Yesterday we learned the details of Shohei Ohtani’s record-breaking, headline-grabbing $700 million 10-year contract. It’s not like anything we’ve ever seen.
Starting next year, Ohtani will be paid $2 million per year. Per Cot’s, that’s a little more than his teammate Yency Almonte, a little less than his teammate Caleb Ferguson. It’s a quarter of what Joe Kelly will get. I could go on. You get the point.
And that’s what he will get paid, every year, from 2024 to 2033. All those tweets about how he’s going to be paid $70 million, more than the entire Oakland A’s payroll? Nonsense. He wouldn’t even be the highest-paid guy on the team!
But he gets to his $700 million, after 2033, when he’ll be 39. For each of the next 10 years, he’ll get $68 million per year.
We’ve heard of backloaded contracts. We’ve heard of deferred payments. This is the backloaded, deferred payment contract to end all backloaded, deferred payment contracts. He’ll earn $20 million over 10 years. Then he’ll get $680 million over the next ten. $20 million + $680 million = $700 million.
The article to which I linked at the top, by The Athletic’s Fabian Ardaya and Evan Drellich discusses why the Dodgers would want to schedule his payments this way. They get to reduce the amount MLB calculates for the average annual value of the contract, thereby reducing their total payroll subject to the luxury tax. It will save them money, assuming they are over the luxury tax threshold regularly (which seems a safe assumption in at least the near term).
But what does it do for Ohtani? What does he gain, or lose, by deferring over 97% of his payments?
There are three factors we have to consider.
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