Shohei Ohtani’s Contract Will Defer $68MM Per Year

The Dodgers and Shohei Ohtani agreed to massive a ten-year, $700MM deal over the weekend, but it was reported that there were significant deferrals. The deal still isn’t official but Fabian Ardaya of The Athletic relays some of the particulars today, most notably that $68MM of Ohtani’s $70MM annual salary will be deferred, leaving him making just $2MM per year in the short term. The deferred money is to be paid out without interest from 2034 to 2043. This will reportedly reduce the CBT hit of the contract to around $46MM per year.

When reporting on Ohtani’s deal was initially coming out over the weekend, Jeff Passan of ESPN relayed “most of” the salary would be deferred. It now appears that wording was putting it mildly, with this framing coming as quite a shock. Deferring money is not new but this scale is clearly unprecedented. Most baseball fans are familiar with Bobby Bonilla’s unusual contract structure, with many of them celebrating “Bobby Bonilla Day” every July 1. In late 1999, the Mets released Bonilla but still owed him $5.9MM. In order to save money in the short term, the club kicked the payments down the road, agreeing to pay him $1.19MM on July 1 every year from 2011 to 2035.

But deferring $68MM annually is clearly uncharted waters, since no MLB player has ever even had a salary of $45MM or higher. Ohtani is set to almost double that, in a sense, but he will only be banking $2MM per year during his time playing for the Dodgers.

From Ohtani’s point of view, the gambit makes a lot of sense and Passan reported over the weekend it was Ohtani’s idea. By taking less money now, he will leave the club with more money to build a competitive team around him. For competitive balance tax purposes, a contract is measured in net present value as opposed to pure guarantee, so this works for luxury tax purposes also. As mentioned up top, this will lead to a CBT hit of about $46MM, instead of the $70MM that would apply if going just by average annual value. As Ardaya mentions in today’s report, Ohtani makes about $50MM per year in terms of endorsements and off-the-field revenue streams, meaning he won’t be hurting for cash by taking this path. He’ll then be able to collect $68MM per year after he has played out the 10-year term of the agreement.

For the Dodgers, this will obviously be great for their competitive chances in the short term. They get an elite player the likes of which the world has never seen for a mere $2MM per year. That’s obviously still a huge amount of money for the average person but chump change in the baseball world, with the MLB minimum is set to be $740K next year. They also cut their CBT hit way down, significantly limiting the taxes they eventually have to pay at any point over the next decade. The long-term downside is that, from 2034 to 2043, they will be spending $68MM on a player that is no longer on the club. As pointed out by Brandon Wile of The Score, there are also heavy deferrals in the Mookie Betts deal, meaning the Dodgers will be paying a combined $79MM to Ohtani and Betts in 2043 when Betts will be 50 years old and Ohtani 48.

That could come back to bite them down the road, but they clearly see the present as a unique opportunity to strike while having a unique combination of talents with players like Ohtani, Freddie Freeman and Betts  all on the roster. Due to inflation, by the time those payments roll around, the value of $68MM will be less than it is today.

Some fans of other clubs may not like the way this is playing out but it doesn’t seem like there’s any hope of the league stepping in to put a stop to it. As relayed by Passan, the collective bargaining agreement clearly states that there is no limit to the amount of money than can be deferred in a contract.

Both Ohtani and the club had to agree to this deal, so it’s obviously fine with the parties involved. But it’s not great for any rival clubs or their fans. The Dodgers have already been one of the most successful clubs in recent history, running up big payrolls and having currently made the playoffs in 11 straight seasons. Now they are adding an unprecedented talent with unprecedented financial machinations that will appear to many as unfair, regardless of whether or not they are actually against the rules.

The Dodgers still have a lot of work to do this offseason, particularly in the rotation. They are currently slated to rely upon Walker Buehler, who missed all of 2023 recovering from Tommy John surgery, and then a batch of fairly unproven youngsters such as Bobby Miller, Ryan Pepiot, Emmet Sheehan, Gavin Stone and Michael Grove. With the huge amount of money they committed to Ohtani, it was fair to wonder how much powder they would have dry for bolstering that staff. With Ohtani agreeing to this deal, it makes it far more likely that they throw some money around at free agents like Yoshinobu Yamamoto, Blake Snell, Jordan Montgomery or others.

Both Jack Harris of the L.A. Times and Jeff Fletcher of the Orange County Register report that Ohtani explored these kinds of contract structures with every team he negotiated with, so this wasn’t just a Dodgers-exclusive thing. It seems that Ohtani wants to win and has agreed to structure his deal so that his chances of doing so are as high as possible. He’ll take home far less money now in order to make the team stronger during the course of his playing career.