Shohei Ohtani's $700M Contract with the Dodgers

Michael Ginnitti
Michael Ginnitti, Managing Editor & NFL/MLB ExpertDecember 12, 2023
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Is this not entertaining enough for you baseball writers? You asked for Shohei Ohtani to be a better ambassador for the sport during this free agency tour. He kept his mouth shut, asked everyone around the process to do the same - then broke the economic wall with a contract structure that has local news anchors trying to decipher the CBT portion of the CBA on 5AM Wake Up broadcasts.

Money talks. Especially when you forgo 97% of it until a later date.

I chuckled at the initial report that Shohei Ohtani himself was the one who initiated the deferral package idea. It’s commonplace for credit to be thrown around as a way to coddle certain situations.

Then the details of the deferral package were uncovered. Not only is there nothing to laugh about anymore - but to say that anyone but Ohtani (and his agent Nez Balelo) deserves credit here would be a disrespect. Did the Dodgers float the idea of utilizing deferred compensation to lower his annual CBT rate and help a winning team stay competitive? Of course - and so did every single one of the other 8-12 teams who may have actually sniffed at this engagement.

But deferrals in MLB are a two way street, and more often than not, the player, his agent, and certainly his financial advisor(s), are the ones that pull the plug on long-term contracts that contain significant deferrals. Why? Money now please before it disintegrates with the rest of the economy in 10 years.

That’s not to say this doesn’t happen - it happens plenty. But no major American sports contract has ever been signed to this total value, with this average salary, only to have 97% of it sent away for a decade. Everything about Shohei Ohtani’s 10 year, $700M contract with the Los Angeles Dodgers is historic, and we do our best to detail it all here.

The Total Value Contract

Unprecedented. Ohtani will earn $700M over the next 20 years, fully guaranteed. We’ve heard nothing yet about any additional incentives being built in, so for now, this remains the base and max value of the contract.

Ohtani’s deal is $237.5M more than any other contract in the history of baseball, surpassing his old teammate Mike Trout ($426.5M), and new teammate Mookie Betts ($365M).

The Dodgers now have Ohtani, Betts, & Freddie Freeman on the books for over $1.2B in total guaranteed contract. There will be plenty of franchises that won’t spend that kind of money on their entire payroll for the next 5 years combined.

For context, the Atlanta Braves have been famously aggressive in signing their young talent to contract extensions over the past few offseasons. Here’s what $700M (precisely) has bought them:

Austin Riley through 2032 ($212M)
Matt Olson through 2030 ($168M)
Ronald Acuna Jr. through 2028 ($100M)
Spencer Strider through 2029 ($75M)
Sean Murphy through 2028 ($73M)
Michael Harris II through 2032 ($72M)

The Total Contract Average Salary

We need to word things in this manner because of the wild deferral structure (see below), but the base average annual salary on this contract comes in at a clean $70M for reporting purposes.

That’s $26.7M more than the previous leaders in the clubhouse, Justin Verlander & Max Scherzer ($43.3M). It’s Aaron Judge’s $40M per year salary as a position player, plus another $30M for his services as a starting pitcher.

Even if we think about it as a $35M split - it still seems relatively low, right? Ohtani has done enough at the plate to warrant becoming the highest paid batter in baseball. And while his pitching resume as a whole doesn’t scream annual Cy Young, a player with his numbers, hitting the open market as an available starting pitcher, would have commanded near top of the market money. It’s just how the league works.

The Deferrals

We knew this contract wouldn’t come without crazy - and we got plenty of it in regards to the deferral package.

Ohtani himself agreed to defer $68M of his $70M salary annually, without interest, into 2034-2043. That’s right, he’ll “only” be taking in $2M cash per year, or $20M total from the Dodgers over the next 10 seasons. Once this current contract is completed in 2033, Ohtani will earn $68M every July 1st from 2034- 2043. Take that Bobby Bonilla.

The future ramifications are significant in a variety of ways, possibly most notably from a personal tax perspective. The $680M deferred will become income based on wherever he resides in 2034 and beyond - so not necessarily a high income tax state like California. Shohei has afforded himself an opportunity to control his losses a bit with this deferral package.

Of course everyone with an eye for economics is screaming out loud this morning, as Ohtani’s deferral structure breaks the cardinal financial rule: Money today is always much more valuable than money down the road. I’m going to go out on a limb here though and claim that a financial package of $680M, plus Ohtani’s ability to earn upwards of $50M per year from endorsements, sponsorships, etc… allow him to break a few economic guidelines here and there.

One more thing, because I had to look for myself just to make sure this wouldn’t be a thing. If you’re wondering if what Ohtani & the Dodgers are doing here should be contested by the league or other owners - the current collective bargaining agreement says otherwise.

So this isn’t necessarily a loophole - it’s just not something a player has ever agreed to do on this level. Deferred contracts happen by the dozen every offseason, but never at a 97% clip, and certainly never to the tune of $680M.

The Annual Cash Salary

Yes, the Dodgers are really only paying Shohei Ohtani $2M cash per year for the next 10 years. That's the levity of what he's done here with this contract structure. Just how low of a number is that? The league minimum for MLB this season will chime in at $740,000, just $1.26M less than Ohtani's salary. That minimum will rise into the 800s by 2030, closing the gap even more. Most players going through their first trip of arbitration this winter will lock in a salary north of $2M. Hell, even the Oakland Athletics are paying someone more than $2M this year (ok it's only 1, Aledmys Diaz, $8M, and they'll definitely trade him by August).

The Luxury Tax Impact

Thanks to an historic deferral package, Ohtani’s $700M total value contract is downsized to $460,814,760 in terms of its present day value. Which now means that over 10 years, Shohei Ohtani’s luxury tax salary will drop from $70M, to $46,081,476. It’s still the highest in the history of baseball - but now only by $2.75M - instead of $26.7M.

With Ohtani on the books at this figure, the Dodgers’ projected 40-Man CBT Payroll currently stands at $218M, $19M under the original threshold for 2024, and almost $80M below the top “super-tax” threshold of $297M. In other words, the Dodgers can do plenty more here this offseason to continue to build around their star-studded lineup.

Career Earnings Outlook

If we assume this will be Shohei Ohtani’s last contract (he’ll be 38 years old at the time of its expiration), and we of course factor in all the deferral payments, Ohtani will walk away with $742,269,259 in total on-field earnings.

Alex Rodriguez ($455,159,552) currently stands as the highest earning player in MLB history right now, and will remain there until the year 2030, when Mike Trout will surpass him ($480,440,125). Assuming Trout’s career falls off thereafter, Manny Machado should take over the top spot in 2033 ($490,560,896).

Ohtani should eclipse everybody by 2040, when his deferral payments take him well north of $500M - and continue on for 3 more years.


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