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Ladies and gentlemen, the Los Angeles Dodgers have won the biggest free-agent sweepstakes of all-time... The Shohei Ohtani sweepstakes.
Dodgers along with Ohtani & his agent Nez Balelo have sent shockwaves across the baseball universe in an earth-shattering contractual agreement. The two parties inked a 10-year $700 million contract that is the largest valued contract in North American sports history (Big-4, MLS). If you disregard the immediate contract deferrals (get to that in a sec) and length, the contract is the largest in total value in the world, surpassing Christiano Ronaldo's $536M contract with Saudi Arabia's Al Nassr team. It's the largest ever to be signed in baseball, surpassing Mike Trout's 12-year, $426 million contract with the Los Angeles Angels. Ohtani doesn't move far; just moves from the AL to NL and plays 28 miles north of where he played the first six years of his MLB career, but the future of baseball in terms of business... moves things ALL over the place.
This contract is bonkers mad and it's not just because it's "worth" that fat $700 million. It's the unprecedented deferrals and all around structure of the contract that has left us all in a haze. I mean this thing is insane- Ohtani is deferring $68M of his $70M Dodger salary each year until the end of his ten-year contract; so $680Ms of $700Ms. The AAV (CBT) will be $46M a year; now we get juicy. The deal currently is worth $46M a year based on a 4 percent interest, but when the league calculates the top 125 salaries for the QO, he will go in next year at $28 million because of the interest rate currently being 10% under the Basic Agreement. The near strike in '21 over the CBA has come back around to haunt the MLB and it's prestige for the future. I mean this is pure robbery in disguise for the Dodgers and it's all due thanks to Rob Manfred; the MLBPA; and the current collective bargaining agreement.
When this shockwave dropped; I had immediately jumped up to degrade Andrew Friedman and Brandon Gomes by acting like the Steve Phillips/Bobby Bonilla travesty of a contract had met it's new match, but after some ponder... I think I salute the Dodgers. To a point! I mean it's baffling they are set to pay a guy $680 million (on today's paper) to grow old not playing for your team. That's what it comes to after the deferrals: Ohtani's contract runs from 2024-2033 at $2M a year with the deferred payments of $68Ms per year runnin' after his contract is over from 2034-2043. How is that legal, you ask? Well it sure doesn't seem legal, but thanks to the CBA it's something that will never be vetoed as they have allowed this to happend in clear font:
It's beyond baffling that the rest of the MLB was fine setting up the conditions that allowed this deal to come to reality. Dodgers will pay $20 million to have one of the greatest baseball players ever and THE best currently alive, for a full decade. The fact this was Ohtani's draw up is wild, the Dodgers literally struck gold. While there is no cap on MLB salaries, unlike those in other professional sports leagues, teams are taxed when a player's salary exceeds a threshold, as in this case with Ohtani. Ohtani issuing an interest-free loan of nearly his entire salary will free up cash flow for the Dodgers while lowering the team’s obligations under MLB’s competitive balance tax. That tax applies to big-spending teams as like a collectively bargained incentive to hold salaries down and give smaller-market teams (cheap owners) a false fighting chance to compete without making a massive financial effort (usually a mistake). It's not a cap, but really a penalty for spending over a certain amount to level the playing field in "efforts" to achieve competitive equity among teams. Dodgers somehow escape the hit. The deferrals allow the Dodgers to save MILLIONS by avoiding tax penalties and exceeding that threshold & there is NOTHING that any of the other 29 owners can do about it.
We have seen owners try and attempt these type of financial tricks in other sports, but it usually ends bad for them. In 2010, the NHL’s New Jersey Devils gave a $102 million contract to winger Ilya Kovalchuk. The trick they tried was inking a 17-year pact that Kovalchuk, then 27, was never going to play all the way out. The 'chise built the contract that way so that Kovalchuk’s salary cap hit would be lower. The NHL's league office dropped them with a HEFTY fine and had taken away some draft picks because New Jersey had committed a grave sin against sports’ ownership class by devising a tricky plan to enhance a player’s salary. The same frustration is sure felt around MLB regarding Ohtani's deal. Quite frankly, it is absolutely disgusting for the sport of baseball and the future of it from a business standpoint, but there isn't a damn thing that can be done. No more questions left there, but one question remains from this shell-shock... why was it Shohei's decision to structure this deal to the way he did?
I am quite intrigued by Ohtani's contractual thinking in his negotiations and signing. In reality, he is getting paid $20 million to play ball for the next 10 years while still not knowing if he can ever return to his full form on the mound. We aren't fully sure on what inflation will do to that $700M value come 2034 when the big checks hit. More than likely it will go down a good deal. You have health questions, longevity questions, short prime questions, you name it. Risks are always involved when you agree to long-term high value contracts in sports (mostly for the franchise). So, why not get a higher amount yearly and guaranteed? Ohtani feels confident in his endorsement earnings to work for the Dodgers for cheap by accepting an employment agreement worth nowhere close to what $700 million indicates- allowing the Dodgers to actively spend to keep building a winning team around him. Something the Angels couldn't offer him (RIP Trout/Ohtani). Keep in mind the Dodgers still pay Freddie Freeman and Mookie Betts. Betts and Ohtani are now worth, on paper, over a billion bucks collectively. Ohtani's endorsement earnings are enormous, estimated at around $50 million a year.
I get it from Ohtani's side of things, mostly if (when) he moves out of California by 2034. The money arriving without interest allows him to get more than 80 percent of the total value outside of California, bypassing their BS taxes. Brilliant move. Ohtani and his agent had a level of thinking that you don't see much in the world of sports business. It's brilliant for both Ohtani and the Dodgers. For Ohtani, this is the best case scenario post his UCL tear. He lost value with the cloud over him, that's fact and we know it. I wouldn't be surprised if a club were to give April Ohtani $600M+ right on spot. He got the most out of his newfound reality. Dodgers get the best player for $20Ms, avoiding tax penalties (despite it being fraud ha), and possibly allowing inflation to save them even more money in full sense. Ka-Ching for them, no doubt. If the Dodgers can actually win multiple (3-5) World Series, then this could be considered a heist of the century down the line, especially when you have the understanding that we will see insufferable CBA agreements in baseball for years to come. If I am Mark Walter: I sell the team in 2033. For the league, this is nasty work. For the image, for the business side of things, and for the long-term. This deal sets MLB back more and continues to raise flags on the CBA in place as well as those who wrote it up.
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