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Shohei Ohtani

Why Shohei Ohtani’s Contract Structure Is Not A Luxury Tax Dodge

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Earlier today, we learned that Shohei Ohtani’s $700MM contract with the Dodgers has a stunning deferral structure: he’ll earn a mere $2MM in each of the ten seasons he’s agreed to play baseball for the club, and then $68MM per year from 2034-43.

Based on what I’ve seen on social media tonight, a lot of baseball fans think the purpose of these deferrals is for the Dodgers to “dodge” the competitive balance tax (yes, t-shirts are already being drawn up).  Here’s why that’s wrong.

The collective bargaining agreement has a section for calculating the CBT hit for a contract that includes deferred money.  According to reports, that calculation works out to a $46MM average annual value and accompanying CBT hit for the Dodgers and Ohtani.  As you can see here, $46MM tops Max Scherzer’s previous AAV record of $43,333,333.33.  It’s $6MM beyond Aaron Judge’s $40MM AAV, which was the highest for a player on a deal of more than three years.

Not only is $46MM a record AAV, but it’s entirely in line with expectations.  MLBTR predicted a $44MM AAV for Ohtani.  Most other prognosticators were in that range.  In fact, the median Ohtani AAV prediction of the other six outlets we’re tracking was $45,984,849.  It would be almost impossible for Ohtani’s luxury tax AAV to have met expectations any harder.

The problem is the initially reported $70MM AAV.  That was the first number people saw, and it gets ingrained for fans after being seen in thousands of headlines.  The agent certainly didn’t mind.  Though news of significant deferred money quickly followed and ESPN’s Jeff Passan narrowed it down to $40-50MM yesterday, more precise numbers weren’t known until today.

There was enough time for the shocking $700MM and $70MM figures to take hold.  So it’s logical for some fans to say the Dodgers are paying Ohtani $70MM a year but “getting away with” just a $46MM CBT hit.  However, I’d argue that the $70MM figure was never “real,” in that it dwarfs expectations and there’s no current indication that any team offered anything close to that AAV without huge deferrals.  The $46MM AAV is what matters.  Ohtani moved the AAV record forward as expected, but only by about six percent rather than an insane 62%.

MLB does have the power to stop teams from circumventing the CBT, but this doesn’t qualify.  In fact, it is explicitly allowed.  As Passan explained tonight, the CBA specifically says, “There shall be no limitations on either the amount of deferred compensation or the percentage of total compensation attributable to deferred compensation for which a Uniform Player’s Contract may provide.”  This is just my opinion, but perhaps if the deferrals led to a luxury tax AAV below $35MM or so on Ohtani, MLB might have considered it a tax dodge, but not for a record $46MM.

Ah, but what about Jon Heyman’s report a year ago about how the Padres “were contemplating” a 14-year offer for Aaron Judge that would’ve taken him through age 44?  About that, Heyman noted, “sources say they would not have been allowed, as MLB would have seen the additional years as only an attempt to lower their official payroll to lessen the tax.”

MLB would’ve been right – there would be no other reason to pay Judge through age 44.  Teams are loathe to pay players that far into their careers, and of course the vast majority of players do not have MLB careers at age 44.  Our MLB contract tracker goes back to 10-1-10, and the only contracts of three or move years that even went through age 41 were for Albert Pujols and Yu Darvish.  So there’s simply no precedent for paying Judge three years longer than that.  Furthermore, even based on Heyman’s reporting, none of this actually happened: Heyman did not report that the Padres made a 14-year offer or that MLB actually tried to stop something.  Just that they would (I’d say “might”) have stopped it.  As I was contemplating how long Ohtani’s contract might go, I think you could at least make a case to go through age 42.

All that said, Ohtani’s contract structure does present a big advantage to the Dodgers.  I mean, they’re actually paying him $2MM a year.  Many arbitration eligible utility players or relievers make more.  Paying Ohtani so little seems ludicrous in that sense, even if it is within the rules.  A team’s CBT payroll uses the average annual value of each contract, and that determines their luxury taxes.  But teams also operate off real payrolls, where a player on a two-year, $20MM deal might actually be paid $5MM in the first year and $15MM in the second despite his $10MM CBT hit.

The Dodgers have a certain budget or target with that real payroll, and instead of paying Ohtani $46MM on that payroll, they’re actually paying him less than Austin Barnes.  That means, in theory, the Dodgers can more easily afford to add more quality players, such as Yoshinobu Yamamoto.

So, is this a problem?  Does deferring 97.1% of a huge contract mean baseball is broken, and does it represent a major point of contention when the CBA expires after the 2026 season?  Lindsey Adler of the Wall Street Journal wrote tonight, “According to league and union sources, MLB has proposed limiting deferrals in prior CBA negotiations, but the MLBPA has declined those limits because deferrals allow a player flexibility that allows a contract to be worth, let’s say, $700 million instead of $460 million.”

When this came up previously in CBA talks, it was probably more of a “nice to have” for MLB, but not something for which they’d actually make a concession to the MLBPA.  The MLBPA won’t want to give this up, for the handful of players who actually want their payment deferred 20 years into the future.  As you know, money is worth more now than it is in the future, so players have not exactly been clamoring to wait until retirement age to receive 97.1% of their contract.  I’m sure deferred money will come up in the next CBA talks, and may even be eliminated, but one player doing it does not translate to a hot button issue or something where billions of dollars hang in the balance.  They’ll find more consequential things to fight about.

Ohtani can do this because he is not a normal MLB player, and he rakes in significant endorsement money every year.  And as The Athletic’s Fabian Ardaya and Evan Drellich explain, Ohtani’s choice on deferrals gives the Dodgers payroll flexibility to add other players and may give him a tax benefit if he isn’t living in California when the $68MM salaries start rolling in.

As Jack Harris of the L.A. Times notes, Ohtani “took this approach…with all the teams he negotiated with.”  Given that Ohtani’s contract roughly equates to a 10-year, $460MM deal, I’d argue that he’s chasing rings a lot more than he’s chasing every last dollar.  Any team could have done this deal, but Ohtani wanted to play for the Dodgers.

The combination of Friday’s shaky reporting suggesting Ohtani was heading to the Blue Jays, plus an unprecedented contract structure, seems to be leading some fans to villainize him.  I think that’s a shame, because he has been squeaky-clean off the field and remains a generational and thrilling player.

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

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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.

Dodgers Sign Shohei Ohtani

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The Dodgers officially announced the signing of two-time MVP Shohei Ohtani to a 10-year contract.  The two-way superstar had announced his intention to sign with the club via his Instagram page on Saturday.

“Dodger fans, thank you for welcoming me to your team,” Ohtani said in a statement released by the team.  “I can say 100 percent that you, the Dodger organization and I share the same goal – to bring World Series parades to the streets of Los Angeles.”

Ohtani is guaranteed an astounding $700MM on the deal, as revealed in a statement from his CAA agent Nez Balelo.  However, the contract comes with a staggering set of deferrals, a concept apparently suggested by Ohtani himself.  Ohtani will only collect $2MM of his salaries annually over the course of the next decade.  The remaining $680MM is deferred to be paid out between 2034-43, thereby reducing the contract’s competitive balance tax number to roughly $46MM.

Regardless of how that distribution, the 29-year-old Ohtani lands the single largest contract ever given to a professional athlete.  The $700MM guarantee surpasses the $674MM deal that soccer legend Lionel Messi signed with FC Barcelona for the 2017-21 La Liga seasons.

“First of all, I would like to express my sincere gratitude to everyone involved with the Angels organization and the fans who have supported me over the past six years, as well as to everyone involved with each team that was part of this negotiation process,” Ohtani said in his Instagram message.  “Especially to the Angels fans who supported me through all the ups and downs, your guys’ support and cheer meant the world to me. The six years I spent with the Angels will remain etched in my heart forever.  And to all Dodgers fans, I pledge to always do what’s best for the team and always continue to give it my all to be the best version of myself.  Until the last day of my playing career, I want to continue to strive forward not only for the Dodgers but for the baseball world.”

Balelo’s statement: “Shohei is thrilled to be a part of the Dodgers organization.  He is excited to begin this partnership, and he structured his contract to reflect a true commitment from both sides to long-term success. Shohei and I want to thank all the organizations that reached out to us for their interest and respect, especially the wonderful people we got to know even better as this process unfolded.  We know fans, media and the entire industry had a high degree of interest in this process, and we want to express our appreciation for their passion and their consideration as it played out.”

Aaron Judge’s ten-year, $360MM deal with the Yankees last winter was the largest free agent deal in baseball history, while Mookie Betts landing $365MM in new money in his 2020 extension with the Dodgers was technically the largest deal overall.  Mike Trout’s ten-year, $360MM extension with the Angels was considered by the team as a 12-year, $426.5MM pact due to its inclusion of previously owed money in Trout’s previous deal, but while that extension had been considered by some to hold the “biggest contract ever” title, Ohtani’s contact now ends all debate.

While it was widely expected that Ohtani would set a new standard for baseball contracts this winter, nearly doubling the Betts/Judge totals is an incredible new benchmark.  The $700MM figure speaks to several factors — Ohtani’s generational talent as a two-way superstar, the amount of revenue Ohtani can personally generate in terms of additional endorsements and fan interest from Japan, the number of big-money offers made by the other known suitors in the race, and simply the Dodgers’ determination to land a player who has been on their radar for years.

If the National League had had the designated hitter in 2018, it is quite possible Ohtani would’ve signed with the Dodgers when he initially came to MLB from Nippon Professional Baseball during the 2017-18 offseason.  The Dodgers (along with the Cubs, Rangers, Padres, Mariners, and Giants) were the finalists behind the Angels, whose willingness to give Ohtani free reign as both a pitcher and a hitter allowed the Anaheim club to seal the deal, and set the stage for one of the most remarkable stretches baseball has ever seen.

The impact was immediately, as Ohtani hit and pitched at such as high level in 2018 that he was an easy choice as AL Rookie Of The Year.  He had to undergo a Tommy John surgery that kept him off the mound in 2019, though he was still able to hit as a DH and posted some impressive numbers.  However, an injury-marred 2020 campaign saw Ohtani deliver poor numbers at the plate and only 1 2/3 total innings on the mound, creating doubt as to whether he could truly live up to the hype.

The doubts were erased from 2021-23.  Ohtani posted a 2.84 ERA, 31.4% strikeout rate, and 8.3% walk rate over 428 1/3 innings on the mound, while also hitting .277/.379/.585 with 124 home runs over 1904 plate appearances.  Not even Babe Ruth amassed such levels of performance while both hitting and pitching at the same time, earning Ohtani the unofficial nickname of “the Unicorn.”  Ohtani won AL MVP honors in both 2021 and 2023, and finished second to Judge in 2022 in the aftermath of Judge’s AL-record 62 home runs.

As stunning as Ohtani’s contract is, it seems possible that he might’ve landed even more if he’d been fully healthy.  Ohtani suffered a tear in his UCL that required surgery in September, and though it isn’t clear whether or not his surgery was another Tommy John procedure or a brace procedure, he isn’t expected to pitch during the 2024 season.  It seems likely that Ohtani will miss some time at the start of next season to recover well enough to operate as a DH, and after his TJ surgery in 2018, he was able to get onto the field by May 7, 2019.

More details should become available as we get closer to Spring Training, though that perhaps isn’t a sure bet given Ohtani and Balelo’s penchant for keeping quiet on specifics.  Ohtani’s last few months have been marked by a somewhat unprecedented level of secrecy about not just his health, but any hints about his free agent market.  It was made clear by Balelo that leaking details to the media would be marked against any team in the chase, and thus most clubs played ball with the Ohtani camp’s requests.

The lack of information led to no end of speculation about what exactly Ohtani was looking for in his next team.  It was known that Ohtani was eager to win, which perhaps isn’t surprising considering that the Angels were never able to deliver even a .500 season with both Ohtani and Trout on the roster.  Ohtani’s initial venture to MLB prioritized West Coast teams, yet that didn’t appear to be a true determining factor in this case.  The reported finalists for Ohtani’s services included three West Coast teams (the Dodgers, Angels, and Giants), as well as the Cubs against, and a new suitor altogether in the Blue Jays.

Two reports yesterday suggested that Ohtani was signing with the Jays and was en route to Toronto, leading to a social media flurry that included everything from flight-tracking at Toronto’s Pearson Airport to queries about a large reservation allegedly booked by Jays pitcher Yusei Kikuchi at a downtown sushi restaurant.  In the end, the Blue Jays fell short in their attempt to sign the two-way star, though as with all of the suitors, it could be that Dodgers’ final offer simply blew every other bid out of the water.

Ohtani’s free agency in some ways held up the rest of the market entirely, as several top talents were waiting for Ohtani’s situation to be resolved so they could have a clearer picture of what teams might be bidding on their own services.  Yoshinobu Yamamoto, Cody Bellinger, Jordan Montgomery, Matt Chapman, and others might now see their markets kick into higher gear with Ohtani off the board.  The trickle-down effect bled into the trade market as well, as numerous teams with players available can now shop for offers from clubs who missed out on Ohtani — and might be even more pressed to make a big addition.

The Giants, for instance, are still feeling the heat to add a superstar after also falling short on Judge and Carlos Correa last offseason.  The Blue Jays still have a lot of holes to fill in their lineup after an almost team-wide lack of consistency at the plate in 2023.  The Cubs were perhaps seen as less likely to spend to quite the same level as other suitors, though president of baseball operations Jed Hoyer firmly denied a report from earlier this week suggesting that Chicago was out of the hunt.  The Mets, Red Sox, and Rangers did seemingly pull back prior to the start of the Winter Meetings, whereas speculative candidates like the Yankees, Braves, Phillies, or Mariners never seemed involved to any great extent.

The Angels have the toughest pill to swallow in seeing Ohtani not just leave, but head across town to the other Los Angeles team.  Because the Halos were just barely able to maneuver themselves under the luxury tax threshold, the Angels will maximize their compensatory return for Ohtani, who naturally rejected a qualifying offer.  Anaheim will now get a compensatory pick after the second round of the 2024 draft, which is admittedly small consolation for losing one of the game’s all-time singular talents.  There hasn’t been any sense that the Angels are planning to rebuild or take a step back now that Ohtani is gone, as the team has reportedly still been trying to add top-end talent to finally get back into contention.

As for the Dodgers, they got their man, cost be damned.  They’ll also surrender $1MM in international bonus pool money, as well as two draft picks — their second- and fifth-highest selections in the 2024 draft — to sign a player who rejected a qualifying offer.  Ohtani now joins Betts and Freddie Freeman in one of the more fearsome top-of-the-order trios in recent memory, and solidifies at least the DH spot in Chavez Ravine for the next decade.  There have been some whispers that Ohtani might try his hand at playing the outfield should he ever opt to stop pitching, and while he did make some brief appearances as an outfielder during his time with the Halos, the question of a future position probably isn’t being raised for at least a few years down the road, or until Ohtani has exhausted all options as a pitcher.

Ohtani’s arm injury was particularly troublesome for the Dodgers in the short term, as the club is still in need of pitching help heading into 2024.  Walker Buehler is returning after missing all of 2023 due to his own TJ surgery, swingman Ryan Yarbrough is probably penciled into one rotation spot for at least the start of the season, and Bobby Miller has all but officially won himself a spot after an impressive rookie year.  That leaves a collection of other young arms (Ryan Pepiot, Emmet Sheehan, Michael Grove and Gavin Stone) battling for other rotation spots, and Dustin May could be a factor by midseason once recovered from a flexor tendon surgery.  Longtime ace Clayton Kershaw is a free agent and will miss a big chunk of the 2024 campaign due to shoulder surgery, though it would seem that if Kershaw decides to keep playing, it will be either with the Dodgers or with his hometown Rangers.

Yamamoto is known to be another target on the Dodgers’ wishlist, while Dylan Cease and Tyler Glasnow are two of the undoubtedly many more experienced pitchers L.A. has discussed in trade talks.  The Dodgers could perhaps trade from their deep farm system to facilitate some pitching trades, or make yet another big signing.  Even after adding Ohtani to the books, the Dodgers had created enough space on the books that they’re only slightly over the $237MM luxury tax threshold — as per Roster Resource, the club’s projected tax number is just over $244MM.  Since Los Angeles hasn’t been reluctant to pay a tax bill in the past, president of baseball operations Andrew Friedman can continue to be aggressive as the team enters the Ohtani era.

Despite 11 straight playoff appearances and 10 of the last 11 NL West titles, the Dodgers have captured “only” one World Series title within this fantastic run of success.  All those postseason near-misses have left something of an underwhelming feeling amongst Dodger fans, and the team has won only a single playoff game over its last two trips to October.  It always felt as though the Dodgers were going to be pushing to sign Ohtani no matter their recent results, yet his addition perhaps acts as some kind of turning point in translating a few more of those playoff visits into championship rings.

Claiming that the Dodgers will become even more of a high-profile franchise is a little difficult to claim, since obviously the club’s long line of past Japanese stars has made them a household name overseas.  Still, adding the biggest star of all in Ohtani will only enhance the Dodgers as a worldwide brand.  The added marketing, merchandising, and broadcasting revenues that come with signing Ohtani won’t exactly cover $700MM, yet it isn’t a stretch to say that the Dodgers will enjoy some unprecedented economic benefits in addition to what Ohtani delivers on the field.

Alden Gonzalez of ESPN reported the absence of any opt-out clauses. His colleague Jeff Passan first reported the majority of Ohtani’s contract would be deferred, while Fabian Ardaya of the Athletic was first with the deferral specifics. Bob Nightengale of USA Today reported the no-trade provision.

Photo courtesy of USA Today Sports Images

Blue Jays Made Competitive Offer To Shohei Ohtani

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Shohei Ohtani’s decision to sign with the Dodgers for a record-breaking ten-year, $700MM deal sent shockwaves around the sports world, though a particularly heavy dose of the impact settled in Toronto.  Blue Jays fans (and possibly the team itself ) spent much of Friday wondering if Ohtani had decided on the Jays as his next destination, and a pair of now-debunked media reports only added to the fever of speculation.

The full story of the Jays’ pursuit of the two-way star might not be known for some time, yet in pure financial terms, it seems as though the club at least came close to the final asking price.  Sportsnet’s Ben Nicholson-Smith hears from a source that the Blue Jays’ offer to Ohtani was “right there,” so it doesn’t appear as though the Dodgers’ $700MM deal was too far removed from what the Jays (or potentially other suitors) put on the table.

Given how Ohtani’s contract is so far beyond the normal stratosphere for baseball contracts or sports contracts in general, it is fair to assume that teams’ approach also differed greatly from a normal free agent courtship.  This was already apparent with the immense level of secrecy requested by Ohtani and his agent Nez Balelo, as every detail (true or exaggerated) that leaked out about Ohtani’s intentions was heavily scrutinized.

As Nicholson-Smith notes, there have already been conspiracy theories launched that Balelo and CAA used the Jays’ interest as a smokescreen to get the Dodgers to up their offer at the last minute since Los Angeles was Ohtani’s preferred choice all along.  Or, perhaps the simplest answer is true — the Blue Jays did enough to make themselves a genuine consideration in the two-time AL MVP’s mind, regardless of where the Dodgers may or may not have ranked for Ohtani heading into the offseason.

Learning that the Jays got within the ballpark of signing Ohtani probably doesn’t ease much or any of the sting for Toronto fans.  The fact that the Blue Jays were willing to spend perhaps upwards of $650MM, $675MM, or whatever the final bid was also doesn’t necessarily mean that the team has that much to spend in general this offseason, considering the special nature of Ohtani’s on-field ability and starpower.

Still, the Jays haven’t been shy about spending over the last few seasons, and the team has also been linked to such major free agents as Yoshinobu Yamamoto, Cody Bellinger, former Jay Matt Chapman, and a host of other players on the free agent and trade markets.  GM Ross Atkins has typically looked to at least check in on just about every notable free agent of the last few years, so this broad strategy could help the Blue Jays make a quick pivot as they explore their backup plans.

Latest On Luxury Tax Implications Of Shohei Ohtani’s Contract

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Two-way superstar Shohei Ohtani rocked the baseball world yesterday by agreeing to a ten-year, $700MM deal with the Dodgers. That record-setting contract, taken at face value, would have unparalleled impact on the club’s payroll as calculated for luxury tax purposes. If Ohtani’s contract indeed counted as a $70MM hit to the club’s tax payroll, it would single-handedly push the Dodgers across the first level of the luxury tax even as the club sat at just $174MM in payroll for tax purposes prior to the deal with Ohtani. While the big market Dodgers have never shied away from the tax in the past, paying into the tax during each of the past three seasons, the Ohtani deal would all but guarantee they would continue to do so for the next decade, leaving them vulnerable to escalating penalties.

As reported by Jeff Passan of ESPN, however, the reported deferrals in Ohtani’s deal could lessen the tax burden on LA considerably. Passan notes that Major League Baseball applies a discount to deferrals in luxury tax calculations to determine the present-day value of contracts. Given the fact that “most of” Ohtani’s contract is expected to be deferred, Passan suggests that Ohtani’s deal, for luxury tax purposes, is expected to settle in the range of $40MM to $50MM when all is said and done. While those numbers aren’t final and won’t figure to become exact until the contract is properly finalized and announced, that range substantially alters the impact Ohtani will have on LA’s luxury tax bill over his decade-long tenure with the club.

After all, if Ohtani’s luxury tax hit for the 2024 season were to shrink from the $70MM his on-paper AAV would suggest to a figure in the range of $45MM, that would put the club’s luxury tax payroll at roughly $219MM using the numbers supplied by RosterResource. For a Dodgers club that saw its luxury tax payroll land at $267MM last year after peaking at a whopping $293MM in 2022 (per Cot’s Baseball Contracts), that would leave the Dodgers with the ability to add upwards of $50MM before even matching their 2023 payroll for luxury tax purposes, and just under $75MM in room before their hit their all-time high.

That’s great news for Dodgers fans, as the club has plenty of work to do in improving its roster even after adding a once-in-a-lifetime talent like Ohtani. Their new DH should complement Mookie Betts and Freddie Freeman well at the top of the lineup, but offense was never the primary concern of the Dodgers this winter. The club’s pitching staff was essentially middle-of-the-pack in 2023, with a 4.06 ERA that ranked 13th in the majors and a 4.23 FIP that ranked 15th. Looking ahead to 2024, the club’s only locked in starting pitcher is sophomore right-hander Bobby Miller. While he figures to be joined in the rotation by a veteran presence in the form Walker Buehler, Buehler hasn’t pitched in the majors since early 2022 due to the second Tommy John surgery of his career, casting doubt on his ability to be the durable, front-of-the-rotation arm that the Dodgers need.

While the Dodgers have been connected to plenty of top arms on the trade market this offseason such as Tyler Glasnow, Dylan Cease, and Corbin Burnes, Ohtani’s relatively reasonable luxury tax hit should allow the club to be more aggressive when it comes to top-of-the-market options in free agency. The free agent starting pitching market is of course headlined by NPB star Yoshinobu Yamamoto, for whom the Dodgers are considered to be a likely finalist. Looking beyond Yamamoto, the likes of 2023 NL Cy Young award winner Blake Snell and World Series champion Jordan Montgomery are still available. The market’s second tier of starting pitchers, meanwhile, includes interesting arms like Shota Imanaga, Marcus Stroman, and Lucas Giolito. The addition of any of these arms would surely bolster the club’s rotation headed into 2024, and is made all the more feasible by the deferrals reportedly built into Ohtani’s contract.

Shohei Ohtani Notes: Advertising Revenue, 40-Man Roster Move

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The baseball world is still reeling from the news of two-way superstar Shohei Ohtani signing a ten-year, $700MM deal with the Dodgers. Not only is it the largest contract in baseball history (by a mile), it is the most lucrative deal for any professional athlete, surpassing the four-year €555MM contract (approximately $674MM in USD) soccer star Lionel Messi signed with FC Barcelona in 2017. Given the unprecedented nature of the deal, it’s more than fair for fans to wonder if it makes financial sense. Is Ohtani genuinely worth nearly twice as much as Aaron Judge? Can a single player truly provide $70MM in value per year over the next ten years?

Moreover, various outlets have reported that the Dodgers significantly outbid the competition to secure Ohtani’s services. J.P. Hoornstra of Dodgers Nation reports that the Dodgers upped their offer by as much as $100MM on the final day of negotiations. Jon Heyman of the New York Post quotes a team source from one of the finalists, who claimed, “We certainly were not at 699 [million dollars].” Meanwhile, when asked if the Angels had made an offer close to that $700MM number, team president John Carpino simply responded, “No comment” (per Sarah Valenzuela of the L.A. Times).

However, it is critical to remember that Ohtani’s deal is not worth $700MM in present-day value, due to the deferred payments in the contract. As Jeff Passan of ESPN eloquently explained, “Money today is more valuable than money tomorrow, inflation being what it is.” Thus, the other finalists for Ohtani might not have offered him anywhere close to $700MM total, but that doesn’t mean the Dodgers blew any other offer out of the water in terms of present-day value.

More to the point, while Ohtani’s contract might be unprecedented, so too is Ohtani an unprecedented player. The value he will bring to his new organization goes beyond his performance on the field, and the Dodgers could be in for a windfall if they know how to market their brand-new international superstar. Sam Blum and Fabian Ardaya of The Athletic quote an anonymous MLB evaluator who claims the deal will “pay for itself within six or seven years… Even just on advertising alone.” That might be an exaggeration, but still, it’s clear how highly Ohtani is valued around the league.

As many sources have pointed out (including Bob Nightengale of USA Today), Ohtani earned approximately $40MM in endorsement deals last offseason. The MLB player with the next highest endorsement-related income was Mike Trout, who took home $5MM. If Ohtani can personally command so much money, the team he plays for should be able to cash in big as well.

According to Mike DiGiovanna of the L.A. Times, the Angels earned somewhere between $10MM and $20MM per year in “Ohtani-related advertising, promotions, [and] marketing revenue.” Nightengale believes that number was even higher, claiming Ohtani “brought in $25 million a year.” Both reporters suggest the Dodgers could double that revenue, thanks to their higher level of popularity, both locally and across the globe. At the high end of that estimation, the Dodgers would earn back more than half of Ohtani’s annual salary, and the team is surely hoping he will continue to bring extra value to the franchise long after his ten-year deal is complete.

On that note, it’s worth acknowledging that although the Dodgers are regularly big spenders, their front office has demonstrated a keen ability to get the best bang for its buck. While some high-spending teams have crashed and burned in recent years, the Dodgers have made the playoffs in 11 straight seasons, winning ten NL West division titles in that time. They have won over 100 games in four of the last five years, and the only year they didn’t, the shortened 2020 campaign, they went 43-17 (.717, a 116-win pace) en route to a World Series championship. This team spends in abundance, but they don’t spend frivolously. If the Dodgers are paying Ohtani $700MM, it’s because they think he’s worth even more, and they haven’t given us any reason to doubt their accounting so far.

In other Ohtani news, Jack Harris of the L.A. Times points out that the signing has not yet been made official. However, that doesn’t mean the deal is at risk of falling through. Ohtani himself has already confirmed the agreement, and it’s hard to imagine his physical would hold up the deal; the Dodgers already know he is recovering from his second UCL procedure and won’t pitch in 2024. Instead, Harris suggests that the Dodgers are still figuring out their corresponding 40-man roster move. The club’s roster is currently full, so they will need to make a trade or designate someone for assignment in order to finalize Ohtani’s contract. What’s more, they also need to free up a roster spot for veteran reliever Joe Kelly, whose one-year, $8MM contract has not been finalized either. Expect a trade or a roster move in the coming days.

Reports: Ohtani Still Undecided On Next Club

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Free agent Shohei Ohtani has not made a decision on his next club, per reports from Ben Nicholson-Smith and Shi Davidi of Sportsnet and Alden Gonzalez of ESPN and others. Earlier today, a report from J.P. Hoornstra of Dodgers Nation relayed that the two-way superstar would be signing with the Blue Jays, though nothing has been made official as of yet. Ohtani was reported to be en route to Toronto by Jon Morosi of MLB.com, though Bob Nightengale of USA Today reports that Ohtani is at home in Southern California. Morosi has since retracted the report about Ohtani traveling to Toronto.

Ohtani’s free agency has been shrouded in secrecy by design, with the player and his reps preferring to keep the proceedings as private as possible. Recent reports have pegged the Jays, Dodgers, Giants, Angels and Cubs the finalists, though most of those clubs were hesitant to even admit they were involved, given Ohtani’s wishes. Blue Jays general manager Ross Atkins spoke with reporters via Zoom during the Winter Meetings and would not divulge where he was. Later reporting from Ken Rosenthal of The Athletic indicated that it was “believed” that Ohtani met with the Jays at their facilities in Dunedin, Florida at that time. There were also “rumblings” that Ohtani met with the Giants at Oracle Park, per Susan Slusser of The San Francisco Chronicle.

Dodgers manager Dave Roberts broke through this cone of silence earlier this week, frankly admitting that his club had recently met with Ohtani and identified him as a “top priority.” Many wondered if this plain-spoken approach would harm the Dodgers’ chances of signing Ohtani, given his clear desire for privacy. But Hoornstra reports it’s not believed that had any role in Ohtani’s choice, even a choice has even been made.

All of this has made it very difficult to secure concrete information about Ohtani’s market and what sort of discussions he was having with his suitors, though Morosi reported this morning that a decision was “imminent” and could be announced as soon as today.

Shohei Ohtani Decision Reportedly “Imminent”

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Shohei Ohtani’s cloak-and-dagger free agent saga has held up the top end of the free-agent and trade markets alike through the offseason’s first several weeks, but a decision from the two-time AL MVP is “imminent” and could be announced at some point today, per MLB.com’s Jon Morosi. In a segment on MLB Network (video link), Morosi adds that the Blue Jays have improved their standing in the Ohtani derby this week and are a finalist alongside the Dodgers, at the very least.

At last check, the Jays, Dodgers, Giants, Angels and Cubs were all involved in the bidding. The possibility of a dark-horse suitor that’s flown under the radar to this point can’t be ruled out, given the secretive nature of Ohtani’s free agency. Anecdotally, it’s of note that Friday marks six years, to the day, since Ohtani made his last free-agent decision, when he signed with the Angels.

Ohtani and the Blue Jays are believed to have met at the team’s spring training complex in Florida this week. Dodgers skipper Dave Roberts acknowledged during the Winter Meetings that his club had met with Ohtani and considered him their “top priority,” prompting some hand-wringing among Dodger fans that even such a basic acknowledgment of the obvious might work to their detriment. The Giants are reported to have met with Ohtani last weekend at Oracle Park. The incumbent Angels, of course, are already a known and familiar commodity for Ohtani. The Cubs’ status in the bidding remains least certain, though president of baseball operations Jed Hoyer publicly denied reports this week suggesting that his team’s optimism regarding Ohtani had waned.

Bidding on Ohtani was widely expected to eclipse $500MM, even after the slugger/ace underwent elbow surgery following the 2023 season. He’s not expected to pitch in 2024 but is on track to be ready to be in his next team’s Opening Day lineup as a designated hitter. There’s been some speculation this week that the bidding could push closer to a staggering $600MM. It’s heavily speculative at this juncture, given the by-design quiet nature of Ohtani’s foray into the open market.

Ohtani, 29, will be a transformative presence in any lineup he joins. A career .274/.366/.556 hitter, he’s stepped up his offensive game in recent seasons. He’s not quite on the same level as Aaron Judge or longtime teammate Mike Trout in terms of per-game production, but Ohtani has also been in the lineup more than both players over the past three seasons, even after missing the final several weeks of the ’23 campaign due to that elbow injury and an oblique strain. Since 2021, only Judge, Kyle Schwarber and Matt Olson have hit more than Ohtani’s 124 home runs. Only Judge, Trout and Yordan Alvarez have topped Ohtani’s massive 157 wRC+ (indicating that he’s been 57% better than a league average hitter after weighting for home park and league run-scoring environment). In that time, Ohtani carries a .277/.379/.585 batting line.

That’s only half the story with Ohtani, who finished fourth in 2022 American League Cy Young voting and has emerged as a legitimate top-of-the-rotation starter — when healthy. That’s a massive caveat in light of an earlier Tommy John surgery and now a second elbow procedure (details of which remain nebulous to public onlookers). But over the past three seasons, Ohtani has pitched 428 1/3 innings 2.84 ERA ball with an elite 31.4% strikeout rate and an 8.3% walk rate.

If Ohtani is able to return to those heights following a second elbow surgery, there’s a very feasible path to him simultaneously winning a league MVP and Cy Young Award. His ability to regain that form, of course, is the single largest question mark surrounding him. There’s no doubt that Ohtani will pitch again in some capacity, but his expected level of success will remain a talking point until he actually takes the mound. At this point, he’s proven that it’s foolish to bet against him — but even if Ohtani can’t recapture that ace form, there’s plenty of value in him beyond that of a pure designated hitter. If he could pitch even as a capable mid-rotation starter or perhaps effective reliever, that’d be immensely valuable in and of itself.

And, even if Ohtani is simply never able to regain his form as a viable MLB pitcher, there’s no reason to think he’d “only” be a designated hitter. He’s played in the outfield both in Japan and (far more briefly) with the Angels. Ohtani still possesses above-average sprint speed, per Statcast, and there’s some reason to think he could improve upon last year’s 63rd-percentile ranking if he were focusing only on hitting and playing the outfield. He’s swiped 86 bases in his career, including a 20-for-26 showing this past season. The arm strength is clearly there, as is the raw athleticism needed to handle the position. At that point, Ohtani could be viewed in a somewhat comparable light to that of Judge, who signed a nine-year, $360MM contract when he was two years older than Ohtani is at present.

The off-field value associated with Ohtani can’t be discounted, either. Any team signing him will be tapping into a global fanbase that’ll boost merchandise sales, ticket sales, television ratings and more. Ohtani’s broad-reaching brand won’t pay for his salary on its own, but it’s a clear factor that any interested club will be weighing and attempting to contextualize/value when putting forth its best offer.

With a decision looming on Ohtani, let’s open it up for MLBTR readers with a poll:

Who will sign Shohei Ohtani?
Dodgers 31.65% (9,119 votes)
Blue Jays 30.79% (8,872 votes)
Mystery Team!! (Specify in comments) 14.78% (4,257 votes)
Giants 9.41% (2,710 votes)
Angels 6.93% (1,997 votes)
Cubs 6.44% (1,856 votes)
Total Votes: 28,811

MLBTR Podcast: Winter Meetings, Ohtani Secrecy, and the Mariners Shedding Salary

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The latest episode of the MLB Trade Rumors Podcast is now live on Spotify, Apple Podcasts, and wherever you get your podcasts! Make sure you subscribe as well! You can also use the player at this link to listen, if you don’t use Spotify or Apple for podcasts.

This week, host Darragh McDonald is joined by Tim Dierkes of MLB Trade Rumors to discuss…

Plus, we answer your questions, including…

  • If the Dodgers miss on Ohtani, what’s the next logical move? Will the Dodgers be interested in Jung Hoo Lee? (23:40)
  • Contracts are getting completely out of hand. Now Ohtani might pull in a $600 million dollar deal this week. Will the runaway inflation of MLB contracts sink the sport soon? It seems like fans will take the brunt of the costs and eventually turn away. (28:00)
  • Does anyone from MLB trade rumors attend the winter meetings? (32:35)

Check out our past episodes!

The podcast intro and outro song “So Long” is provided courtesy of the band Showoff.  Check out their Facebook page here!

Report: Ohtani Decision “Expected” By Sunday

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As the ongoing free agency of Shohei Ohtani continues to hold up the remainder of the free agent and trade markets, Jon Morosi of MLB.com reports that the two-time American League MVP is expected to make a decision on his free-agent destination before the end of the weekend.

Ohtani’s free agency has, by design, been shrouded in secrecy. He and agent Nez Balelo of CAA Sports have worked to keep rumors of his potential destination under wraps, and many clubs have reportedly been wary of leaking information or commenting on Ohtani’s free agency in any capacity, for fear that it may hurt their chances of signing him.

Dodgers skipper Dave Roberts bucked that trend yesterday by announcing that his team recently hosted Ohtani for a meeting at Dodger Stadium and stating the obvious: that Ohtani is the Dodgers’ top priority. There’s been plenty of hand-wringing among Dodger faithful that Roberts’ comments harmed the team’s chances, though Morosi said in an appearance on MLB Network this morning that he does not see “in any way” that Roberts’ acknowledgment of what everyone already knew would serve as a deterrent to getting a deal done. It’d indeed be rather surprising if Ohtani’s decision on where he’ll play the next 10 to 13 seasons at a likely price tag north of $500MM were substantially impacted by a team’s manager simply acknowledging interest that has been anticipated for more than a year.

As it stands, the Dodgers are definitively known to have met with Ohtani. Reports this week indicated that the Blue Jays and Giants were also likely to have held sitdowns with the two-way star — the Jays at their spring complex in Dunedin, Fla. and the Giants at Oracle Park in San Francisco. The incumbent Angels are also believed to be in the mix still. Last night, Cubs president of baseball operations Jed Hoyer vehemently refuted reports that his own club’s optimism of landing Ohtani had “significantly waned.” It’s not known when or whether the Cubs hosted a meeting of their own with Ohtani, but Hoyer’s comments keep the door open for them as well.

Whether there are any darkhorse clubs who’ve managed to keep their involvement entirely off the radar is unclear, though that possibility can’t be discounted, given the nature of Ohtani’s free agency and the sheer demand an unprecedented talent like this has created. The Red Sox, Mets and Rangers were all involved early on in the process, but they’ve since appeared to shift their attention elsewhere after falling behind in the bidding.

If Ohtani indeed makes his decision in the next 96 hours or so (give or take), that would in all likelihood set the stage for the proverbial offseason floodgates to open. None of the reported finalists has been willing to make a significant move until learning whether they’ll be the team to ultimately reel in Ohtani. As such, that’s directly impacted the market for names like Yoshinobu Yamamoto (presumably a target of all finalists in the Ohtani bidding), top free agent bats like Cody Bellinger (a potential Giants, Jays or Angels target if Ohtani goes elsewhere) and even trade candidates like Tyler Glasnow and Shane Bieber, whose teams surely want to gauge interest from the runners-up in the Ohtani bidding.

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