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Deferrals? Opt outs? Everything to know about Shohei Ohtani’s $700 million deal

Baseball’s biggest free agent has signed with the Dodgers on a 10-year deal. Let’s break it all down.

Shohei Ohtani of the Los Angeles Angels looks on from the dugout prior to a game against the Toronto Blue Jays at Rogers Centre on July 30, 2023 in Toronto, Ontario, Canada.  Photo by Vaughn Ridley/Getty Images

In the end, Shohei Ohtani landed where most expected him to land — the dollar amount, on the other hand, blew even the most aggressive estimates out of the water. Saturday afternoon, Ohtani announced he is signing with the Los Angeles Dodgers, and the contract terms are staggering: 10 years and $700 million. It’s not just the largest contract in baseball history; it’s the largest contract in sports history, eclipsing Lionel Messi’s $673 million contract with FC Barcelona.

Needless to say, Ohtani’s record-setting contract is very complicated — no, he will not be paid a straight $70 million per year for 10 years — and the full details have not yet been reported. But here’s what we know about Ohtani’s deal with the Dodgers in the immediate aftermath.

‘Unprecedented deferrals’

Ohtani’s contract includes “unprecedented deferrals,” according to MLB.com, and the deferrals were supposedly Ohtani’s idea, allowing the Dodgers to lower his competitive balance tax number and have more freedom to spend on the team around him. The majority of Ohtani’s salary is deferred; the exact terms of the deferrals, however, are unknown at this time.

“(The deferrals are) primarily about allowing the team to be successful on the field, because above all else he wants to win,” a source told MLB.com.

A player’s competitive balance tax (CBT) number is the average annual value of his contract, so a straight 10-year deal worth $700 million would carry a payroll-busting $70 million CBT hit. Deferrals lower the present day value of the contract, and thus the CBT hit, because $1 today is worth more than $1 tomorrow.

As an example: Max Scherzer signed a seven-year contract worth $210 million with the Nationals in 2015 — $30 million per year, on average. However, Scherzer agreed to defer half his salary each year, which lowered the present-day value to approximately $185 million. That lowered his annual CBT hit to $26.4 million or so.

Again, the exact terms of Ohtani’s deferrals are unknown. The Dodgers had a $267.2 million payroll for CBT purposes in 2023. The franchise record is $297.9 million back in 2015. The Mets hold the all-time record with a $366.2 million CBT payroll this year, a number L.A. would’ve blown past if Ohtani had just had a standard $70 million tax hit.

No opt outs

It had been speculated Ohtani could seek an opt out (or even multiple opt outs) to cash in further once he completes his rehab from elbow surgery and shows he’s a healthy and productive pitcher. But that did not happen: His contract does not include any opt out clauses, per ESPN. It’s a straight 10-year contract with no opt outs or option years or escape hatches on either side.

Don’t forget about endorsements

This past season, Ohtani made approximately $40 million in endorsement deals, according to the Los Angeles Times. He has agreements with New Balance, Fanatics and Topps, plus scores of companies in Japan — on top of the $30 million salary the Angels paid him. Ohtani’s endorsements will only grow, both in quantity and value, with the Dodgers. Between endorsements and his salary, he is very likely to be a $100 million a year athlete moving forward.

The Dodgers are making money too

No player in the sport generates revenue like Ohtani. He sells tickets and jerseys, and opens the door to new Japanese sponsors and fans. According to the Los Angeles Times, Ohtani made the Angels $10 million to $20 million a year in advertising, marketing, and whatnot. The Dodgers, a more global brand that outdrew the Angels by nearly 15,000 fans per game in 2023, figure to make substantially more than the Angels in Ohtani-related revenue. There’s a reason they invest $700 million in him. They expect him to generate multitudes more for them, and thus this contract carries substantially less risk than it might seem at first glance even given the gaudy number and Ohtani’s elbow uncertainty.