Shohei Ohtani’s $700 million contract with the Los Angeles Dodgers stunned the baseball world this offseason. It also reportedly stunned the Dodgers.
A Sports Illustrated feature by Tom Verducci on Ohtani published ahead of his Dodgers debut in South Korea on Wednesday shed new light on how the two-way phenom’s contract came together a few months ago, specifically how the idea came about to defer $680 million of the money until after the end of the contract.
Such a structure is without precedent in baseball. A player agreeing to an IOU for 97% of his contract money is so team-friendly that Ohtani’s contract led to debates over whether MLB should act to close what many called a loophole. It’s such a bizarre idea that it could only have come from the player himself, to improve his new team’s competitiveness.
Per SI, Ohtani’s agent Nez Balelo explained the proposal to Dodgers president of baseball operations Andrew Friedman on Dec. 7, two days before the deal was announced. Friedman told Verducci the word “Deal!” immediately popped in his head, then a few more popped out after the call was over:
Friedman and Balelo, who still had other teams interested, agreed to talk again the next morning in more detail. After he hung up, Friedman dialed Dodgers president and CEO Stan Kasten.
“Holy f—,” Friedman said.
“Is that a ‘Holy f—’ good or a ‘Holy f—’ bad?” Kasten asked.
Very good indeed.
Rather than paying Ohtani the $70 million average annual value of his contract this year, the Dodgers will pay him $2 million. Then another $2 million next year, and every year until 2033. Then they will pay him $68 million annually, likely with the hope that Ohtani’s revenue streams will have already guaranteed he has paid for himself.
Financially, Ohtani will pay the price due to the lack of interest in the later payments. That’s a big enough factor that the MLB Players Association calculated the actual present-day value of Ohtani’s contract to be roughly $438 million, while MLB pegged it at $460 million.
It won’t be a total loss, though, as Ohtani will be able to avoid large amount of California state income taxes. Verducci notes the California Center for Jobs and the Economy has estimated that if Ohtani is not living in California by the end of the contract, he could avoid $98 million in income taxes.
California state Controller Malia Cohen wasn’t amused, using the news to call for a cap on contract deferrals.
Shohei Ohtani’s deferred money unlocked the Dodgers’ offseason
In the meantime, the Dodgers could use that $68 million on other things, namely make sure Ohtani wasn’t their only splashy acquisition of the offseason. The same day Ohtani was introduced as a Dodger in Los Angeles, the team traded for Tampa Bay Rays All-Star Tyler Glasnow. Then they signed another Japanese free agent, Yoshinobu Yamamoto, to the largest contract ever for a pitcher, plus Teoscar Hernández (one year, $23.5 million) and James Paxton (one year, $11 million).
By average salary, Glasnow, Hernández and Paxton will combine to make $61.5 million next season — or $6.5 million less than what Ohtani is deferring.
As Friedman said during Ohtani’s conference, it’s a deal any team would have been afraid to pitch Ohtani lest they insult him:
“I wouldn’t have had the guts to propose it, and it’s what’s funny about ‘Oh, the Dodgers!'” Friedman said. “I wouldn’t have had the guts to have done that. But as [Ohtani’s agent Nez Balelo] walked through it and laid it out as we were talking, it was incredibly consistent with everything he had said throughout the process. Sometimes you experience that, but they don’t sync up and match.”
The new-look Dodgers will make their debut in the wee hours of the morning in L.A. on Wednesday, with first pitch at the Gocheok Sky Dome scheduled for 3:05 a.m. PT against the San Diego Padres.
Source Agencies
