Winning doesn’t come cheap.
The Dodgers’ 2025 payroll reached a record $417.3 million by CBT (competitive balance tax) evaluation. As a result, they will pay a record in luxury tax for the second consecutive year. Their 2025 tax hit of $169.4 million tops their record 2024 tax of $103 million.
The Dodgers won the World Series both seasons (the first repeat champions since the New York Yankees in 1998-2000) and led MLB in attendance in both seasons, topping 4 million in 2025. They are believed to have become the first MLB team to top $1 billion in overall revenue in 2024. Among professional sports teams, only the Dallas Cowboys of the NFL and soccer teams Real Madrid and Barcelona are also believed to generate $1 billion in revenue.
The $169 million in luxury tax the Dodgers will pay is more than the total payrolls of 12 teams, including three playoff teams (the Cleveland Guardians, Cincinnati Reds and Milwaukee Brewers).
The Dodgers’ payroll (and luxury tax) would have been much higher if not for deferred salaries included in several contracts (most notably Shohei Ohtani’s). The deferred salaries lower the average-annual value of those contracts as figured for CBT purposes.
The three-year, $69 million contract signed by free-agent relief pitcher Edwin Diaz includes $4.5 million in deferred salary each season, pushing the total amount of deferred salaries owed by the Dodgers to over $1.065 billion. Most of that ($680 million) will eventually be paid to Ohtani, but the Dodgers also owe deferred salary to Mookie Betts, Blake Snell, Freddie Freeman, Will Smith, Tommy Edman, Tanner Scott and Teoscar Hernández.
The payments are spread out from 2028 through 2047. The current obligations top out at $102.3 million in both 2038 and in 2039.
The current Collective Bargaining Agreement between MLB and the players’ union requires teams to fund the present value of deferred salary in an escrow account within two years of earning the money. There are no restrictions on how much salary can be deferred.
The CBA expires next December and a salary cap, salary floor and further restrictions on deferred salaries are expected to be significant sticking points between the owners and players, making a work stoppage heading into the 2027 season highly likely.
The Dodgers have exceeded the CBT threshold 10 times in the past 13 seasons, including each of the past five, and have paid a total of $481.9 million in luxury tax penalties over that time.
The 2025 tax threshold was $241 million. Because they have exceeded the threshold for multiple years in a row and exceeded this year’s threshold by more than $60 million, the Dodgers will pay at the maximum 110% rate.
A team’s CBT figure is determined using the average annual value of the contract of each player on the 40-man roster, plus any additional player benefits. For example, the Dodgers were assessed an additional $949,244 in noncash compensation for Ohtani receiving a suite for games at Dodger Stadium and employing an interpreter.
For the second year in a row, the New York Mets were second to the Dodgers in payroll (approximately $346 million) and luxury tax ($91.6 million).
Teams were notified of their luxury tax bills earlier this month and must pay in January.
The Associated Press contributed to this story.