Shohei Ohtani’s $700 Million Contract With the Dodgers Will Pay Him Just $2 Million Per Year

Lindsey Adler and Richard Rubin, reporting for The Wall Street Journal (News+ link):

Shohei Ohtani joined a new team this weekend. You probably heard about it. The Japanese superstar on Saturday agreed to a blockbuster 10-year deal with the Los Angeles Dodgers that will pay him $700 million in total, making it the largest contract in U.S. sports history. But Ohtani won’t actually be the highest-paid athlete in America for a while yet. Next season, in fact, the man with the richest contract in baseball history will be making less than some rookies.

Ohtani will take home just $2 million per season over the 10-year span of his contract, which was made official Monday night. In an unprecedented structure, Ohtani will defer $68 million per season until the end of his contract, meaning the Dodgers will pay him $680 million between 2034 and 2043. By the time Ohtani receives his final paycheck from the team, he will be 49 years old. [...]

The contract will also have implications for the Dodgers’ payroll under MLB’s luxury tax rules, which calculates its average annual value based on actual yearly salary ($2 million, in this case) and the present day value of the deal (roughly $44 million). As a result, the Dodgers will take a $46 million hit against their luxury tax payroll each season, a record-setting annual average value, but a steep decrease from a $70 million per year hit if the salary were paid out in full during the course of Ohtani’s contract.

This report from the WSJ is the first I’ve seen that accurately explains the luxury tax implications. All the reporting I read over the weekend, when the news of this unusual structure broke, made it sound like only the $2 million per year they’ll be paying Ohtani while he’s actually playing over the next decade would count toward the team’s payroll, which seemed grossly unjust. $46 million per year seems about right.

Ohtani earns an estimated $45–50 million per year in endorsement contracts, so it’s doubtful he’ll need to move into the YMCA while wearing Dodger blue. If I were him I’d have pulled a Steve Jobs and taken just $1 per year until the deferments kick in.

Tuesday, 12 December 2023