In the end, the MLB superstar designated hitter/starting pitcher, Shohei Ohtani, landed where many expected him to land. On the afternoon of Saturday, December 9th, 2023, Ohtani announced that he will be signing with the Los Angeles Dodgers.
Shohei’s new contract terms with the Los Angeles Dodgers is quite staggering as it covers 10 – years and it is worth up to approximately $700 million. It is currently the largest contract in the entire history of all major sports. Ohtani now eclipses Lionel Messi‘s $673 million contract with FC Barcelona which was the previous leader in that category.
Here are the Largest Contract in Major League Baseball History:
- Shohei Ohtani with the Los Angeles Dodgers: $700 million
- Mike Trout with the Los Angeles Angels: $426.5 million
- Aaron Judge with the New York Yankees: $360 million
- Manny Machado with the San Diego Padres: $350 million
- Francisco Lindor with the New York Mets: $341 million
Needless to say, Ohtani’s now record – setting new contract with the L. A. Dodgers is extremely complicated as he will not be paid a straight $70 million per year over the course of 10 – years. Indeed, the agreement is headline material not only for its total dollar amount, but it is also for the way that it will be paid out to the Japanese born superstar ball player. Specifically, Ohtani and the Los Angeles Dodgers have agreed upon terms to huge contract deferrals on a scale that has never been seen before throughout the long and illustrious history of Major League Baseball.
Unprecedented MLB Contract Deferrals:
Those “unprecedented deferrals” that were initially reported upon by MLB.com were detailed on Monday, December 11th, 2023 and they are absolutely unprecedented in the history of the MLB.
Fabian Ardaya of The Athletic writes, “In an effort to enable the Dodgers to continue spending around stars Ohtani, Mookie Betts, and Freddie Freeman, Ohtani agreed to defer all but $2 million of his annual salary — $68 million of his $70 million per year — until after the completion of the contract. The deferred money is to be paid out without interest from 2034 to 2043.”
Just to reiterate the key point, Shohei agreed to defer $680 million of his total $700 million deal with the Los Angeles Dodgers. Ardaya also stated that the annual competitive balance tax (CBT, or luxury tax) number for the L. A. Dodgers is anticipated to be approximately $46 million. The CBT is a penalty tax on MLB payrolls that lands on the laps of MLB franchises when they just so happen to clear certain thresholds. A franchise’s payroll (for CBT purposes) is calculated in terms of the player’s average annual value.
For players that are tied to serious and long – term MLB contracts, their exact annual salary is in a given Major League Baseball season is not what is entirely relevant. For instance, a baseball player on a two – year, $20 million MLB contract who is paid $5 million in the first year and $15 million in second year is nevertheless a $10 million CBT hit in both of those years due to the fact that it is the average annual value of his contract.
In Ohtani’s case, his average annual value (AAV) is not $70 million ($700 million over the stated 10 – years of the whole contractual agreement), but it is something around $46 million because of those huge contract deferrals spread throughout the many years of his entire deal.
As another example, the superstar starting pitcher in Max Scherzer signed a 7 – year contract worth up to approximately $210 million with the Washington Nationals back in 2015. That is on average $30 million per year. However, Scherzer did agree ultimately to defer half of his total salary each and every year, which lowered the present – day value to somewhere around $185 million, and that in turn lowered his annual CBT hit to $26.4 million give or take.
Ohtani’s new star teammates of Mookie Betts as well as Freddie Freeman have both substantial contract deferrals in their current deals with the Los Angeles Dodgers.
The L. A. Dodgers previously had a $267.2 million payroll for CBT purposes the last MLB season in 2023. The franchise record for the Dodgers is $297.9 million which was set back in 2015. The New York Mets hold the all – time MLB record with a $366.2 million CBT payroll for this upcoming ball season.
The CBT has come to represent as a “soft” salary cap of some sorts in Major League Baseball, and the teams at the high end of that spectrum are constantly maneuvering in and out of taxable territory, often to make an effort in order to “reset” their penalty status as well as avoid the higher tax tiers reserved only for repeat violators in this world. Yes, the Los Angeles Dodgers will be happy to make accrue some interest on part of the money that Ohtani reportedly deferred, and he also helped them to avoid the harsher CBT penalties moving forward in to the future.
The Major League Baseball CBT threshold payroll for the 2024 MLB season is currently set at $237 million, as agreed upon by the players union as well as the MLB. Franchises that have who exceeded that number will be penalized by the following:
- First Year: 20 % tax on payroll above CBT threshold
- Second Straight Year: 30 % tax
- Third Straight Year or over that: 50 % tax
As well, Major League Baseball franchises are ultimately penalized for the overall extent in which they surpass that threshold number during a certain year:
- $20 million to $40 million: 12 % surcharge
- $40 million to $60 million: 42.5 % surcharge for 1st – year; 45 % for each consecutive year following that year
- $60 million or over: 60 % surcharge
The deferrals on this deal were actually the idea of Ohtani, according to his agent Nez Balelo. He did want to lower his CBT number as well as give the Los Angeles Dodgers more potential freedom to spend in other places on their team roster in order to surround him with even more great talent. Also, to avoid those higher tax tiers as listed above. Now, Shohei will earn just $2 million through the 2033 MLB season, and then the deferred money will be paid out from the 2034 MLB season to the 2043 MLB season.
“Everything he does is unique and impeccably well thought out,” Balelo mentioned to the media outlet of Sports Illustrated. “Who in their right mind gets to this level and decides he wants to help the team and the city compete above all else and basically says, ‘I don’t need it.’ Nobody does that. But there is nobody like him. This is the epitome of thinking about others, of pure intentions.”
The L. A. Dodgers still have pressing needs in their starting pitching rotation. As we recall that Ohtani will not pitch at all during the upcoming 2024 MLB season while he recovers from an elbow surgery so this contract flexibility should be put to very good use.
The Los Angeles Dodgers did just sign the other Japanese starting pitching guru in Yoshinobu Yamamoto, who was the most coveted starting pitcher still on the MLB free agent market. Other possible trade targets such as Tyler Glasnow, Dylan Cease, and Corbin Burnes.
There is no doubt, Shohei proposed these recent contract deferrals with the overall expectation that the L. A. Dodgers would add even more baseball star power. Jack Harris of the Los Angeles Times estimates that the Los Angeles Dodgers are presently about $16 million under the first line of the current CBT guidelines. So, yes, Ohtani’s deferral definitely does make a huge impact on the franchises decision on who to sign in the near future.
No opt outs, unless …
… It had been conjectured that Ohtani could potentially seek an opt out (or even multiple possible opt outs) to cash in even more after he finishes his elbow surgery rehabilitation and he demonstrates that he is a healthy as well as productive starting pitcher. However, that did not occur. Ohtani’s contract does not involve any traditional opt out clauses.
It is a 10 – year deal with no opt outs or even option years, although there is a possible escape hatch on Shohei’s end. Ken Rosenthal mentioned that there is a clause stating, “if specific change in Dodger personnel, player may opt out of contract at end of season the change occurs.” This opt out will trigger only if either the L. A. Dodgers president of baseball operations in Andrew Friedman or the controlling owner of the Los Angeles Dodgers, Mark Walter, leaves his role with the organization according to the Associated Press.
Don’t Forget about Endorsements:
This past MLB season, Shohei made around $40 million in total endorsement deals. Ohtani has endorsement deals with New Balance, Fanatics, Topps, plus tons of other companies way overseas back in Japan.
No other Major League Baseball player in the sport generates revenue like Ohtani does. Shohei sells tickets to gamesas well as baseball jerseys, and he opens the door to new Japanese sponsors and fans too. According to the Los Angeles Times, Ohtani earned the Los Angeles Angels somewhere from $10 million to $20 million per year in advertising, marketing, and other revenue sources.
The Los Angeles Dodgers, who are a more global brand that outdrew the Los Angeles Angels by close to 15,000 fans per game last year during the 2023 MLB season, figure to make substantially even more in Ohtani – related revenue streams. There is a major reason why they invested $700 million in him, as they fully expect him to pull in a whole lot of additional cash for the Los Angeles Dodgers over the course of his massive contract with them.
Charitable Donation:
Shohei’s new contract demands that he will have to donate to a Los Angeles Dodgers charity in a total amount that will not go over 1 % of his deal says his agent.
Included in his substantial contract, Ohtani will now receive a personal suite for both all MLB regular – season games as well as all of his MLB playoff games while he will also be provided a language interpreter according to Rosenthal.
Shohei Ohtani’s Baseball Career Achievements, Honors, & Awards:
NPB
- Japan Series Champion (2016)
- 5 – Time NPB All – Star Selection (2013, 2014, 2015, 2016, 2017)
- Pacific League MVP Award Winner (2016)
- 2 – Time Pacific League Pitcher Best Nine Selection (2015, 2016)
- Designated Hitter Best Nine Selection (2016)
- Pacific League ERA Leader (2015)
- Pacific League Battery Award Winner with Shota Ono (2015)
- 2 – Time Japan Professional Sports Grand Prize Award Winner (2016, 2018)
- WBSC Player of the Year Award Winner (2015)
MLB
- 3 – Time MLB All – Star Selection (2021, 2022, 2023)
- 2 – Time AL MVP (2021, 2023)
- 4 – Time All – MLB First Team Selection (2021, 2023²)
- 2 – Time All – MLB Second Team Selection (2021, 2022)
- American League Rookie of the Year Award Winner (2018)
- 2 – Time Silver Slugger Award Winner (2021, 2023)
- 3 – Time Edgar Martínez Award Winner (2021, 2022, 2023)
- American League Hank Aaron Award Winner (2023)
- American League Home Run Leader (2023)
- American League Triples Leader (2021)
- Commissioner’s Historic Achievement Award Winner (2021)
- Hit for the Cycle on June 13th, 2019
International
- World Baseball Classic MVP Award Winner (2023)
- All – World Baseball Classic Team Selection (2023)
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