Shohei Ohtani defers 97% of his $700M contract with Dodgers

It comes as no surprise that two-way superstar Shohei Ohtani has signed with the Los Angeles Dodgers. But the dollar figure gave a lot of observers some sticker shock: 10 years, $700 million.

Previously, the biggest outlay in baseball history had gone to Ohtani's former teammate with the Los Angeles Angels, Mike Trout, whose contract calls for $426.5 million over 12 years.

This deal obviously blows that out of the water, but it comes with an interesting twist: Ohtani is deferring $680 million of that money.

The two-time MVP will earn just $2 million per season from now until 2033. Then the Dodgers will owe him $68 million annually every year from 2034 until 2043.

Why do this? It's all about taxes -- the competitive balance tax and income tax. The competitive balance tax payroll for each team typically uses the average annual value of contracts, which is $70 million in this case, but there's a discount for deferred money.

I'm not a good accountant, so I'm not sure how we arrive at this figure, but media reports say Ohtani's cost toward the competitive balance tax payroll with be $46 million. Yeah, that's a lot less than $70 million.

If you add up the contracts for Ohtani and other Dodgers stars Mookie Betts and Freddie Freeman, they account for about $100 million of Los Angeles' competitive balance tax payroll. The luxury tax kicks in at $237 million, so the Dodgers still have room to work to fill out their roster.

Also, presumably, Ohtani will moved back to his native Japan after he retires. I don't know what income taxes are there, but California is a highly taxed state. There might be some savings there if he defers his income until later.

What's the risk for Ohtani? Well, he's not collecting interest on these deferred dollars. With inflation, $68 million in 2043 probably won't go as far as it will in 2024 dollars. But maybe that's a ridiculous concern, given the absurd figures we're talking about here. And Ohtani is expected to make upward of $45 million per season in endorsements, so he's going to have plenty of income well beyond his base salary.

I've seen a lot of comments online from people who think this is "unfair" and "bad for baseball" and whatnot. I think that remains to be seen. Ohtani is a unicorn player, an elite hitter and an elite pitcher all in one. I'd be shocked if this sort of contract becomes common. Most players aren't going to be willing to accept these kinds of deferrals, and most teams aren't going to be willing to give them.

Mostly, I think the people who are upset are just mad that Ohtani is not on their favorite team. It's clear that Ohtani is structuring his contract to give the Dodgers a better chance to win. He wants to go to the World Series. The Dodgers are trying to win a World Series, and they've done nothing here that violates the collective bargaining agreement.

I wish my favorite team was trying to win the World Series.