Dodgers’ Shohei Ohtani Reveals Why He Elected to Have Historic Contract Deferrals

At long last, Shohei Ohtani is finally a member of the Los Angeles Dodgers. President of baseball operations Andrew Friedman tried three times to sign him, and the third time really was the charm.

The Dodgers’ front office has wanted Ohtani in Dodger Blue since he was in high school. Now, they’ll get Ohtani for what could be the final 10 years of his career. The two-way superstar comes to the team ready and willing to do whatever it takes to win on and off the field.

This has been apparent in the week since Ohtani first announced that he was joining the team. He has already been recruiting other players on behalf of the Dodgers. Even Ohtani’s contract itself includes an unprecedented team-friendly sacrifice.

On the surface, a 10-year, $700 million contract looks daunting, but the fine print shows it’s one of the more team-friendly contracts in sports history. Ohtani agreed to defer all but $2 million of his annual salary each year to give the front office more spending flexibility.

Ohtani wants to have the best possible team around him, and this is his way of helping make that a reality. During his introductory press conference Thursday, he explained why he wanted such massive salary deferrals in his contract with the Dodgers.

“I was aware of the deferral program, or the structure, and usually when there’s a big contract with MLB, deferrals are involved, not all the time, but a lot of the time,” Ohtani said. “I was looking into it and doing some calculations, and I figured if I can defer as much money as I can, that’s going to help the CBT, and that’s going to help the Dodgers be able to sign better players and make a better team.”

Per Shohei Ohtani via The Dodgers Nation YouTube Channel

Ohtani understands that $70 million counting toward the Dodgers’ competitive balance tax penalties each year would hamper the team around him. The first CBT threshold – MLB’s “luxury tax” — starts at $237 million in 2024.

By deferring 97 percent of his salary, the annual value of his contract for luxury-tax purposes is expected to be closer to $48 million once MLB’s calculations are in, according to the Los Angeles Times.

The Times’ Jack Harris has more details on the math:

In 2024, Ohtani will “earn” $2 million in salary, and $68 million in deferred payments. By July 1, 2026, the Dodgers will also have to show the league how they plan to fund the $68 million that will come due in 2034.

The CBA requires only that the “present value” be funded within that two-year period. According to a person with knowledge of how the league calculates such contracts, the present value of that $68 million payment in 2034 is worth about $46 million in today’s money (since money in the present, because of inflation, is worth more than money in the future). Also, funding mechanisms can include cash or “readily marketable securities.”

So, in 2024 and 2025, the Dodgers’ only commitments will be to pay Ohtani his $2 million salary.

From 2026 until the end of the contract, the Dodgers will have to pay Ohtani his $2 million salary, plus show the league they have another $46 million set aside in, let’s say, an escrow account (or some other financial instrument) that will theoretically be worth the full $68 million deferral payment when it comes due.

Los Angeles Times

If the Dodgers can put together a competitive team each season, Ohtani will have a legitimate chance to win the World Series every year. He spent years in mediocrity with the Angels, and clearly had no interest watching history repeat.

No player in sports has deferred this much in annual salary, but that’s what makes Ohtani special. His endorsement contracts could be worth $50 million annually, offsetting much of his deferred salary. He’s unlike any player that we have ever seen before, so it’s fitting that his contract would be structured in that manner as well.

Without swinging a bat or throwing a pitch, Ohtani has already endeared himself to the Dodgers’ fan base. He is putting his money where his mouth is, allowing the Dodgers’ front office to maximize the next 10 seasons of player payrolls even with the game’s highest-paid player. The fun is just getting started.

Photo Credit: Kirby Lee-USA TODAY Sports

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