MLB Payroll has been a topic of general interest and concern for some time. The key moment when MLB began to separate itself from other major sports regarding salary escalation occurred in 1982. That was when Marvin Miller became the executive director of the MLB Players Association. Through Miller’s guidance and leadership, the players’ union was able to dismantle the old guard and draconian system of unilateral negotiating between ownership and a player.
A trade was the only way out for a player in the old system. Even then, players would be bound to whatever offer the team put on the table. Superstars of previous eras, like Hank Aaron, Carl Yastrzemski, or Mickey Mantle, were paid following whatever their club’s ownership deemed appropriate and deserving. Sure, they were paid well, but nothing close to today’s generational wealth and extended deferred payment-style mega deals.
Miller’s victory effectively gave players the complete freedom to negotiate with other teams through free agency, a revolutionary achievement for MLB players. The change started gradually, as players went from simply advocating for themselves to ultimately deferring the negotiation process by retaining lawyers and sports agents.
Star players looked to sign with the highest bidder and were increasingly being represented by teams of seasoned deal-makers, often with extensive litigation experience and qualifications. This meant no player would ever be short-changed again.
In 2025, four decades after Miller’s groundbreaking victory and achievement for the MLBPA, the question now is, has it gone too far? Is there any slowing down on the horizon of these mega deals that essentially remove the small market teams from contention in MLB?
The trajectory of recent contracts does not seem sustainable. Overall, one must consider whether or not MLB payroll has hit its peak. If not, how much higher it can possibly go?
The trend has been for one free-agent class to be topped by the next. How realistic is this scenario now? Shohei Ohtnani’s massive contract will start paying him a deferred Average Annual Value (AAV) of $75 million in 2034.
In the meantime, Shohei will make a meager 2M per season until 2033, when he will be 38 years old. Barring injury, the two-way-superstar will have earned multiple MVP awards and World Series rings while with the mighty Dodgers during that time. The Dodgers’ ownership cleverly played the deal as Ohtani’s current AAV is factored into their total payroll, which, for 2025, is roughly 300 million.
While closely matching Ohtani’s total figures, Juan Soto’s deal does not include any deferred payments that would allow for a reduced annual impact on the Mets’ payroll. Having the highest AAV in the game right now seemed to matter for Soto’s camp during negotiations. The 26-year-old power-hitter and on-base machine received a signing bonus of $75 million with the New York Mets. Soto now has an AAV of 51 million (tops in MLB) over the next 15 years, with possible opt-outs inserted at specific increments through the duration of the contract.
To combat the astronomic rise in the total and annual value of these mega deals, MLB has enforced the Competitive Balance Tax (CBT). Using an algorithm, that is well beyond the capacity of even a sophisticated fan to fully understand, MLB has set the current CBT for each team at $241 million. A payroll in excess of this figure is subject to a 50% luxury tax.
Smaller market teams, such as the Pittsburgh Pirates, fall far below the CBT limit. They can free up their financial resources to sign International free agents at a very young age or offer substantial signing bonuses to players in their draft pool. An example of this was the record-setting signing bonus that Pittsburgh could offer 2024 first-overall pick Paul Skenes.
The CBT is something teams like Pittsburgh or Kansas City are quite mindful of. They are wise to try to offer lengthy deals to young stars like Skenes or Bobby Witt Jr. In the case of Soto, the Mets ownership, or in particular, multi-billionaire Steve Cohen, does not blink an eye at the CBT. If it means signing a player like Juan Soto for 15 years, the Mets will happily pay the 50% overage penalty.
So, where does MLB go from here? The good news is that MLB payroll appears to have hit its ceiling regarding AAV or strange deferred payments of more than 70 million per year. The reason for that is simple; there isn’t anyone better than Shohei Ohtani, or for that matter, Juan Soto.
Vladimir Guerrero Jr. will headline the 2026 MLB Free agent class. He is a good player, but nowhere near the impact force that Shohei or Soto can bring to a lineup. There isn’t any single player on the horizon who can compare to one or both of these MLB superstars.
That leaves the probability of future free agents commanding an AAV that surpasses Soto’s 50-plus million per year as highly unlikely. Granted, all free agents will continue to go to the highest bidder and push the payroll of large market teams well beyond the CBT. However, their contract demands will have to stop short of the bar that seems to have been set by the Ohtani and Soto. It’s massive money, but at least there appears to be a ceiling in sight.
MLB is currently going through serious turmoil in terms of securing a lasting television deal. Teams are increasingly becoming left to their own devices to generate the revenue that will keep up with the larger markets. The CBT is a strong move by MLB and a meaningful attempt to level out the playing field. Ultimately, those with deeper pockets will continue to spend without concern. It provides temporary relief for the future of MLB, knowing that its best two players have been signed for an extended period. That could quickly expire, though, when the next generational player starts making headlines.
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