In a groundbreaking move, Shohei Ohtani has shaken the baseball world with his historic contract signing with the Los Angeles Dodgers. The 10-year, $700 million agreement not only solidifies Ohtani’s position as the highest-paid player in North American professional sports history, but it also includes a remarkable twist. Sources familiar with the deal reveal that Ohtani will defer $68 million of his annual $70 million salary. By deferring this significant amount, the Dodgers can now lower their payroll and alleviate the burden of potential tax implications.
Deferred Money: A Bold Strategy
Under this newly structured contract, Shohei Ohtani is deferring over 97% of his earnings, which amounts to a staggering $680 million. The deferred money will be paid to him gradually between 2034 and 2043. While the decision to defer such a substantial portion of his salary may seem puzzling, it is, in fact, a strategic move orchestrated by Ohtani himself. Motivated by the desire to help the Dodgers sign other talented players, Ohtani willingly opted for a deferred payment plan. Making this decision even easier for him are his massive off-the-field earnings, as he is believed to make upwards of $45 million annually through endorsements. This makes him the most marketable player in Major League Baseball, surpassing even the Los Angeles Angels’ annual earnings of over $20 million during his time with them.
A Win-Win Situation
The Los Angeles Dodgers are thrilled to have Shohei Ohtani join their roster and expressed their gratitude to their fans for the warm welcome. Ohtani himself shares the team’s vision, stating in the team’s press release, “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.” With such a promising alliance, the Dodgers undoubtedly aim to capitalize on Ohtani’s exceptional skills and marketability, both on and off the field.
The Impact on Payroll and Luxury Tax
While the Dodgers acquired an exceptional talent in Ohtani, they also face the managerial task of maneuvering their payroll within the competitive balance tax (CBT) requirements. Ohtani’s cost toward the Dodgers’ CBT payroll will be approximately $46 million per season, considering the discounted amount due to deferred money. Consequently, when factoring in the salaries of Freddie Freeman and Mookie Betts, the combined cost towards the CBT payroll will reach the realm of $100 million annually. This places the Dodgers near the luxury tax threshold, which currently stands at $237 million for the year 2024.
The Deferral Dilemma
While the collective bargaining agreement does not impose limits 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 around $44 million in cash per year. For the Dodgers, this presents a financial challenge as they will have to allocate significant funds yearly to fulfill their deferred payment obligations.
To accommodate Ohtani and further bolster their roster, the Dodgers made room by executing a trade with the New York Yankees. Victor Gonzalez and Jorbit Vivas were sent to the Yankees in exchange for shortstop prospect Trey Sweeney. This trade enabled the Dodgers to secure a 40-man-roster spot for Ohtani and also acquire relief pitcher Joe Kelly.
As the Dodgers eagerly anticipate the start of the new season, the organization recognizes the significance of Shohei Ohtani’s arrival. By welcoming Ohtani to the Dodgers, they embrace a player who has the potential to become one of the game’s all-time greats. In the words of Mark Walter, chairman of the Dodgers and Guggenheim Baseball, “Shohei is a once-in-a-generation talent and one of the most exciting professional athletes in the world.” With Ohtani as their beacon, the Dodgers are determined to continue their tradition of excellence and showcase Major League Baseball to a global audience.
Shohei Ohtani’s contract with the Los Angeles Dodgers signifies a new era in baseball, where unprecedented contract structures challenge conventional norms. The deferred payment strategy adopted by Ohtani showcases his commitment to team success and innovative thinking. As the baseball world watches in anticipation, the impact of this historic signing will undoubtedly shape the future of the sport, both on and off the field.
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