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After months of speculation, anticipation and, more recently, misinformation regarding his future home, two-way superstar Shohei Ohtani, arguably the most intriguing free agent in Major League Baseball history, revealed his new team via Instagram on Saturday afternoon.
Ohtani wrote several paragraphs in his post, but the image itself was all many cared to see. It was a shot of the classic Los Angeles Dodgers logo. Ohtani, one of baseball’s most mysterious personalities, picked the team that many suspected from the beginning.
The terms of the deal came out soon after Ohtani’s post: 10 years, $700 million. The Dodgers made the signing official on Monday evening.
On the surface, Ohtani’s contract dwarfs the $426.5 million total value of Ohtani’s former teammate, Mike Trout. It is not only the largest contract guarantee ever given to a pro athlete, but it is roughly equivalent to the biggest contract guarantees in NBA, NFL and NHL history combined.
There is a catch, however. Ohtani will make $700 million from the Dodgers, but he will not make it over the next 10 years. According to multiple sources, Ohtani is deferring $68 million of his $70 million annually. He will make $2 million per year from 2024-33, followed by $68 million per year from 2034-43.
The unprecedented structure of Ohtani’s deal, which was reportedly Ohtani’s own idea, gives the Dodgers more flexibility to build around him. What would have been a $70 million annual hit toward the Dodgers’ competitive balance tax number will instead be around $46 million, according to several reports. That gives the Dodgers another $24 million to spend every year before luxury tax penalties kick in.
It is important to note, however, that Ohtani’s deferrals come at a significant cost to him. Money today is more valuable than money tomorrow. According to multiple sources, the present-day value of Ohtani’s deal is in the neighborhood of $460 million, well outside the $500-$600 million or more that he was widely expected to receive.
If Ohtani’s deal is indicative of a larger issue in Major League Baseball, it is not that deferring more than 97 percent of a contract needs to be outlawed, as bizarre as that might be. It is that Ohtani signed what appears to be a very team-friendly deal — and the Dodgers were still one of only a handful of teams that could have afforded it.
Of course, any team could fork over the $2 million per year that will actually be paid out to Ohtani over the next 10 seasons. But the $68 million a year that he is owed from 2034-43? The Dodgers will have to set aside the present-day value of that amount each year in an escrow. They are, in practice, allocating around $46 million toward Ohtani every year, an unsustainable investment for many of baseball’s small-market teams.
That is not to say that some small-market teams are unable to spend more than they do. The notion that some teams spend too little, in fact, was the impetus for a proposed salary floor during collective bargaining agreement negotiations two years ago. Still, in an environment in which there is no salary cap and annual revenue varies widely from team to team based on local TV rights deals and other factors that are tied to market size, access to baseball’s best free agents is far from equal across the league.
Granted, payroll is not everything. The Diamondbacks proved as much this October. They swept the Dodgers in the NLDS. Then, they beat an even spendier Philadelphia Phillies team in seven games in the NLCS. And, while the results said otherwise, they matched up well on paper in the World Series against a Texas Rangers team with a payroll around $200 million.
Diamondbacks general manager Mike Hazen often sidesteps questions about payroll limitations.
“We have plenty of resources to be competitive,” Hazen told reporters at the winter meetings last week. “We have plenty of resources to be successful. We have since I’ve been here, and the win-loss record has had nothing to do with that.”
Hazen is one of several GMs of lesser spending teams that have proven that success is still possible. The Tampa Bay Rays have made the playoffs in five consecutive with consistent bottom-tier payrolls. The Baltimore Orioles won the prestigious AL East in 2023 despite spending less on players than every team but the Oakland Athletics, according to Spotrac.
Of course, just because the Dodgers have Ohtani does not mean that the Dodgers are now guaranteed a World Series win. They were seemingly a lock to make the postseason already. Now, they are simply a better team, their title chances a touch higher.
Nonetheless, the fact that the Dodgers can bounce back from an early-round exit by acquiring the most talented player in the majors in a way that many other teams could not is a flaw of the sport. Perhaps some teams could spend more than they do, but allocating $46 million per year to a single player is much easier for some teams than for others.
So, don’t let your takeaway from this Ohtani deferrals fiasco be that Ohtani’s deferrals allowed the Dodgers to manipulate MLB’s tax system. MLB’s lack of limitations in this regard have not generally been an issue in years past because, quite simply, deferrals are not in players’ best interests.
MLB’s collective bargaining agreement explicitly states that deferring any portion of a contract is legal.
“There shall be no limitations,” the CBA reads, “on either the amount of deferred compensation or the percentage of total compensation attributable to deferred compensation for which a Uniform Player’s Contract may provide.”
Ohtani is effectively giving the Dodgers an interest-free loan of $680 million, a generous, but hardly unethical proposition. He effectively signed a 10-year, $20 million deal with the greatest pension in human history, all as part of a compensation package that is mathematically equivalent to a 10-year, $460 million contract.
The aforementioned Dodgers’ annual CBT hit of $46 million is simply a per-annum calculation of the present-day value of the deal. There is no manipulation happening here, just a case of a free agent signing for less than industry expectations. The Union might not be happy about Ohtani signing a below-market deal, but players’ contracts are their own business.
For what it’s worth, some have argued that Ohtani donning a Dodgers uniform will be good for the sport. MLB struggles to properly promote its star players, and it is hard to imagine a better place for Ohtani to build his platform than in one of North America’s most iconic cities on one of the game’s most storied franchises.
While that may be true, Ohtani’s deal with the Dodgers is also a reminder of the reality for teams like the Diamondbacks — and the flaws of the sport at large. Baseball has long been an unfair game, and it is hard to imagine that changing any time soon.
Top photo: Kyle Ross/USA TODAY Sports
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