We’ve known since he announced his decision on Saturday that Shohei Ohtani would be deferring at least part of his whopping 10-year, $700 million contract, an effort to give the Dodgers greater flexibility to build a team around him.
“He is excited to begin this partnership, and he structured his contract to reflect a true commitment from both sides to long-term success,” Ohtani’s agent, Nez Balelo, said in a statement over the weekend.
But it turns out “at least part” doesn’t begin to cover it: Per The Athletic’s Fabian Ardaya, Ohtani will be deferring $68 million of his $78 million annual salary, every year, for all 10 years of the deal. The deferred money is to be paid out without interest from 2034 to 2043, meaning Ohtani will make $20 million from 2024 to 2033 and then $680 million from 2034 to 2043.
Exclusive @TheAthletic: Shohei Ohtani will defer $68 million per year of his $70 million annual salary over the course of his 10-year, $700 million deal with the Dodgers, allowing the team to keep spending, according to a person briefed on the terms.https://t.co/IsnWlsbTq9— Fabian Ardaya (@FabianArdaya) December 11, 2023
The impact on the Dodgers payroll and luxury tax situations going forward is dramatic. It takes the average annual value of the deal — i.e., the number used to calculate L.A.’s total payroll for Competitive Balance Tax (CBT) purposes — from $70 million all the way down to $46 million. Teams are subject to an increasing tax rate each year they exceed the CBT limit, from 20 percent in the first year to 30 percent in the second to a whopping 50 percent in the third, with the penalties only resetting if and when the team dips back under teh threshold for a season. Slashing Ohtani’s tax number by some $25 million is $25 million the Dodgers can spend elsewhere without having to worry about incurring those penalties — maybe enough to fit, say, Japanese ace Yoshinobu Yamamoto, whom Los Angeles is reportedly still pursuing.
Of course, no one should be too concerned about Ohtani’s personal finances; he makes an estimated $50 million or so a year in off-field income, a number likely to only climb now that he’s a Dodger and which allows him to easily kick the financial can down the road. And it’s certainly understandable that, after watching the Angels fail to build a competitive team around he and Mike Trout — not primarily but at least in part because of the restrictions imposed by Trout’s 12-year, $426.5 million megadeal — he would want to do whatever it took to ensure that he gives his new club whatever they need in order to finally get him to the postseason.
But while this sort of structure is understandable in the micro sense, it’s deeply alarming in the macro sense, both for the other 29 Major League teams and, most importantly, for the MLBPA. The team-side argument is easy enough to understand: The most talented player in baseball is taking an unprecedented near-term pay cut in order to offer greater flexibility to one of — if not the — richest team in the entire league, a move that skews competitive balance even more than a $700 million contract did in the first place.
FINAL, COMPLETELY CORRECT MATH:— Jon Becker (@jonbecker_) December 11, 2023
•The discount rate is 4.43%
•The present value of the $68M is $44,081,476.50
•This makes the AAV of each year $46,081,476.50 (the above + $2M, which isn't discounted)
•The present value of the contract in total is $460,814,764.97
Team owners aren’t the only ones who should be up in arms here, though. An average annual value of around $46 million brings the present value of the contract to around $460 million — higher than Trout’s record deal, sure, but not nearly the sort of increase that a historically unique player like Ohtani should be commanding. (As evidenced by the fact that he, you know, commanded $700 million on the open market.) Plus, it’s hard to escape the optics of the best player in the sport making $2 million for his entire career, optics that are bound to send the message that future superstars can only expect their teams to spend big money if they defer it up front.
Imagine the negotiations for Juan Soto, set to become the top free agent on the market next winter unless he shocks the baseball world and agrees to an extension with the Yankees. Soto and his agent, Scott Boras, can no longer realistically use that $700 million figure as a benchmark; they’re now negotiating against an average annual value of $46 million and a total value of $460 million. And because Soto isn’t as valuable a player as Ohtani — who is, really — he’ll likely have to settle for something less than those numbers. That will likely come in between Trout’s deal and the $360 million over nine years the Yankees gave to Aaron Judge last offseason — simply treading water rather than continuing to move the market forward.
Again, no one should be crying for players making nine figures. But if they’re making nine figures, their owners are making even more, and the money they don’t spend on players will simply be lining their own pockets. It’s not clear what owners or the union could do it about: The CBA places no limitations on the amount of deferred compensation, which would seem to give the Dodgers all the cover they need. But even if the owners and union don’t manage to get the deal voided, they surely can’t be happy about it — and it’ll make the 2026 CBA negotiations all the more interesting to monitor.