Dodgers, Ohtani Got Creative With $700 Million Deal

Once the initial shock wore off on the price tag of Shohei Ohtani’s record-shattering $700 million, 10-year deal with the Los Angeles Dodgers, details about the contract emerged that were nearly as stunning.

A total of $680 million — 97% of the money — was deferred until 2034-43 with no interest.

Had the Dodgers invented some kind of contract voodoo new to Major League Baseball?

Not really. But it appears to be a team-friendly deal that also has benefits for Ohtani as the Japanese superstar departs the Angels, heads 30 miles up Interstate 5 and establishes a new home with the Dodgers in Chavez Ravine.

“Thanks to his endorsements and other off-the-field revenue streams, he has the luxury to defer compensation,” said Michael Rueda, head of the U.S. division of sports and entertainment at Withers law firm. “But there’s always some risk.”

Part of Rueda’s job is giving financial advice to high-profile sports stars and celebrities. He said the Ohtani-Dodgers deal looks like a solid arrangement, even if there are tradeoffs for both sides.

Make no mistake, the 29-year-old Ohtani is a rich man and will be rich long into the foreseeable future, but money promised later is never the same as money in hand.

One example of Ohtani’s risk: Former Pittsburgh Penguins superstar Mario Lemieux was out about $26 million in the 1990s when the franchise was in financial trouble and couldn’t pay the money it owed the hockey legend in a deferred deal.

Things eventually worked out. Lemieux converted his deferred salary into equity with the team, then partnered with Ron Burkle to pull the club out of bankruptcy. They eventually made a windfall after selling part of their stake in 2021 — but it’s a reminder that financial circumstances can change when 20 years pass. The Dodgers were certainly a fan-drawing juggernaut in 2023, but 2043 doesn’t come for a long time. L.A., after all, is only 12 years removed from filing for bankruptcy protection under former owner Frank McCourt.

There’s also at least some risk for the franchise: The New York Mets famously deferred $5.9 million that slugger Bobby Bonilla was owed in 2000 and — thanks to an 8% interest rate — will end up paying nearly $30 million total in annual installments until 2035.

In contrast, Ohtani’s deferred pay comes with no interest. That’s a potentially monstrous savings — maybe billions — on a deal that could have been much more costly. Ohtani’s deal with 8% interest would come out to nearly $3 billion by 2043.

“It’s interesting to me that the deferred money comes with no interest, from what I’ve read” Rueda said. “That’s giving up a lot of money.”

Ohtani’s other potential advantage from the contract is he receives $680 million of the $700 million after he’s done playing, which means he might not be living in California, where taxes are relatively high. Depending on where he lives from 2034-43, that could lead to sizable savings.

Rueda said there are many variables, particularly if he goes back to Japan.

“Tax is always a big part,” Rueda said. “The concept of moving to a different jurisdiction and avoiding the California state tax — yeah, that could be accurate.”

Shohei Ohtani recently signed a record-breaking $700 million, 10-year contract with the Los Angeles Dodgers. However, it was revealed that 97% of the money, amounting to $680 million, will be deferred until 2034-2043 with no interest. While some may question the Dodgers’ contract strategy, it appears to be a team-friendly deal that also benefits Ohtani. Due to his endorsements and off-the-field revenue streams, Ohtani can afford to defer compensation, although there is always some risk involved. Financial circumstances can change over time, as exemplified by former hockey player Mario Lemieux, who lost $26 million in a deferred deal when the Pittsburgh Penguins faced financial difficulties. However, the Dodgers’ financial situation and the potential savings from no interest on the deferred pay make this arrangement seem favorable for both parties. In addition, Ohtani’s contract allows him to receive $680 million after he finishes playing, potentially leading to tax savings if he resides outside of California. Overall, while there are risks involved, Ohtani’s contract with the Dodgers appears to be a solid arrangement with potential advantages for both sides.

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