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The current labor deal between MLB and the MLB Players Association dictates no limit to the amount of compensation a player can defer. The Los Angeles Dodgers and Shohei Ohtani have taken advantage of that clause to an unprecedented degree in a move that could alter the competitive state of the league for the next decade.
The two-way superstar’s record-setting $700 million contract will contain $680 million in deferrals, according to multiple reports, beginning in 2034 – after the 10-year contract term – and running to 2043.
Since MLB uses a net-present value of money calculation for competitive-balance tax purposes, the deferrals will be considered an annual $46 million addition to the Dodgers’ payroll instead of $70 million. That difference will help allow the Dodgers to avoid the uppermost penalties of the league CBT and continue to build a competitive team around Ohtani.
With this calculation, the Dodgers’ current payroll and benefit commitments for 2024 are still well below even the first CBT threshold of $237 million, and the team is on the hunt for other available top talent, such as Japanese pitcher Yoshinobu Yamamoto.
Dodgers Flex
The unique contract structure also reflects how forcefully the Dodgers are able to flex their financial might in a way that many other MLB clubs cannot. The Dodgers are able to commit such large annual payments two decades into the future, as they have the security of a 25-year, $8.35 billion local rights contract with Spectrum that still has 15 years left and a perennial status as MLB’s attendance leader.
The Dodgers have already executed this strategy, at smaller levels, with some of its other stars, including $115 million in deferred money for Mookie Betts and $57 million more for Freddie Freeman.
While the Dodgers get a massive benefit from this structure, so does Ohtani, provided he’s not living in California after his playing career. If he resides in another state at that point, he’ll avoid California’s top tax rate — which will reach 14.4% starting Jan. 1 – and potentially save millions.
While Ohtani will receive just $2 million in yearly salary from the Dodgers during the deal, his current income is buttressed by more than $35 million in annual endorsements, a figure set to rise now that he’s playing for one of MLB’s marquee franchises.
