The Los Angeles Dodgers have landed the biggest free agent on the market, agreeing to terms with two-way superstar Shohei Ohtani on an unprecedented contract. As first reported by ESPN’s Jeff Passan, Ohtani is signing a record-shattering 10-year, $700 million contract with the Dodgers. However, in a unique twist, the contract contains multiple deferred payments which significantly reduce its actual present-day value.
Groundbreaking Deal’s Details Emerge
While early reports trumpeted the deal’s raw $700 million figure over 10 years, further details have revealed a complex structure with substantial deferred money. As noted by The Ringer, Ohtani will be paid just $30 million over the first three years. The contract backloads $670 million from 2028-2034, all without any interest.
Several baseball executives have questioned the deal, with one anonymous NL executive saying “It makes no sense. If he gets hurt during the first three years, he’s screwed.” However, Ohtani’s agent Nez Balelo defended the contract, telling Sports Illustrated, “We did this contract to allow flexibility for Shohei on the front end of the deal while recognizing his unique talent with historically largest contract for a baseball player.”
Below is a breakdown of Ohtani’s year-by-year earnings, which diminishes the deal’s present value but allows higher payments later in his career:
How Deferred Money Impacts Competitive Balance Tax
A key motivation behind the deferred payments was lessening the deal’s impact on the Dodgers’ luxury tax payroll, as explained by MLB Trade Rumors. By backloading the money, the average annual value (AAV) used for the competitive balance tax calculations is only $17 million. This is far below Ohtani’s expected $30-40 million AAV in a normal contract structure.
Spreading money to later years keeps the Dodgers under the highest luxury tax surcharge threshold in the near future when they are trying to win championships. As noted by True Blue LA, the team’s current projected 2024 payroll is around $227M with Ohtani, still safely under the $233M threshold.
How Other Suitors Fell Short
The Dodgers faced intense competition for Ohtani’s services, beating out their greatest rivals and the runner-up bidder. As Farhan Zaidi confirmed, the Giants offered Ohtani a contract with the exact same $700M guarantee and deferment structure over 10 years.
However, Ohtani prioritized winning and market over maximizing total contract value. As he said in a statement, “I love Los Angeles and the Dodger fans…I’m hopeful I can bring even more excitement and tradition to this storied franchise and amazing city we share.” Ultimately, the chance to pair Ohtani with former MVP teammates Mookie Betts and Freddie Freeman while chasing a championship in a major market won out.
The Angels expressed interest in retaining Ohtani but never publicly revealed their offer. Industry speculation suggested they proposed around $500 million guaranteed but likely could not approach the total financial terms the Dodgers and Giants presented. Ultimately, Ohtani chose to depart the only MLB team he’s ever played for to this point.
Projecting Ohtani’s Future Dodger Impact
In adding the most talented two-way player since Babe Ruth, the Dodgers have set themselves up as favorites to win the World Series in 2023 and beyond. Although Ohtani will likely make around 10-15 starts on the mound, he now slots into a rotation already led by Cy Young winner Julio Urias and 2022 breakout Tony Gonsolin. With his left-handed power bat occupying the middle of the order between Betts and Freeman, Los Angeles possesses a modern-day murderer’s row.
As Bloomberg Opinion notes, the deal provides massive marketing value:
For a team that’s always innovating when it comes to extracting money from fans, Ohtani’s on-field exploits are guaranteed to produce a cascade of jersey sales, ticket deals and higher TV ratings over the next decade.
Already, the Ohtani signing has spiked demand for Dodgers tickets in 2023. And his #17 jersey will likely challenged Betts’ #50 as the top seller.
With Ohtani under contract and in his prime through 2034, the Dodgers clearly intend to capitalize on his talents for the foreseeable future as they chase championship #8.
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