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Much of the baseball world was slack-jawed when the raw contract numbers for Shohei Ohtani came out on Saturday: holy cow, $700 million over 10 years! It’s the mega deal of mega deals!
But when a rival head of baseball operations first saw those figures, he took a more tempered approach.
“I believe the very first words out of my mouth were, ‘I wonder how much of that was deferred?’” the executive recalled.
The world got quite an answer Monday night from The Athletic’s Fabian Ardaya, who first reported that a whopping 97 percent of the contract was, in fact, not going to be paid before 2034. Ohtani is drawing just $2 million in annual salary from 2024-2033 — the length of time he’s actually contracted to play for the Dodgers — and then he’s collecting $68 million per year in interest-free deferrals from 2034-43.
When that information hit the internet, the industry chatter shifted, and skepticism increased: is the biggest deal in North American sports history actually as big as it should have been? Even if the guarantee properly reflects Ohtani’s status as a unicorn, is the deferral structure good for the player and the game? Is it a luxury tax dodge?
It depends on whom you ask. About a dozen industry officials spoke to The Athletic about their reaction to the contract on the condition of anonymity.
Shohei Ohtani will receive only $2 million annually from the Dodgers during the length of his 10-year contract. (Carmen Mandato / Getty Images)
“Most agents would probably say it’s the worst thing ever, because that’s what happens when some guy does a record deal,” said a player agent, who was pointing out how jealous and competitive his ilk can be. “I think actually in this case, it’s the truth: It’s one of the worst things I’ve ever seen, for a lot of reasons.”
That agent, like some other agents, believed the present value of Ohtani’s deal to be too low. The league and the union calculate the “discounted present value” of Ohtani’s deal to actually be $46 million annually, not $70 million, so the contract could be thought of as being worth about $460 million in total over a decade.
“This is the best player ever,” the agent continued. “You’re never going to be able to surpass it. No player will be more valuable. It will be 100 years before we see someone like him again. It’s the opportunity (lost) that is upsetting to me.”
But others reacted in a more restrained manner, saying that with the deferral terms, the contract finally just made sense.
“It was in line with expectations,” said the same head of baseball ops who had wondered about the deferrals. “I think they dressed it up to get that shock value, that big number. But when you actually factor in the present value with the deferrals, it’s in the range you would have expected.”
Besides being a curiosity for its structure, the contract is, by any measure, a landmark. Even at $46 million, Ohtani still netted the highest average annual value for a player in history. And he’s making roughly $50 million in endorsements annually, a person briefed on his business affairs said, which makes the money he will draw from the Dodgers for the next 10 years less consequential.
“If you zoom out and look at it from a life-planning perspective, it makes a ton of sense,” the GM continued. “He has now pushed back the bulk of his earnings to a time where he might not have quite the same annual earnings, 10 or 12 years from now. Then he will start receiving these payments.”
A different GM said that Nez Balelo, Ohtani’s agent at CAA, “was going to get ripped no matter what unless it was $700 million all up front.”
“The fact of the matter is, the guy’s not pitching right now,” that second head of baseball ops said, referring to Ohtani’s injured throwing arm. “The only thing I thought could happen would be a deal that has incentives if he pitches. But the idea he was going to get $575-$600 million straight up without pitching is kind of ridiculous.”
Even some rival player agents defended the deal.
“Everyone loves to criticize, but this contract is a brilliant move by Ohtani and Andrew (Friedman of the Dodgers), and they should be applauded,” a different agent said. “Ohtani wants to win, and this structure lowers the cap hit, which enables the club to add star players. I’m betting that the Dodgers will also sign (Japanese free-agent right-hander Yoshinobu) Yamamoto.”
On a straight 10-year, $700 million deal without deferrals, Ohtani would count for $70 million in competitive-balance-tax calculations every year — a huge number for the Dodgers, one of a few teams that spends enough that it often pays luxury-tax penalties.
With the deferrals, though, Ohtani’s CBT number drops to $46 million. Some could argue that the deferrals equate to a dodge, a loophole, a way of manipulating the system — without breaking the sport’s rules — to make Ohtani count for less in luxury tax than he should.
“It’s a f—ing joke,” one team executive said of the contract structure. “It’s a complete joke. … This f—ing guy is going to get paid for 20 years.”
Yet, baseball’s rules clearly allow deferrals without limits. And because the CBA also requires a “discounted present value” calculation for luxury-tax purposes, not every other team looks at the Dodgers as doing something slippery.
One agent called Shohei Ohtani’s new contract with the Dodgers “a brilliant move.” (Ezra Shaw / Getty Images)
Ultimately, “discounted present value” is intended to be a calculation of what the deal is actually worth. It’s not as though Ohtani’s CBT figure is $2 million. And the $46 million hit is a record for an individual player.
“It just doesn’t bother me,” said one executive with a smaller-market team. “Rules say it’s perfectly above board and it’s still a $46 million CBT hit, so I struggle to see it as a dodge. Move on.”
Said another smaller-market executive: “They are getting deducted the amount that they are paying in present-day dollars. Whether they put the money in escrow or give it to Ohtani now doesn’t matter, right?”
The Dodgers, though, run by financial expert Mark Walter, might do quite well with the money in escrow.
When a team defers salary, they must pretty quickly put the money aside, so to speak. They are required to start allocating the present value of the deferred money — discounted by five percent — by the second July 1 after the season it was owed.
For example: Ohtani is deferring $68 million in 2024. By July 2026, the Dodgers must fully fund the present value of that $68 million.
But Walter and the Dodgers appear to have considerable freedom as to how to allocate that money. Per the CBA, the team could keep it in cash, or stocks, or “unencumbered assets.” The CBA also allows the league and union to agree on an alternative form, if the parties wish.
“If you ask any hedge-fund guy or real-estate guy if they think they can double their money in 10 years, they’re going to say absolutely,” a third player agent said. “If you’re looking at this from the Dodgers’ standpoint only, there is no doubt in their mind, in their ownership’s mind, that this is probably the most favorable deal they could have ever imagined.”
Said a fourth player agent: “I know there are situations where teams have been allowed to not fund it (with cash or stocks) because of the value of assets like stadiums and that kind of thing. There’s been all kinds of shenanigans related to deferred compensation.”
One point multiple industry officials made on Tuesday: Ohtani could run into trouble if the Dodgers were to go bankrupt before the bulk of his money is to be paid out. Yet, that scenario seems quite unlikely.
The fourth player agent questioned the precedent Ohtani was setting, however. Not in terms of CBT, but in a perceived personal sacrifice to lighten the Dodgers’ payroll.
It is, from one perspective, noble that Ohtani wanted to position the Dodgers to add more talent around him by taking so little money up front. But the agent argued that players should not be taking on that burden in baseball’s market system.
“I think it is a bad deal for Ohtani, a bad deal for baseball players,” the agent said. “Putting the best team on the field, that’s ownership’s issue. Ohtani is not participating in the increase in the Dodgers franchise value, any of that stuff. He shouldn’t be essentially funding the way they can operate the team. And that’s what he’s done. He’s taking pride in doing that.”
Yet, for as many views as can be found about such a radical contract structure, some in the industry shrugged at the outcome.
“Just not going to show any outrage here,” one of the smaller-market executives said. “Bunch of babies.”
(Photo of Shohei Ohtani: Dale Zanine / USA Today)