Why Ohtani’s unique $700 million contract is a good deal for both him and the Dodgers
There’s almost no such thing as a $700 million bargain in baseball.
Then again … By agreeing to a stunning, 10-year, $700 million contract with Shohei Ohtani this weekend, the Los Angeles Dodgers both added a two-time MVP to their star-studded roster and structured the deal — thanks largely to Ohtani’s decision to take an unprecedented amount of deferred money — in a way that should allow them to pursue more impact additions this offseason and beyond.
“The deferrals were primarily about allowing the team to be successful on the field,” said one person with knowledge of the contract who was not authorized to speak publicly. “Because above all else, he wants to win.”
Under terms of the deal, Ohtani will have $68 million of his $70 million salary deferred each season. That means he will receive $2 million per year for a decade, then get the rest of the money in payments to be made from 2034 to 2043.
Because of the unique structure of the contract, Ohtani will count for about only $46 million annually against the
Dodgers’ payroll for luxury tax purposes — giving them extra flexibility to try to add to their roster.
The agreement shattered Mike Trout’s previous MLB mark of
$426.5 million with the Los Angeles Angels. It was also believed to include the most total guaranteed money of any contract in professional sports history (albeit still well short of the $100plus million in annual salary soccer stars such as Cristiano Ronaldo and Leonardo Messi have commanded overseas).
Leading up to Saturday, not even the most bullish free-agent predictions dared to forecast Ohtani’s contract starting with the number seven.
One Angels front office member earlier this year openly laughed at the suggestion Ohtani could get $600 million — and that was before the 29year-old underwent his second Tommy John surgery in September, a procedure that once threatened to potentially dampen his market in free agency.
Once the terms of the contract came into focus, some industry experts viewed the pact as strong value — if not a subtle steal — for the Dodgers. The $700 million commitment, it is believed, won’t be nearly as cumbersome as its hefty price tag suggests.
Consider the “presentday value” of a contract. That is a calculation that determines how much a deal involving deferred payments would be worth if all of the money was paid in the present day — not in the future when inflation will decrease its overall worth.
When Freddie Freeman signed his $162 million contract with the Dodgers two years ago, for example, its $57 million of deferred money lowered the present-day value to roughly $148 million, as calculated by the MLB Players’ Association.
Same with Mookie Betts’ $365 million deal, which had a present-day value of $306.7 million thanks to its $115 million in deferred payments.
The MLBPA will calculate the present-day value of Ohtani’s contract, which was negotiated by Nez Balelo of CAA Sports, once it is completely finalized.
Maximizing salary never seemed to be Ohtani’s main goal. He spent the last three years languishing on mediocre Angels teams, never coming close to the postseason despite his own personal dominance and lofty team payrolls that topped $200 million. His priorities as a free agent appeared to be A) join a winning team, and B) ensure that his mammoth contract wouldn’t create unmanageable payroll headaches that limited other roster moves his new club could make.