Is Shohei Ohtani's $700M contract an outlier, or the new standard?
This post recaps how the Dodgers broke the baseball world, and how it will affect future offseasons.
The Los Angeles Dodgers have a reputation for being playoff chokers. They consistently churn out 100-win seasons, but only with a world series from a shortened 2020 season to show for it. As one of baseball’s premiere organizations, this failure is not meeting their standards. So, the Dodgers took the greatest measures they could to try and prevent another year of playoff collapse: They spent 1 billion dollars in free agency. Here’s everything you need to know about the biggest offseason any team has ever had.
The Dodgers spent all of this money on two Japanese phenoms, Shohei Ohtani and Yoshinobu Yamamoto. The former being from the crosstown rival Angels, and the latter being a 25 year-old Japanese pitcher who has put up Pedro Martinez-type numbers in Japan.
Let’s start with Yamamoto. He signed a 12 year, $325 million contract from the Dodgers to team up with Ohtani. He broke the record for largest contract signed by a pitcher (not named Ohtani) even though he hadn’t thrown a single pitch in the majors. Yamamoto is young (25), so he may be a good bet for a longer contract, but his 5’10 frame brings in questions of longevity. Nonetheless, the Dodgers signed one of the hottest arms on the market, which goes a long way to fixing their pitching staff.
Ohtani is the best baseball player in the world, and it isn’t very close. The two-time AL MVP has a case for being the best hitter and pitcher individually, but when combined, nobody in the sport is as valuable as he is. Ohtani broke the baseball world by signing a 10 year, 700 million contract, which on paper is a 60% increase from Max Scherzer’s near 44 million annual contract.
What’s even crazier than the monumental sum itself is the way it’s distributed. On Monday, the Dodgers released that they would set aside 680 million of the 700 million to be paid from 2034 to 2043, so he’ll only make 2 million annually for the next ten years. An adjustment this big is unprecedented, and could ruin the integrity contract negotiations for the near future.
How is this allowed?
Teams have always been able to delay and spread out contract value, but most teams have used this feature minimally. The famous example is about Bobby Bonilla, who has and will receive $1.193M each year from 2011 to 2035. The one case we saw with significant salary was that of Max Scherzer’s 2015 Washington Nationals contract, where the team deferred 105 of his 210 million dollar deal, a clear record at the time.
The MLBPA allows this because typically, the players end up getting the money with interest anyways, while the teams get to decide when they want to pay these figures in order to maximize competitiveness and the on-field product. However, the first point is what makes Shohei’s situation so unique: none of Shohei Ohtani’s contract will receive interest.
Specifics of Shohei’s Contract
Accounting for projected salary cap inflation, Shohei’s contract only counts against the Dodgers luxury tax threshold as 46 million annually. So, he’s set the annual record, but I’d argue he took a discount. Ohtani is a top pitcher and hitter, and although he’ll miss the 2024 pitching season due to getting Tommy John surgery, the combination of his hitting and pitching skills usually would draw a larger sum than 46 million. So, the 2 million on the Dodgers books basically allowed them to get Shohei and Yamamoto for the price of one.
What’s next?
The baseball world, understandably, now knows that the Dodgers are a powerhouse. They’ll be everyone’s World Series pick, probably including mine, and for good reason. Many fan bases are asking themselves why their teams haven’t deferred 97% of a contract like the Dodgers did, and why it’s even allowed. My opinion is that while teams will probably begin to defer certain parts of contracts to dodge certain cap thresholds, I doubt it will ever get to 97% of a contract. I think this contract is an outlier, but teams will start to push more and more money into the future.