Much of the baseball world was dumbfounded Saturday when the contract numbers for Shohei Ohtani came out: Holy cow, $700 million over 10 years! It’s the mega deal of mega deals!
But when the head of baseball operations’ competition first saw those statistics, he took a more relaxed approach.
“The first words out of my mouth were, ‘I wonder how much of that was put off?’ The administrator recalled.
On Monday night, the world got a response Athletic Fabian Ardaia was the first to announce that 97 percent of the contract would not, in fact, be delivered before 2034. Ohtani earns just $2 million in annual salary for 2024-2033 — the length of time he’s contracted to play. For the Dodgers — he then collects $68 million a year in interest-free deferrals through 2034-43.
When that information hit the Internet, the industry conversation changed, and doubts grew: Is the biggest deal in North American sports history really as big as it should have been? While the guarantee perfectly reflects Ohtani’s unicorn status, is the deferral system good for the player and the game? Avoid luxury tax?
Depends on who you ask. About a dozen industry officials spoke Athletic about their reaction to the deal on condition of anonymity.
“Most agents would probably say it’s the worst thing, because that’s what happens when some guy gets a record deal,” said one player agent, pointing out how jealous and competitive he can be. “Actually in this case, I think it’s true: it’s one of the worst things I’ve ever seen for a number of reasons.”
That agent, like some other agents, believed the current value of Ohtani’s contract was too low. The league and union calculated the “discounted present value” of Ohtani’s contract to actually be $46 million annually, not $70 million, so the deal could be considered worth a total of $460 million over a decade.
“This is the best player ever,” the agent continued. “You can never get over that. No player will be worth more. It may be 100 years before we see someone like him again. I’m sad about that opportunity (lost).
But others responded in a more restrained manner, with deferred terms, as the deal finally made sense.
“It was in line with expectations,” said the same head of baseball apps, wondering about the postponements. “I think they dressed it up to get that shock value, that big number. But when you actually calculate the present value with the deferrals, it’s in the range you’d expect.
Apart from its interest in structure, the contract is, at any rate, symbolic. At $46 million, Ohtani still has the highest average annual value for a player in history. And he receives about $50 million annually in endorsements, one person explained about his business dealings, which consequently reduces the money he receives from the Dodgers for the next 10 years.
“When you zoom in and look at it from a life planning perspective, it makes a ton of sense,” the GM continued. “He’s now pushed most of his earnings to 10 or 12 years later, the same year of no earnings. Then he’ll start getting these payments.
Nez Balelo, Ohtani’s agent at CAA, told a different GM that “anything but $700 million in advance is going to be ripped off.”
“The fact of the matter is, the guy’s not pitching right now,” Baseball Ops’ second baseman said of Ohtani’s injured throwing arm. “The only thing I thought would happen was an incentive-based deal if he pitched. But the idea that he’s going to get $575-$600 million directly without pitching is kind of ridiculous.
Even some rival player agents supported the deal.
“Everybody likes to criticize, but this deal was a fantastic move by Ohtani and Andrew (Friedman of the Dodgers) and they should be applauded,” another agent said. “Ohtani wants to win, and the system minimizes the cap hit, which helps the club add star players. I bet the Dodgers will sign (Japanese free-agent right-hander Yoshinobu) Yamamoto, too.”
In a straight 10-year, non-deferrable $700 million contract, Ohtani will count $70 million in competitive-balance-tax calculations each year — a big number for the Dodgers, who are one of the few teams that often spend enough to pay luxury-tax penalties.
With the deferrals, Ohtani’s CBT number drops to $46 million. Some might argue that it’s a cheat, a loophole, a way to manipulate the system — without breaking the rules of the game — to make Ohtani count less against the luxury tax than he should.
“It’s ridiculous,” one team executive said of the contract structure. “It’s an absolute joke. … This f—ing guy’s going to get paid for 20 years.
However, the rules of baseball clearly allow postponements without limitations. And since the CBA requires a “discounted present value” calculation for luxury-tax purposes, not every other team sees the Dodgers as making a slippery slope.
Ultimately, “discounted present value” is a calculation of what the contract is worth. It’s not like Ohtani’s CBT figure is $2 million. And the $46 million win is a record for an individual player.
“It doesn’t bother me,” said one executive with a small market group. “By the rules, it’s absolutely over the top and it’s still a $46 million CBT hit, so I’m struggling to see it as a disappointment. Carry on.”
Another small market executive said: “They deduct the payment in current dollars. It doesn’t matter whether they put the money in escrow or pay Ohtani now, right?
However, the Dodgers, run by financial expert Mark Walter, could do well with the money in escrow.
When a team defers salary, they need to set aside money quickly. They must set aside the present value of the deferred money — discounted at five percent — by the second July 1 following the season in which it is due.
For example: Ohtani has $68 million deferred in 2024. By July 2026, the Dodgers must fully fund the present value of that $68 million, minus five percent.
But Walter and the Dodgers appear to have considerable freedom in how to allocate that money. For CPA, the group can hold it in cash or shares or “intangible assets”. The CBA also allows the league and union to agree to an alternative format if the parties so desire.
“If they think you can double their money in 10 years to a hedge-fund guy or a real estate guy, they’re going to say absolutely,” said a third player agent. “If you look at it from the Dodgers’ standpoint, there’s no doubt in their mind, in their franchise’s mind, that this is the most favorable deal they could have imagined.”
A fourth player’s agent said: “I know there are situations where teams are not allowed to finance themselves (with cash or equity) because of the value of assets like stadiums and things like that. There’s all kinds of shenanigans around deferred compensation.
A point many industry officials made Tuesday: The Dodgers could be in trouble if they go bankrupt before Ohtani pays most of his money. However, that scenario seems highly unlikely.
A fourth player agent questioned the precedent Ohtani was setting. Not in terms of CBT, but a personal sacrifice to lighten the Dodgers’ payroll.
From one perspective, classic, Ohtani wanted to position the Dodgers and add more talent around him for very little money up front. But the agent argued that players shouldn’t shoulder that burden in baseball’s market structure.
“It’s a bad deal for Ohtani, a bad deal for baseball players,” the agent said. “Field the best team, it’s a question of ownership. Ohtani did not participate in the increase in value of the Dodgers franchise. He basically shouldn’t fund the way they run the team. That is what he has done. He takes pride in doing it.
Still, for the many comments that could be made about such a radical deal structure, some in the industry shrugged off the decision.
“There’s not going to be any outrage here,” said one of the small market executives. “A bunch of kids.”
(Photo by Shohei Ohtani: Dale Janine/USA Today)