Shohei Ohtani is an LA Dodger: 10 years/$700 million
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This is just the Ilya Kovalchuk moment come home to MLB. As MLB has moved closer to a hard cap, it has gotten to be better and better value to have cap guys poring over ways to design contracts in a way that minimizes CBA consequences. Next go-round this loophole will be closed, but kudos to all involved for driving through there first.
Not that the Red Sox are poor or anything but assuming this is how it shakes out I do think this is kind of crappy for the game in a “Dodgers Ensure 2024 Pennant By Signing Every Player in Baseball” kind of way. Friedman has understandably been admired for his smarts and savvy to this point but this kind of heavy handed market manipulation feels different somehow.
But “the life of the contract” is actually not the life of the actual contract, right? It’s the life of Ohtani playing under the contract.
Doesn't this also screw over the other players because the qualifying offer is based off of the top 100 or so contracts by average annual value?
Yeah, to me this is the Dodgers and Ohtani doing each other a solid to the detriment of the MLB CBA, the other teams, and I assume federal and state tax agencies. Ohtani benefitting makes sense if he avoids taxes and gets to be on a team that can sign more stars and win.
Good for them for figuring it out, but nobody really wants this to become the rich guy tax-and-rules-loophole competition rather than baseball centered.
I'll bet he's fine with it -- he doesn't have the tens of millions of sponsorship dollars to fall back on -- but it was still kind of funny to me to think about.
Sure yes, I should have said the stated 10y duration of the conract.
Not when it's a 46mm AAV, still the highest ever, right?
Dodger fan friend of mine here in SoCal keeps reminding me the team hasn’t announced this yet. I tried to explain the 40 man thing but it isn’t sinking in.
Basically joking that Ohtani is going to move to Florida in 2034 to avoid state taxes. Lots of Olive Gardens there apparently.
For the most part agree, although I think pretty clearly he could have gotten a higher AAV ($60M?) with a less exotic contract structure, and Ohtani may still be personally getting $60M/yr of value if there are tax benefits.
Yeah, CA’s FTB (tax org) is one of the most aggressive in deciding what counts as ‘doing business in CA’ - I strongly suspect they think ‘getting paid for games played in CA 10 years prior’ counts as CA income
The simple answer is usually the right answer. Ohtani wants to be paid but he also doesn’t want to cripple the chance of playing for a winner.
Yup. Historical talent who has wasted several years now in bad teams.
I‘d be shocked if they didn’t sign Yamamoto
Why not take 10/$460M from the Dodgers then? That would have the same impact on their ability to sign players and been the same economic value to him.
There must have been an advantage to this for him. Is it just the notoriety of $700M headline?
It's a bit of a tangent, and agree its 100% different than addressing the deferrals.
But ignoring deferrals entirely, there has been a push for these long term big $ contracts over the last couple of years. I posted a Fangraphs article upthread about it.
The present day value of a lot of these 10+ year contracts are significantly less than it might seem at first glance due to interest rates. But I agree doesn't matter for AAV calculations or the CBT.
Well, from his perspective, he makes $50m+ a year now in endorsements. Maybe in 10 years, that won't be there & he'll have his $68m coming in every year, keeping his income relatively stable for the next 20 years.
This seems to be a thing the Dodgers are into, though. They also did it, to a lesser extent, with Betts & Freeman.
Why do we think so? Seems more likely to me that he took the biggest actual economic AAV offer, which happens to have an outsize "day 1 report" AAV to boot.
Not a lot of great reasons unless the tax avoidance works out. Maybe the Dodgers wanted it for cash flow reasons and he said sure.
Big headline/splash factor I guess too.
What? As I understand it, Brady took below market deals for years to be on a good team. Ohtani isn’t remotely doing that here.
Huh how about that - thanks for this. Had no idea they used different rates. Maybe there's reasonable economic explanations for both but on the surface it seems like a bit of a ball drop by the MLBPA.
can the CA tax authorities go after this? This seems like tax avoidance.
But seriously, 2M a year doesn’t go that far in LA
Why would he do this willingly? (Other than the tax reasons)
But seriously, 2M a year doesn’t go that far in LA
Why would he do this willingly? (Other than the tax reasons)
If he really does make 50M per year in endorsements anyway he probably doesn't care much. I have a hard time believing he will get out of the taxes, this is a very publicized contract and it's clear where/when the "work" is being done.
I agree if I were him I'd probably just have asked for 46M per year for 10 years and no deferrals if he was going to take a contract at this value.
Maybe he just liked the sound of 700M
Let me emphasize once again what I said above because the possible, if not probable, ramifications of this cannot be overstated. Its not just Yama -- I would be more than shocked if he does not sign with the Dodgers. It's also Roki Sasaki. I imagine that these guys want to play together (and I would not be surprised if Yoshida would want to join them). Roki can choose his team for small change (by rule) when he comes over. Imagine a rotation of Shohei, Yama and Roki. Think that is far fetched? Think again. Sohei is on record as being a huge supporter of Roki. And Roki idolizes Shohei. Take a listen to the below link. I'm not trying to be over-reactionary here --many things can happen and I would be more than happy to be proven wrong. But Shohei clearly wants to win at all costs. I would go so far as to say that I'm usually wrong and I like to jinx it more by stating it publicly (which has worked in the past). I simply do not like what I am thinking might happen. What can stop it from happening? Maybe nothing.
View: https://twitter.com/TalkinBaseball_/status/1637956534826041344
The tax avoidance thing is really interesting because it could really interfere with his desire - if he had one - to retire a Dodger. He's only 28 so a 10 year deal takes him to 38. That's not that old for an elite player. Here in Philly Bryce Harper is already saying his deal through his age 38 season isn't long enough since he wants to play into his 40s. He wants Philly to tack on some years right now.
If Ohtani ever wanted to talk on extra years to stay in LA, then that would force him to pay CA state tax on that 68M deferred salary for each year. He now has a pretty sizable economic incentive to leave LA before that first 68M payment comes his way.
If lowering the AAV was his primary goal, I don't get why they didn't make it a 12 or 13 year deal. There's precedent with Harper's deal and it would take him into his 40s and push out the risk of getting into a position where he wants to stay longer in LA and still avoid taxes on the big deferred payments.
If Ohtani ever wanted to talk on extra years to stay in LA, then that would force him to pay CA state tax on that 68M deferred salary for each year. He now has a pretty sizable economic incentive to leave LA before that first 68M payment comes his way.
If lowering the AAV was his primary goal, I don't get why they didn't make it a 12 or 13 year deal. There's precedent with Harper's deal and it would take him into his 40s and push out the risk of getting into a position where he wants to stay longer in LA and still avoid taxes on the big deferred payments.
I thought it was a bit odd this contract is "only" 10 years as well. It could easily have been longer and made the AAV even less with the same $.
He also called the Dodgers his "next" team on his announcement. Maybe he has ideas about his career in 10 years after the Dodgers, he might still be a good player.
yeah, will be fascinating to see how CA views this. Do you pay tax on the $68m per year based on your residence when you “earned” it, or when you “receive” it?!?
You don't think anything north of 10/$460M was on the table somewhere? From the Blue Jays, Dodgers, Giants, etc? It certainly hasn't sounded that way to me.
To me, it comes down to whether there's tax avoidance. Otherwise, why would Ohtani do this? If he avoids significant taxes, he essentially gets the economic benefit of a larger contract while the Dodgers only have to pay the CBT value of a smaller one. So they both win, but everyone else loses to some degree.
Unless there is some billionaire owner "this is a new investment scheme" fervor, I think MLB probably makes a rule that a contract can't be >50% deferred money, or that if it is >50% deferred, the additional deferred funds get no CBT devaluation benefit. It's just kind of hard to see massive, distorted deferral accounting benefits as "good for competition".
I kind of have a different perspective. I think it would be pretty cool if all the top talent from one country was on one team. Now, I certainly wouldn’t like it if that team were the Yankees but seeing Ohtani, Yamamoto, Sasaki take on MLB’s best would be kind of cool. But I do agree with the broader issue of competitive imbalance. It would be a huge advantage for the Dodgers if the entire country of Japan becomes a feeder system.
To me this kind of approach also levers up the financial risk on teams. It's potentially dangerous to have enormous deferred payouts looming in the future, so heavily disconnected from current cash flow. Sure, the Dodgers can afford this, but what if other teams start really pushing the envelope to compete.
I'm legit surprised he took a contract that got valued by the players union at 460M. I would have assumed at least 100M more. I thought his bat alone would get him 400M on a traditional contract. Maybe the pitching medicals are so dicey they aren't expecting much on that end of things.
Bad luck for him to have an elbow injury right before FA. Without that he might have gotten with a 1B deferred contract that ended up being truly worth 600-700M.
I would not be surprised if the amount of deferred money is a discussion point during the next CBA.
I actually agree with you that it would be cool. I grew up in Kyoto and have an immense fondness for Japanese baseball. What trumps that is that I am a Red Sox fan
So, sure I can totally see this happening. But when you talk about ramifications, and I think earlier in the thread you called it infuriating that the Dodgers could end up with all three... I think what you're overstating is the extent to which this contract structure uniquely positions the Dodgers to get all three of those guys. I believe it's already been posted somewhere in here previously, but with the $46M AAV the Dodgers would still be under the 1st luxury tax threshold right now. And they let studs like Corey Seager and Trea Turner walk so they could be in such a position.
So if they had signed Ohtani to a $460M/10 deal, then they go over the tax to also sign Yamamoto. Then a year or two later, Sasaki comes to the Dodgers because he 1) wanted to come to the MLB early and didn't care about forgoing the money, and 2) wanted to play for the Dodgers badly enough that they were the only real team he's considering. None of that sequence of events requires that the Dodgers go beyond, or even to, Cohen levels of crazy spending. And that is effectively what happened if you just ignore the weird structuring of the deal and just look at the real value and AAV. It's just the Dodgers playing the long game and executing it flawlessly.
We can definitely have a separate conversation about competitive balance if every star player from Japan chooses to go to the Dodgers, but I don't view that as being tied to the way they structured their deal with Ohtani. I also think it would be cool to see the three of them playing together though.
Right, but I think our options are here are be amazed that he took a contract worth only this much, or think that he is benefitting in some other way (taxes, as discussed).
To me I just think at this economic stratosphere, the financial advisors and agents are too savvy and bottom-line oriented to just surrender tens or hundreds of millions of value with no ulterior profit motive.
Sorry, that's what I mean, wasn't trying to imply otherwise. Leaning on endorsements to help the team rather than burdening them with a higher contract at the time.
According to this ESPN article, they have to put the difference between the CBT AAV hit and the actual payout into an escrow account until it's time to pay it out:
So in theory assuming the escrow account is allowed to earn interest at a comparable rate to where the deferrals are being PV'd, they'll have plenty of money to pay him.
Gotcha, that makes sense, I take it back. Agreed, I have to believe the escrow account would be structured to allow very-low-risk investments (bonds and cash) that earn a marketable rate.
I agree. I suppose it's possible he never wanted to leave LA, didn't want to stay with the Angels, and the Dodgers knew they were bidding against themselves.
Certainly none of the agents or advisors want to surrender hundred of millions, but if their client told them he will only sign with the Dodgers at the end of the day, perhaps they just did the best they could.
Just to clarify -- I certainly hope you are correct about the structuring (as I said I'm often wrong) and yes, the Dodger management, should this all go down, are really brilliant and not Cohen-like. My use of the term "infuriating" refers to the fact that I am not only a Sox fan but a Giants fan, and I feel the same way about both the Dodgers and the Yanks. So (and here I am assuming you are not a Giants fan) imagine that it was the Yanks who were looking at a Shohei, Yama and Roki rotation. Infuriating indeed!
Perfectly understandable with that dual fanship this offseason. I do not envy you!
Does Yomiuri Giants count? Because I’m a Giants fan then! My wife is from Tokyo and it feels like they’ve gone through some tough times of late.
He was a great hitter last year, but isn't as good as Judge who got "only" $360 million and plays surprisingly good defense. As a DH, he's maybe worth $25-30 million. The extra $15-20 million is for the days he can pitch.
This could be a pretty savvy move for Ohtani to maximize his lifetime earnings. How much more money will he make marketing his personal brand in the LA market if he's part of a perennial behemoth rather than just a very good to great team. World Series wins aren't bankable (see other thread) but they should be in the playoffs A LOT and the number of opportunities to he'll have for post season heroics has to be as high as anyone in living memory.
I think Ohtani would be an average to above average OF if he gave up pitching entirely.
I don't think teams assume he is a DH only if the pitching stuff never works out.