LOS ANGELES – When is $700 million not $700 million?
Shohei Ohtani’s record-breaking, baseball world-shaking contract with the Dodgers will pay him $700 million for 10 seasons of work, more than a third of the sales price when the Guggenheim Group bought the franchise in 2012.
But the machinations of high finances will make it feel like considerably less for the Dodgers, no doubt a big factor in their willingness to top every other bidder by a large margin.
Ohtani’s deal reportedly includes a significant amount of deferred money – perhaps more than half of the $700 million, according to ESPN’s Jeff Passan. Deferred money is worth less than money paid up front, lowering the real value of the contract and – more importantly – the amount counted against the Competitive Balance Tax each year.
The Dodgers have done this before. Mookie Betts’ 12-year, $365 million contract includes $115 million in deferred money. Betts will get $8 million to $11 million on July 1 every year from 2033 through 2044, well after his playing career should be over (and his bowling career flourishing). The deferrals lower the real value of Betts’ contract to approximately $306 million and his annual CBT hit to approximately $24 million.
Freddie Freeman’s six-year, $162 million contract with the Dodgers includes $57 million in deferred money. Freeman will be getting $4 million to $5 million on July 1 every year from 2028 through 2040.
The deferrals in Ohtani’s deal were reportedly suggested by the two-time MVP himself, motivated by a desire to make it easier for the Dodgers to absorb his salary and still be able to build a championship contender. The Dodgers are certain to top the luxury tax threshold ($237 million) in 2024 once they add the starting pitching they desperately need. But they should be able to avoid the more punitive penalties of the highest bracket.
At the same time, the franchise value – already estimated at $4.8 billion (second only to the New York Yankees in MLB) – is certain to benefit from the “Ohtani bump.”
And whatever the Dodgers pay Ohtani annually will be offset by the revenue the international star will bring to the team.
Estimates of how much additional revenue the Angels gained by having Ohtani in their uniform ranged as high as $20 million annually. Already more of an international brand than the Angels with the power of the global Guggenheim Group behind them, the Dodgers are certain to leverage Ohtani’s time in their uniform to even more lucrative levels with marketing, sponsorship deals and the like offsetting that $700 million price tag.
The Dodgers already lead the majors in attendance annually with few empty seats to be filled by Ohtani’s addition. But according to secondary ticket sites online, the average price to attend Ohtani’s home debut against the St. Louis Cardinals March 28 at Dodger Stadium jumped from $228 to $359 when his contract decision was announced on Saturday. Seats behind home plate are reportedly going for as much as $3500 already.
If Ohtani’s deferred money lowers the real cost of his annual salary (to as low as $50 million by one estimate) and the additional revenue he will bring in could be as much as half of that annually, the two-time superstar suddenly becomes – a real bargain?
