the Toronto Blue Jays have reportedly pulled off a feat of financial ingenuity that would leave even the Los Angeles Dodgers impressed.
The latest MLB deal includes a staggering $325 million signing bonus, as reported by The Athletic’s Ken Rosenthal. However, this “signing bonus” will not be paid out in one lump sum. Instead, Guerrero will receive it in varying annual installments over the course of the contract’s duration.
Advertisement
In addition to his $175 million salary, Guerrero will also be receiving almost double that amount in “signing bonus” money, resulting in an annual luxury tax hit of $35.71 million.
Why would Vladimir Guerrero Jr. and the Blue Jays do this?
According to Rosenthal, there are two key benefits for Guerrero:
-
Signing bonuses are taxed based on the athlete’s state of residence. Since Guerrero lives in tax-free Florida, he stands to save millions that would have been taxed as regular salary. This unique arrangement allows more of Guerrero’s earnings to be treated as if they were earned in Florida.
-
Signing bonuses are not contingent on performance, ensuring that Guerrero will still receive the majority of his contract money even in the event of a work stoppage when MLB’s current collective bargaining agreement expires.
For the Blue Jays, the primary benefit appears to be Guerrero’s agreement to sign the contract.
While it may be tempting to compare this deal to Shohei Ohtani’s deferred $700 million contract with the Dodgers, Guerrero and the Blue Jays have taken a different approach. Ohtani deferred his earnings to reduce the luxury tax hit on the Dodgers, whereas Guerrero’s signing bonus structure seems to primarily benefit him without significantly impacting Toronto.
Advertisement
It remains to be seen if other teams will adopt similar strategies, provided they are within legal boundaries.
Recent trends show players receiving both substantial signing bonuses and significant deferred payments. This dual structure provides players with upfront money while helping teams manage their luxury tax figures. For instance, the Dodgers employed a similar strategy in Blake Snell’s $182 million deal, including a $52 million signing bonus and $66 million in deferred payments.
While the arrangement may seem convoluted, it allows teams and players to navigate the complexities of nine-figure contracts while benefiting both parties. In this case, the Blue Jays secured Guerrero’s services by agreeing to a deal that minimized his tax liabilities and protected his earnings.
Blue Jays fans can now look forward to another decade-plus of Guerrero’s talent, potentially witnessing him leave a lasting legacy in the franchise’s record books.