The recent signing of Shohei Ohtani by the Los Angeles Dodgers has made headlines across the sports world. Ohtani’s 10-year, $700 million contract is not only unprecedented but also goes beyond the norms of North American professional sports. However, what sets this contract apart is the significant piece of the deal that involves deferred payments.
Sources familiar with the agreement have revealed that Ohtani will defer a staggering $68 million of his annual $70 million salary. By deferring over 97% of his earnings, the Japanese sensation has made a bold move that will substantially lower the Dodgers’ payroll and potentially decrease their tax burden.
It is worth noting that the idea of deferred payments came from Ohtani himself. He was primarily motivated by the desire to assist the Dodgers in signing other talented players, thus strengthening the team overall. Ohtani’s generous gesture has been made easier by his lucrative off-the-field earnings, as he is believed to earn over $45 million annually through endorsements. This makes him the most marketable player in Major League Baseball and highlights his substantial influence on and off the field.
The sheer size of Ohtani’s contract raises eyebrows, as it surpasses any previous deal in the history of North American professional sports. However, the structure of the deal ensures that the Dodgers’ competitive balance tax payroll will only be impacted by approximately $46 million after each season. Taking into account the salaries of Freddie Freeman and Mookie Betts, the combined cost towards the competitive balance tax payroll will amount to roughly $100 million annually.
While there is no specific limit on the amount of money that can be deferred in the collective bargaining agreement, teams are required to set aside the present-day value of the deferred money, which in Ohtani’s case will be around $44 million in cash each year. This cash is then placed into an escrow account. Although there are additional financial considerations associated with deferred payments, the Ohtani signing demonstrates the flexibility within the system to facilitate deals that benefit both the player and the team.
Although the Los Angeles Dodgers have yet to make an official announcement regarding Ohtani’s signing, it is expected to occur soon. The team has already made roster adjustments, creating a spot for Ohtani and relief pitcher Joe Kelly by trading away Victor Gonzalez and Jorbit Vivas to the New York Yankees in exchange for shortstop prospect Trey Sweeney. As more details emerge, baseball fans eagerly await the confirmation of this groundbreaking deal.
Shohei Ohtani’s decision to defer a large portion of his salary has far-reaching implications for the Los Angeles Dodgers. Not only does it alleviate the team’s payroll burden, but it also provides an opportunity for the organization to sign additional talented players. Ohtani’s historic contract with its unique deferred payment structure demonstrates the evolving dynamics of baseball contracts and the willingness of players to take unconventional approaches to benefit their teams. As the Dodgers finalize the details of this groundbreaking deal, the sports world remains captivated by the impact it will have on the team’s future success.
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