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Shohei Ohtani’s $700 million contract with the Los Angeles Dodgers shocked the baseball world this offseason. He also reportedly surprised the Dodgers.
TO Sports Illustrated article by Tom Verducci on Ohtani released ahead of his debut with the Dodgers 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 of deferring $680 million of the money until after the end of the contract came about.
Such a structure is unprecedented in baseball. Having a player agree to a promissory note for 97% of his contract money is so team-friendly that Ohtani’s contract sparked debates about whether MLB should act to close what many called a loophole. It is such a strange idea that it could only come from the player himself, to improve the competitiveness of his new team.
According to SI, Ohtani’s agent, Nez Balelo, explained the proposal to Dodgers president of baseball operations Andrew Friedman on December 7, two days before the deal was announced. Friedman told Verducci the word “Deal!” They immediately appeared in his head, then a few more appeared after he ended the call:
Friedman and Balelo, who still had other teams interested, agreed to talk again the next morning in more detail. After hanging up, Friedman called Dodgers president and CEO Stan Kasten.
“Holy cow,” Friedman said.
“Is that ‘Holy shit’ good or ‘Holy shit’ bad?” -Kasten asked.
Very good indeed.
Instead of 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’ll pay him $68 million annually, likely in the hope that Ohtani’s income streams have already ensured he’s paid for himself.
Financially, Ohtani will pay the price for the lack of interest in subsequent payments. That’s a big enough factor for the MLB Players Association to estimate the current present value of Ohtani’s contract to be approximately 438 million dollarswhile the MLB set it at $460 million.
It won’t be a total loss, however, as Ohtani will be able to avoid a large amount of California state income taxes. Verducci notes that the California Center for Jobs and the Economy has estimated that if Ohtani does not live in California at the end of the contract, he could avoid $98 million in income taxes.
California State Controller Malia Cohen was not amused by the news. ask for a limit on contract postponements.
Shohei Ohtani’s deferred money opened Dodgers’ offseason
Meanwhile, the Dodgers could use that $68 million on other things, namely making 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. They then signed another Japanese free agent, Yoshinobu Yamamoto, to the largest contract ever for a pitcher, in addition to Teoscar Hernández (one year, $23.5 million) and James Paxton (one year, $11 million).
By average salary, Glasnow, Hernandez and Paxton will combine to make $61.5 million next season, or $6.5 million less than Ohtani is deferring.
As Friedman said during Ohtani’s conference, it’s a deal any team would have been afraid to throw at Ohtani for fear of insulting him:
“I wouldn’t have had the nerve to propose it, and that’s the funny thing about ‘Oh, the Dodgers!'” Friedman said. “I wouldn’t have had the guts to have done that. But when (Ohtani’s agent, Nez Balelo) read it and presented it while we were talking, he was incredibly consistent with everything he had said throughout the entire process. Sometimes you experience that, but They do not synchronize or coincide.”
The new-look Dodgers will make their early-morning debut in Los Angeles on Wednesday, with first pitch at the Gocheok Sky Dome scheduled for 3:05 a.m. PT against the San Diego Padres.