Just when you thought the baseball world had seen it all, Shohei Ohtani's shockingly record-smashing $700 million, ten-year deal with the Los Angeles Dodgers emerged, paradoxically leaving everyone shell-shocked and eager to see this superstar in play! Even more stupefying rumors became real when it was revealed that a mind-boggling $680 million, nearly 97% of the dough, is deferred until 2034-43 sans interest.
Before you can help but blink in confusion, has our good ol' Major League Baseball suddenly taken a turn for eccentricity or have the Dodgers invented a sort of voodoo magic with contracts? Not really! This is nothing but a smart cookie deal, crafted with care and precision, which could benefit Ohtani as he bid adieu to the Angels and set foot into his new home turf, the sparkling Chavez Ravine!
This deal isn't just about the money; it's also about the player's brand. As Michael Rueda, the head honcho of the U.S. division of sports and entertainment at Withers law firm puts it, Ohtani’s endorsements and off-the-field revenue streams enable him to push back compensations. Yet, the shadows of risk can never truly be banished. Let's remember, as Marius, the bard from Les Misérables said, 'Even the darkest night will end and the sun will rise.'
A cautionary tale for Ohtani might be that of former Pittsburgh Penguins superstar Mario Lemieux, who lost about $26 million in the 90s when the franchise was floundering and couldn't pay off the money it owed him. Lemieux turned his misfortune around by converting his deferred salary into equity with the team and partnered with Ron Burkle to salvage the club from bankruptcy.
In the world of baseball, there is a constant ebb and flow of risks not only for the players but also for the franchises. Take for instance, the New York Mets who deferred $5.9 million that was due to the slugger Bobby Bonilla in 2000 and, courtesy an 8% interest rate, now have to shell out a humungous total of nearly $30 million until 2035. Now, Ohtani's deferred pay comes without interest, saving a potential fortune.
Another prism of Ohtani's gambit lies in the fact that he receives $680 million of the $700 million after he hangs his boots, thereby opening up a possibility that he might not be living in California, home to higher taxes. Depending on where he settles from 2034-43, this could lead to a significant slash in his tax payments.
From the Dodgers’ point of view, Ohtani's contract results in a year-on-year addition of about $46 million rather than $70 million to their payroll for the purpose of baseball’s luxury tax.
Viewpoints may vary, rules may blur and interests may clash, but as Ken Kendrick, Arizona Diamondbacks owner, fittingly said, “They’re playing by the rules...the economics are not so tilted in a way that puts them at an incredible advantage over the rest of us.” In this intricate game of baseball contracts, multiple variables continue to bring calculated risks and exciting scenarios to our beloved game! Let this rollercoaster ride of a contract deal be a reminder that, in baseball, it's always more than just a winning hit!
