When the American businessman Todd Boehly assumed control of Chelsea last year, the billionaire investor quickly began exploiting what some within English football would consider to be a risky loophole. By offering unusually long contracts to players — in the seven-year range, or sometimes more — Boehly let Chelsea spread out its transfer costs beyond convention, which effectively sidestepped the Premier League’s soft salary cap.
Nobody could know it then, of course, but the technique can now be seen as a precursor for an extraordinary move for another one of Boehly’s investments: the heavily deferred $700 million megadeal that Boehly’s Los Angeles Dodgers awarded to baseball’s two-way superstar, Shohei Ohtani.
In the UK, the backlash from Boehly exploiting the perceived loophole has been strong, culminating on Tuesday when The Athletic’s David Ornstein reported that enough of Chelsea’s rival clubs voted to close its workaround on transfer fees. The policy shift brought the league in line with the sport’s European governing body, UEFA, which in June enacted a similar change.
Meanwhile, in the US, the baseball industry was still processing the fallout from Ohtani’s staggering deal, the details of which were first reported on Monday night by The Athletic’s Fabian Ardaya. All but $2 million per year will be deferred until 2034.
That Ohtani would consent to such a concept wasn’t entirely surprising. Deferrals have been part of baseball deals for decades, with the most infamous example being the contract that Bobby Bonilla signed with the New York Mets in 1991 — which still prompts mock celebrations every July 1, when Bonilla is owed an annuity payment that runs through 2035.
Yet the sheer size of Ohtani’s deferral — 97 percent of the guaranteed salary — is without any sort of precedent.
“That the biggest contract of all-time has the most deferred comp in it isn’t a surprise,” one baseball player agent said Tuesday. “But on a percentage basis … we’ve certainly never seen anything remotely close to that.”
For the Dodgers, of which Boehly is a part-owner alongside chairman Mark Walter, the added flexibility that the contract structure buys certainly can’t hurt.
Like Chelsea, the Dodgers have seized somewhat of an edge over their rivals, working within the rules to enhance their ability to spend aggressively and surround Ohtani with talent. That position was apparent later on Tuesday, when the Dodgers were scheduled to meet with pitcher Yoshinobu Yamamoto, The Athletic’s No. 3 ranked free agent who is projected to earn a deal north of $200 million.
The union between Ohtani and the Dodgers appears to be borne of philosophical alignment.
The Dodgers and Boehly are no strangers to deferrals, baking them into deals for two of their most prominent players, Mookie Betts and Freddie Freeman. Meanwhile, people familiar with the Ohtani deal insist that the player himself suggested the contract’s deferred structure, and that he was willing to entertain similar deals with other suitors. So, the partnership with the Dodgers made sense.
Ohtani’s contract is technically a 10-year, $700 million deal, yet the significant deferrals actually pay him over a 20-year period. In Major League Baseball, contracts spread across more than a decade are aberrations, just as seven-year terms in the Premier League were almost unheard of until Boehly came along.
In both leagues, the lengthy agreements appear designed as a workaround to checks on spending. Whether the maneuvers are directly related, the most important result remains the same. The biggest test case to date landed the Dodgers the modern-day Babe Ruth.
Within baseball, a sport in which spotting inefficiencies is part of the game within the game, Ohtani’s contract structure has drawn attention, though so far, no serious calls for a policy shift. But within the Premier League, grumbling about Boehly’s practices were enough to hasten change, though not before Boehly oversaw a spending spree that blew up the typical contract lengths in the EPL.
The stage was set for the conflict roughly a decade before Boehly arrived, when UEFA introduced the concept of Financial Fair Play, which effectively functions as a soft salary cap.
The idea is relatively simple: the more a club earns, the more a club can spend on talent. What isn’t simple is enforcement. Measuring team spending in a consistent and transparent manner has been a challenge. And it is within this gray area that Chelsea, while under the watch of Boehly, had found a loophole when it came to transfer fees.
In the EPL, the fees clubs pay to sign players are amortized over the length of the players’ contracts. Amortization is how accountants spread the cost of an intangible asset, such as a player’s contract, over the length of its useful life. It is the same principle as depreciation but that applies to tangible assets, such as your stadium.
If a club buys a player for a £100 million transfer fee, that investment is spread evenly over the length of the player’s contract. For a five-year contract, a fairly long deal in the EPL, that is £20 million a year for five years. Chelsea, however, has been giving that same hypothetical player an eight-year contract, which reduces its yearly transfer fee charge to £12.5 million. The payouts last three more years, but the maneuver reduces the charges to the salary cap by £7.5 million each year.
Those savings add up — and Boehly responded by doling out long-term deals.
In January, Boehly paid Ukrainian team Shakhtar Donetsk £62 million for Mykhailo Mudryk and gave the player an eight-and-a-half-year contract, the longest in league history. In February, Chelsea struck again by adding Argentine midfielder Enzo Fernandez for £107 million over eight years. And in August, Chelsea set a new British transfer record by shelling out £115 million for Ecuadorian midfielder Moises Caicedo, a sum that was also stretched out over eight years.
So far this season, which started with the summer transfer window, Chelsea have bought 11 players, all of them on contracts between six and eight years.
On Tuesday, that contract giveaway came to an end. The EPL’s clubs voted to cap player amortization to five years regardless of contract length. The change effectively closed the loophole — but not before Chelsea made significant savings under Financial Fair Play rules. Chelsea came away with another major victory: despite a movement by some clubs to retroactively apply the five-year cap, there were too many headwinds, in particular the threat of legal action from the London-based club.
Chelsea and Boehly long went unchecked in the end, and the Dodgers now appear primed to reap the benefits of a unique deal with Ohtani. Of course, the cap savings, so to speak, aren’t as great stateside. The deal’s structure prevents a $70 million luxury tax hit every year. But even when factoring in deferrals and interest, Ohtani’s average annual salary for luxury tax purposes is still a hefty $46 million, eclipsing the previous record from Max Scherzer.
“It is still-precedent setting,” one longtime baseball executive said. “It’s the biggest (luxury-tax) number a team has ever had to deal with, and it’s 10 years of it, not two or three like the previous record Scherzer.”
Instead of fretting about luxury tax ramifications, the executive said, his attention has pivoted to how Dodgers ownership intends to make good on the back end of Ohtani’s massive deal. Said the executive: “I’m more fascinated at the mechanics of the Dodgers maintaining their $680 million Ohtani trust fund.”
— With reporting from The Athletic’s Evan Drellich
(Top photo of Boehly: Adam Davy / PA Images via Getty Images)
Christine Lake is a sports fanatic who lives and breathes athletics. With an extensive background in sports journalism, he covers everything from major league championships to grassroots sports events. When she’s not on the field or at the stadium, you’ll find Christine coaching youth sports teams.
