The biggest name in Major League Baseball has made his decision. Shohei Ohtani, the reigning American League Most Valuable Player, has signed with the Los Angeles Dodgers for $700 million over 10 years.
The contract is record setting in its size and, as more details become available, also rather unique. Of the $70 million he will be paid per year, Ohtani will defer $68 million until after the completion of the contract.
Sports economist and professor in Drexel University’s LeBow College of Business, Joel Maxcy, PhD shared his insight into the record-setting contract of the biggest name in baseball and the unique structure of MLB deferred salary contracts.
Ohtani will receive a salary deferral to help keep the Dodgers competitive during the length of his contract. Is this unique to Ohtani because he is a once-in-a-generation player?
Deferred compensation is quite common in MLB. The most famous case is that of former New York Met Bobby Bonilla, who is due to receive an annual payment of over $1 million until 2035 in exchange for deferring the last year of his $5.9 million salary in 2000. Unlike Ohtani, who is deferring his payments without interest, Bonilla has earned 8% annual interest. Other well-known former players who still are receiving deferred salary payments from former employers include Ken Griffey Jr. (Reds; retired in 2010), Manny Ramirez (Red Sox; retired in 2011), Matt Holiday (Cardinals; retired in 2018), Bret Saberhagen (Mets; retired in 2001) and current player Max Scherzer (Nationals; now playing for the Texas Rangers).
It’s a record-setting contract, is it a good deal for Ohtani? For the Dodgers?
I expect both sides believe it is a good deal for them. Ohtani is very popular internationally and for the Dodgers it gives them an opportunity to leverage his brand, especially in Japan. I expect Dodger games will be broadcast there, not to mention opportunities for sponsorships and parentships with Japanese firms.
Because games will be broadcast abroad, expect to see advertising from Japan and elsewhere, around Dodger stadium, including behind home plate. USA Today reports that Ohtani was worth $25 million per year to the Angels (his former team) in marketing and licensing revenue and that amount may double for the Dodgers.
Meanwhile, the reported requests for Dodgers tickets have already increased significantly. Moreover, the deferment will allow the Dodgers to escape hefty luxury tax (competitive balance tax) payments to MLB, which they would face if paying Ohtani the full value $70 million each season.
For Ohtani, $700 million – or $70 million per year over 10 years – is, as reported, a record contract far exceeding the $40+ million, earned by Justin Verlander (Astros), Max Scherzer (Rangers), and Aaron Judge (Yankees). Interestingly, this is the most significant contract since a major signing in 2000. That contract was Alex Rodriguez’s 10-year contract for $25.2 million per year with the Texas Rangers, and would be adjusting for inflation worth more than $45 million per year today, much less than Ohtani, but more than any other current player. I would however question Ohtani’s willingness to take his deferment interest free. As seen from Bonilla’s payments from the Mets, that will be a good deal for the Dodgers!
There have been other record-setting contracts in baseball recently, but will anything top this?
I expect so. Records are always broken, and many (not me) thought A-Rod’s contract was crazy and we had seen the maximum possible in 2000. But here we are. I’m sure there will be a bigger, more lucrative contract at some point in the relatively near future.
What are some of the factors that make Ohtani appealing and worth a historic contract?
To reiterate, his international appeal especially in baseball-crazy Japan, is exceptional and very valuable. However, more extraordinary is his two-way play and great success as both a pitcher and a slugger. Given his injury, it’s not yet clear if or when he will pitch for the Dodgers. Nonetheless, this combination of positions is unprecedented since the legendary Babe Ruth’s achievements 100 years ago. Moreover, Ruth was a pitcher-turned-hitter who gave up pitching before the peak of his career. That may end up being the case for Ohtani too, but if he returns to his pre-injury pitching form modern baseball fans will see once-in-a-lifetime talent.
Media interested in speaking with Maxcy should contact Annie Korp, assistant director, News & Media Relations, at 215-571-4244 or amk522@drexel.edu
