With their 14-year, $500 million contract extension, Vladimir Guerrero Jr. and the Toronto Blue Jays have reportedly executed a feat of creative accounting that would make the Los Angeles Dodgers blush.
MLB’s latest megadeal contains a $325 million signing bonus, according to The Athletic’s Ken Rosenthal, only it’s not really a signing bonus by any definition sports fans have learned. Rather than pay the 25-year-old nearly a third of a billion dollars up front, the Blue Jays will reportedly pay it to him in varying annual amounts over the 14 years of the contract.
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So Guerrero will be getting $175 million in salary, and then nearly twice that in “signing bonus” money, with an annual luxury tax hit of $35.71 million.
Why would Vladimir Guerrero Jr. and the Blue Jays do this?
Per Rosenthal, there are two benefits for Guerrero:
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Signing bonuses are allocated to an athlete’s state of residence. Since he lives in Florida, a state without income tax, that theoretically means he will save millions that would normally get taxed as his salary. MLB players are usually taxed based on where they play, so players in Florida would see no taxation for home games, but would pay New York taxes on road games played in New York (and Illinois taxes on games in Chicago, etc.). This way makes it so much more of Guerrero’s money gets treated as if it’s in Florida.
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Signing bonuses are not contingent on the actual performance of the services, which means Guerrero will still be paid the majority of contract money in the event of a work stoppage. MLB’s current collective bargaining agreement expires after the 2026 season.
As for the Blue Jays, there appears to be one and only one benefit to doing this:
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Guerrero agrees to sign the piece of paper.
The easy reaction is to compare this deal to Shohei Ohtani’s enormously deferred $700 million contract with the Dodgers, but Guerrero and the Blue Jays have essentially done the opposite of that.
Ohtani agreed to defer that money purely to lower his luxury tax hit from $70 million to roughly $46 million and help the Dodgers sign more players, at his own personal expense. His considerable endorsement money allows him to afford the wait. On the flip side, Guerrero’s signing bonus appears to help only Guerrero, without hurting Toronto too badly.
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You can only wonder if other teams might start doing this, as long as it’s legal.
Vladimir Guerrero Jr.’s deal is complicated, in a different way from Shohei Ohtani’s. (Photo by Mark Blinch/Getty Images)
(Mark Blinch via Getty Images)
It’s actually become somewhat in vogue lately for a player to receive both a large signing bonus and a significant deferral. The signing bonus gives them large amounts of money up front, which they would prefer, while the money paid later keeps their CBT number lower than it has to be, which teams prefer. The Dodgers did this with the $182 million Blake Snell deal, which had a $52 million signing bonus and $66 million in deferred money.
This is all unnecessarily complicated, but the upshot is that teams and players now have ways to help each other out while making nine-figure commitments to each other. The Blue Jays needed Guerrero badly, so they agreed to the thing that lowered his tax liability and shielded his money more.
And now Blue Jays fans can enjoy another decade-plus of a player who could end up all over the franchise record books.
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