Shohei Ohtani, the two-time MVP, recently made headlines with his groundbreaking 10-year, $700 million contract with the Los Angeles Dodgers. However, what sets this deal apart is not just its magnitude but also the unique structure that will significantly impact the team’s payroll and tax burden. Sources familiar with the deal revealed that Ohtani has agreed to defer a staggering $68 million of his $70 million annual salary, which translates to more than 97% of his earnings. This deferral strategy aims to support the Dodgers in signing other players while easing Ohtani’s tax implications.
Under the terms of the contract, Ohtani’s deferred money will amount to $680 million, which he will receive between 2034 and 2043. While this may seem like an extended wait, it aligns with Ohtani’s commitment to long-term success for both himself and his team. By deferring the majority of his earnings, Ohtani demonstrates his dedication to the Dodgers’ championship aspirations and the potential to bring World Series parades to the streets of Los Angeles.
One might wonder why Ohtani was willing to defer a significant portion of his salary. The answer lies in his off-the-field earnings and marketability. Ohtani’s lucrative endorsements contribute significantly to his annual income, estimated to be over $45 million. Unquestionably, he is the most marketable player in Major League Baseball, surpassing even the Los Angeles Angels’ revenue of more than $20 million per year during his tenure there. Ohtani’s high off-the-field earnings undoubtedly make the decision to defer his salary more manageable for him and advantageous for the Dodgers.
For the Dodgers, Ohtani’s contract introduces an interesting dynamic to their competitive balance tax (CBT) payroll calculations. While the average annual value of his contract is $70 million, the deferred money is discounted, resulting in a lower cost of around $46 million per season. When combined with the salaries of Freddie Freeman and Mookie Betts, the Dodgers’ total CBT payroll could be approximately $100 million annually. It is worth noting that the luxury tax threshold is set at $237 million for 2024. Therefore, the Dodgers need to monitor their spending closely to ensure compliance with the collective bargaining agreement.
Although there is no specified limit on the amount of money that can be deferred, teams must set aside the present-day value of the deferred money in an escrow account. In Ohtani’s case, this amounts to approximately $44 million in cash per year. This financial precaution ensures that the team can fulfill their deferred payment obligations when the time comes, securing Ohtani’s future earnings.
The Dodgers organization, known for its rich history of legendary players like Jackie Robinson, Sandy Koufax, and Hideo Nomo, warmly welcomes Ohtani into their fold. Mark Walter, chairman of the Dodgers and Guggenheim Baseball, expressed his enthusiasm for working together with Ohtani to continue the team’s pursuit of excellence on the field. Ohtani’s addition not only enhances the Dodgers’ roster but also provides an opportunity to increase the fanbase and global reach of Major League Baseball.
Shohei Ohtani’s historic contract with the Los Angeles Dodgers revolutionizes the traditional structure of player salaries. This forward-thinking approach, where the majority of earnings are deferred, allows the team to manage their payroll effectively while bolstering their chances of signing other talented players. Ohtani’s marketability and off-the-field earnings play a crucial role in making this arrangement feasible. As the Dodgers embark on an exciting chapter with Ohtani, the impact of this groundbreaking contract will resonate throughout the organization, positioning them for continued success and the pursuit of World Series glory.
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