Shohei Ohtani’s Groundbreaking Contract with the Los Angeles Dodgers

In a groundbreaking move, Shohei Ohtani has signed a historic contract with the Los Angeles Dodgers that will see him defer a staggering $68 million of his annual $70 million salary. This unprecedented arrangement significantly lowers the Dodgers’ payroll and potential tax burden, allowing them more flexibility in signing other players. Ohtani’s 10-year, $700 million contract is the richest in the history of North American professional sports, solidifying his status as one of the most marketable players in Major League Baseball.

Unlike traditional contracts, Ohtani’s deal involves deferring over 97% of his earnings. Under this structure, he will receive the deferred money totaling $680 million between 2034 and 2043. This unique approach was Ohtani’s idea, driven by his desire to aid the Dodgers in signing other talented players and facilitated by his enormous off-the-field earnings. With lucrative endorsements generating an estimated $45 million annually, Ohtani’s marketability surpasses that of any other player in the league, demonstrating the immense value he brings to any team.

By deferring a significant portion of his salary, Ohtani’s cost towards the Dodgers’ competitive balance tax (CBT) payroll will be reduced to around $46 million after each season. When factoring in the salaries of other high-profile signings such as Freddie Freeman and Mookie Betts, the team’s total CBT payroll is projected to be approximately $100 million annually. It’s important to note that the current luxury tax threshold stands at $237 million in 2024, giving the Dodgers ample room within the constraints of the collective bargaining agreement.

While there is no specific limit on the amount of money that can be deferred in contracts, teams must set aside the present-day value of the deferred money in an escrow account. In Ohtani’s case, the Dodgers will need to allocate approximately $44 million in cash each year to meet this requirement. This practice ensures that the deferred amounts are accounted for and protected, safeguarding both the player and the team’s financial obligations.

The Dodgers wasted no time in incorporating Ohtani into their roster. The team made room for him and relief pitcher Joe Kelly by making a trade with the New York Yankees, sending reliever Victor Gonzalez and infielder Jorbit Vivas in exchange for promising shortstop prospect Trey Sweeney. This transaction not only solidifies the Dodgers’ infield but also demonstrates their commitment to building a championship-caliber team around Ohtani.

Mark Walter, chairman of the Dodgers and Guggenheim Baseball, expressed his excitement about Ohtani’s addition to the team. He acknowledged the rich history of legendary players who have donned the Dodger uniform, such as Jackie Robinson, Sandy Koufax, and Hideo Nomo. Walter highlighted Ohtani’s once-in-a-generation talent and his ability to captivate fans worldwide, envisioning a collaborative effort to expand the global reach and enjoyment of Major League Baseball.

Shohei Ohtani’s groundbreaking contract with the Los Angeles Dodgers represents a paradigm shift in how players negotiate their salaries. By deferring a significant portion of his earnings, Ohtani has created immense financial flexibility for the team, allowing them to pursue additional talent and build a championship-worthy roster. As the most marketable player in the league, Ohtani’s signing showcases his unparalleled value both on and off the field. With his arrival, the Dodgers embark on an exciting chapter in their storied history, aiming to bring World Series parades back to the streets of Los Angeles.