Why Shohei Ohtani, baseball’s best player, will barely make more than some of the worst MLB players

By CNN Newsource

Published December 14, 2023 7:53 AM

By Matt Egan, CNN

New York (CNN) — Baseball superstar Shohei Ohtani just inked a monster contract with a unique structure that will surely make Bobby Bonilla smile.

Valued at a staggering $700 million, Ohtani’s 10-year deal with the Los Angeles Dodgers isn’t just the richest sports contract on the planet.

The record-setting contract features an unprecedented arrangement where Ohtani will defer more than 97% of the pay until the end of the term.

It echoes Bonilla’s famous 2000 deal with the New York Mets that allows him to collect $1.2 million every July 1, from 2011 until 2035.

Except Ohtani’s deal involves more money. A lot more. The Dodgers will owe their new trophy asset just $2 million annually, leaving the final $680 million until after 2033.

“It seems like a variation of the old Wimpy saying from Popeye fame, ‘I’ll gladly pay you tomorrow for wins today,’ and this structure benefits both parties,” said David Carter, principal at consulting firm The Sports Business Group.

Indeed, the extremely backloaded nature of the contract is a win-win for the Dodgers and Ohtani.

For the Dodgers, landing the best player in the sport — but paying him almost nothing — leaves the franchise with plenty of financial firepower to lure other stars.

The Dodgers have guaranteed they won’t fall into a trap of overcommitting to one player, leaving little left to sign free agents and keep homegrown talent.

Another benefit for the team: It will avoid some of the luxury tax impact of signing a player of this caliber. (MLB clubs must pay a luxury tax if their payroll exceeds a predetermined level. In 2024, that level is $237 million).

Instead of getting hit with the full $70 million, Ohtani’s average annual value for luxury tax purposes will be just $46 million, a source previously told CNN.

For Ohtani, the backloaded structure of the Dodgers deal gives him a chance to lock in a massive amount of money while maximizing his chances to win now.

Winning some championships — in the nation’s second-biggest media market — would in turn enhance Ohtani’s considerable off-the-field deals, including lucrative sponsorship agreements.

Perhaps just as attractive for Ohtani, backloading the contract will reduce his personal tax liability, as reported by The Wall Street Journal.

While playing home games in California — a state with very high income tax rates — Ohtani will only be making $2 million a year. (Players also pay taxes on road games played elsewhere.)

After that — when Ohtani will get the rest of his $680 million in pay — Ohtani would be free to live in a state with a lower tax burden, or perhaps one like Florida with no income tax, or in Japan.

“Simply put: the deal is backloaded because it can be,” Carter, the sports business consultant, said. “The Dodgers have the long-term financial wherewithal to credibly commit to such a long-term payment given their revenue.”

As Carter noted, it also helps that Ohtani has a “massive endorsement portfolio.” That means he doesn’t need to live off his Dodgers paychecks. He can live off his status as a global pitchman.

Ohtani has more than a dozen partnerships around the world that generate at least $35 million in annual endorsement earnings, including with Boss (formerly Hugo Boss), Fanatics and Seiko Watch, according to a tally from Forbes.

All of this explains why Ohtani himself pushed for this deal to be so backloaded.

“He had been educated on the implications and process of deferrals and felt it was the right thing to do,” the source previously told CNN. “This was an easy decision for him.”

And yet Carter doesn’t think many other athletes will be able to follow in Ohtani’s footsteps by extremely backloading their own deals.

He points to how there are few franchises that have the global appeal and moneymaking abilities as the Dodgers and few athletes that have the endorsement heft of Ohtani.

“There won’t likely be many of these deals down the road,” Carter said

– CNN’s Kevin Dotson and Sam Joseph contributed to this report.