A Closer Look at Ohtani's Record Deal

Today we'll be doing a deep dive on Shohei Ohtani's groundbreaking 10 year, 700 million dollar deal with the Los Angeles Dodgers this past offseason and seeing it from both perspectives.

The Situation

In order to avoid his final year of arbitration, the process in which Ohtani and his former team, the Angels, would both propose their salary valuations of the two-way star, Ohtani signed a 1 year, 30 million dollar deal. In this final year, Ohtani continued to defy expectations, batting .304 with an OPS of 1.066 through 135 games all while maintaining an astounding 3.14 ERA and 1.06 WHIP in 23 starts, although his pitching season was cut short by a UCL injury. Ohtani's standout performance led to his AL MVP and the Los Angeles Ohtani-Trout duo proved to be one of the deadliest in all of sports. The rest of the team lacked, and the Angels went 73-89, falling 16 games behind a wild card spot. The Angels had kept Ohtani at the trade deadline despite rumors in hopes of showing enough promise as a team to lure the star into staying home. Nonetheless, the inability to win and small market of the Angels were sure to loom large as the rest league fought over him. Ohtani had publicly expressed before that he desired to play for a contender on the west coast, and ultimately only two teams were really in contention: the Giants and Dodgers. Overall, as he entered free agency, it was clear that he had the ability to be a franchise-altering pickup, was no ordinary player, and would command money like never seen before.

The Contract

In the end, Shohei signed a 10 year, 700 million dollar deal with the Los Angeles Dodgers on December 11th, 2023. However, the contract held a wrinkle to it, as Ohtani will only receive 2 million a year for the duration of the contract while the remaining 680 million would be deferred equally to the 10 years after the conclusion of the contract. Let's take a deeper dive into both sides.

The Dodgers' Perspective

For LA, Ohtani's deal proves to be a no-brainer from a financial and performance perspective. Performance wise, the Dodgers just finished 4 games back from the best record in the MLB and already boast a roster full of star talent with players such as Freeman, Betts, Smith, Urías, Kershaw and more. By adding who is likely the best player in baseball, the Dodgers maximize their championship window and put forth the best roster in the league on paper. According to ESPN Bet, the Dodgers are the consensus favorite to the win the 2024 World Series, sitting at +450 odds while the Braves follow at +700. Furthermore, they continue to expand their fanbase, attracting fans from all across the world. Financially, the contract ends up being more team-friendly than the "most expensive MLB contract ever" label would suggest. By only paying 2 million a year for the duration of Ohtani's time in LA, Dodgers lighten the damage of the luxury tax, especially given that they've surpassed the luxury tax twice already. Moreover, if they elect to, the Dodgers can sign more players to further aid their championship run. Finally, the 68 million per year will be deferred to start in 2034, and extrapolating an annual inflation rate of 3.1% over 10 years (from 2022-2023), the 68 million can be expected to be worth 92.28 million by 2034, with room for more increase. Overall, the immediate support in the Dodgers' win-now aspirations and lessened immediate financial burden make the contract a smash deal for general manager Brandon Gomes.

Ohtani's Perspective

For Ohtani, he chooses this contract for one main reason: the pursuit of a championship. As established above, the Dodgers boast the most star talent in the league on paper and have championship aspirations and a timeline in line with what Shohei wants. Additionally, LA is willing to pay Ohtani what he desires, and they boast a big and player-friendly market and own a top-10 payroll in the league. On the other hand, the Angels were unable to provide this financial security and top-tier roster as Ohtani hopes to add a World Series pennant to his trophy collection. While Ohtani does shatter records with his 700 million dollar deal, you might be wondering why he agreed to the deferring of his money. Firstly, only making 2 million for this year allows the Dodgers to continue shopping for other players, and they did, signing Ohtani's former teammate and star international pitcher Yoshinobu Yamamoto. With this signing, the Dodgers' championship hopes continue to improve, much to the pleasure of Ohtani. Moreover, a silver lining within Ohtani's deferred money is that after his contract is up, he can move out of California and avoid the hefty 13.3% tax rate that would have been placed on his 70 million instead of 2 million. This move will end up saving potentially near 100 million and help instead of hurt financially. Overall, as Ohtani chases a World Series, seeks financial stability, and seeks a big and prosperous market, the contract the Dodgers offered proved to be an obvious decision.

Conclusion

Overall, despite initial doubts by many, the contract is in reality a win-win for both sides. Ohtani adds much needed intangibles, talent, marketability, and star-power to a contending team as they establish themselves as the clear championship favorite. Financially, there is flexibility in the present and both sides receive added benefits with the deferred money. Nonetheless, no matter what, this deal will be one for the history books and one looked back on for decades.