It’s been quite a set of Shohei Ohtani-related news cycles over the last few days. First, the self-indulgent US baseball media chastised him for keeping his negotiations private during the Winter Meetings in Nashville. Then there was the day-long flight tracking after “news” broke that he had signed with the Toronto Blue Jays. Then, on Saturday the real thing happened – the two-way star agreed to terms with the Los Angeles Dodgers on a record-breaking 10-year, $700 million deal.
And it was a record-breaker on oh so many levels. His Angels’ ex-teammate, Mike Trout, held the previous MLB record with a 12-year, $426.5 million deal. But that’s just baseball. The Ohtani deal represents a record financial guarantee for any major sport, topping Lionel Messi’s recently expired $672 million deal with FC Barcelona. Yup, this is pretty big news.
Priorities
But there is a little more to this contract than just the overall guarantee. Ohtani clearly placed winning high on his list of priorities when choosing a new team, along with cold cash. The Dodgers, obviously, are a perennial October presence, though their only recent World Series triumph occurred in the COVID-19 pandemic-shortened 2020 campaign. Even if Ohtani was to be their only significant offseason addition, the odds of the Dodgers being a playoff team in the near term would be very high.
But thanks to the structure of this deal, the Dodgers can continue to add and make their club even stronger. Though details of the deal have yet to be released, reportedly according to MLB Trade Rumors more than half of this deal will be paid in deferred money after its 10-year duration. That too, is very huge for a variety of reasons.
This is a variation of a recent trend in large MLB free agent contracts. Teams are all about lowering the AAV (Average Annual Value) of contracts for luxury tax purposes. When the Phillies signed both Bryce Harper and Trea Turner in recent offseasons, the total financial guarantees of their deals didn’t shock the market, but the number of years did. Harper got 13 years and $330 million, while Turner got 11 years and $300 million. The Phils know full well they might have a Joey Votto/Miguel Cabrera-esque situation on their hands at the tail end of one or both of those deals, but both players are reasonably affordable from a luxury tax perspective during their prime, enabling the club to add pieces around them.
Ohtani’s Contract
The Dodgers have approached this in a somewhat different manner, deferring substantial money instead of adding contract years. When all is said and done, depending on the discount rate used to calculate the contract’s present value (which in the current inflationary financial environment, will be higher than in the recent past, a development that also aids the Dodgers in their bid to lower their annual luxury tax bill), this contract will be valued somewhere between $400-500 million in today’s dollars.
The impact on the industry and future mega-deals could be quite significant. I would venture to guess that many clubs will believe that the Ohtani deal crosses the line between luxury tax management and luxury tax circumvention. Deferrals have occasionally been used in free agent deals before – hence, Bobby Bonilla Day – but never to this extent. The previous high-water mark was Max Scherzer’s 7 year, $210 million deal with the Nationals, in which half of his salary was deferred, lowering his luxury tax hit from $30 to $26.4 million per season. I would assume that the Dodgers have already cleared this deal with the MLB office, but given the events of the last few days, nothing would surprise me.
Any way you slice it, this is an unprecedented contract for an unprecedented player. And there is an unprecedented set of surrounding circumstances. The two-way stud will not pitch at all in 2024 due to his second Tommy John surgery. Pitchers routinely come back from TJ these days, but there are no guarantees, especially after a second such operation. But a healthy two-way Ohtani, entering his age 29 season in 2024, has plenty of prime years ahead of him in which a $70 million price tag isn’t totally outlandish.
And that’s before you take off-field value into account. As great as Harper, Turner, Trout, Votto, Cabrera, Aaron Judge, Juan Soto and all the rest, present and past, are and were, none were Ohtani. He and Messi are international superstars who geometrically increase the footprint of their respective sports. The Dodgers already print money, and they’ll print scads more with Ohtani in tow. You might want to check into the cost of Opening Day tickets to confirm this hypothesis.
I’m guessing that we’re not quite done with Ohtani contract news cycles. Once the details are public, they’ll have a life of their own – and there’s a non-zero chance that the Commissioner’s office requests some adjustments so that deferrals don’t become a loophole for large-market teams looking to have their free agent cake and eat it too.
