Baseball's Top Player Shohei Ohtani's Unique Contract Structure
Shohei Ohtani signed a staggering 10-year, $700 million contract with the Los Angeles Dodgers in 2021, breaking records and making headlines. But something unusual about this contract stands out - its pay structure.
The unique feature of Ohtani's contract is that the Dodgers will only pay him $2 million a year until 2033. The remaining $680 million is deferred and will only be paid out between 2034 and 2043.
This innovative contract structure benefits the Dodgers in several ways. First, it allows them to sign one of the best players in MLB without breaking the bank immediately. Second, it helps the team avoid luxury taxes associated with high player salaries, as the annual average value (AAV) of $70 million is used for calculating the Competitive Balance Tax (CBT) payroll.
The deferred payment structure also works in Ohtani's favor. Despite the initial low salary, he will receive his full salary of $700 million over the contract duration. Additionally, Ohtani's numerous endorsement deals and other income sources make the initial lower salary manageable.
However, there is a risk associated with the deferred payments. If the Dodgers' financial situation changes significantly, they might struggle to honor these payments. To mitigate this risk, the money is placed in an escrow account and audited annually.
In conclusion, Shohei Ohtani's unique contract structure benefits both the Dodgers and him. The team can attract top talent without a significant immediate salary burden, while Ohtani secures a guaranteed income and maintains his marketability during the early years of the contract. Despite the risks associated with deferred payments, the escrow arrangement minimizes these concerns.
