Shohei Ohtani just signed the biggest contract in sports history — or did he?
The MLB star's strange deal full of deferrals makes for a complicated data point.
Dear readers,
Thanks for bearing with us as we’ve been on a slight hiatus — with our other jobs and the holidays approaching, this week made the most sense to get you our A-game: some aspirationally sharp analysis that we hope you’ve come to expect! This week, we’re digesting the largest contract in professional sports history — or was it?
Happy reading.
-Ian and Calder
On Monday, two-way baseball superstar Shohei Ohtani signed the biggest contract in sports history with the Los Angeles Dodgers: $700 million over 10 years. That’s almost $300 million more than the next largest baseball contract ever ($430 million/12 years for outfielder Mike Trout). But by Tuesday, it was no longer the largest contract in sports history — at least not in value.
No one signed a day later who beat his number. Rather, we found out the structure of his deal: and it’s a strange one indeed. Every year from the 2024 baseball season through the 2033 season (the duration of his actual contract), Ohtani will only actually take home $2 million per year. That’s about as much as a veteran backup player makes. But then, from 2034-2043, the Dodgers will pay Ohtani $68 million/year. They’re paying him after the term of his contract is up, and without interest. Crunching the numbers, due to expected inflation that takes the actual value of his deal down to the neighborhood of $462 million — still a shocking amount of money and the most in baseball history, but not the most in all of sports ever.
If you don’t pay too much attention to the vicissitudes of MLB contracts (i.e. if your brain is not broken like ours are), the deferral payments might sound downright strange. And Ohtani has certainly taken them to a whole new level. But the system of deferring some cash down the road has actually been going on for a long time. The most famous example is probably outfielder Bobby Bonilla’s contract with the Mets; in 2000, the team agreed to buy out the rest of the aging superstar’s contract, at the time $5.9 million. Not wanting to take the hit, they agreed to make annual payments starting in 2011 and going through 2035 worth a little over $1 million. Given that Bonilla last swung a bat professionally in 2001, the deal has made the franchise something of a laughing stock (well, that and hundreds of other things).
But Bonilla is far from the only player to take deferred money, and it’s becoming an increasingly common practice, especially among superstars who are now commanding huge checks. Ohtani’s situation, though, is slightly different. First, the amount of money he’s deferring is of course unprecedented. He can do so because he’s such a marketable star — both in the U.S. and his native Japan — that $2 million/year will come out to be pennies of what he’s actually making after endorsement deals. According to the Dodgers, the huge deferrals were his idea; they’ll allow the club to continue spending big on players while he’s on the team. So, for both Ohtani and the Dodgers, the situation has mostly worked out. The question that we’re concerned with here, though, is whether it’s good for the sport, and whether it helps empower other players.
We’d say no on both counts. On the first, it’s a fairly obvious equation. Because baseball doesn’t have a salary cap, there are some teams that regularly spend exponentially more than others. The “poor” teams could easily afford to spend more, as we’ve written about, but the equation is supposed to work something like this — spend more money, have a better chance at winning. Ohtani’s $2 million/year while he’s actually playing throws that idea out of whack. By paying Ohtani like a middling backup, the Dodgers can now lavish cash on other players for the next 10 years without worrying about the huge contract already on their books. Given that Ohtani is the best player in the sport, that throws off competitive balance.
The second question is a little more complicated, and it’s one with which we’re more concerned here at Southpaw. On the one hand, Ohtani hitting the $700 million threshold is good for everyone: top players get paid more leading to middling players getting paid more leading to everyone getting paid more. But once again, the deferrals make this more complicated. Agreeing to a contract that’s actually worth around $462 million is leaving money on the table.
That might sound like a big deal, but it’s bad for business in the players’ union. The MLBPA is fairly insistent that all of their players should try to get as much money per year as they can. They’re less concerned about the length of deals and more worried about the per year number, because that’s the one that really affects the business of the sport. Given that he hits and pitches, there are no comparable players to Ohtani in the league, at least right now. But let’s say he decided to defer a little less cash and get paid $50 million/year right now. That would have set a high water mark for a per year salary.
It might not seem like it, but that trickles down. In 1980, the average MLB salary was around $144,000/year. By 2000, that was $1.9 million; by 2020 it had hit $3.2 million. That’s a rise that’s much quicker than inflation, and it’s happening for a myriad of factors, but largely because the players have a strong union and they’re increasingly able to demand more cash. That happens because the guys at the top of the sport take huge deals, which means the guys in the middle can take relatively big ones as well. A lot of players actively think about this — how to help the next generation. By crafting such a strange contract structure that only works for him, Ohtani is doing little to advance that cause.
We love watching him play baseball, we wish him all the best on the Dodgers, and given that he does something no other player currently does, it’s hard to know if he could have totally changed how others are paid, even if he hadn’t deferred the cash. It might be the collectivists in us, but we still wish that he had tried.
RODNEY’S ROUNDUP
Do you want to read about . . .
. . . a major step forward for college athlete pay? “The NCAA’s Radical Proposal to Pay Division I Athletes,” by Laine Higgins in The Wall Street Journal (December 5, 2023)
. . . a gut punch for D.C. sports fans? “Monumental, Youngkin announce deal to move Caps, Wizards to Virginia,” by Sam Fortier in The Washington Post (December 13, 2023).
. . . and the massive pile of taxpayer funds that is making it possible? “Caps, Wizards complex in Virginia could get largest arena subsidy ever,” by Jonathan O’Connell in The Washington Post (December 15, 2023).
. . . hallucinogens in professional football? “Alcoholism, ayahuasca and the enlightenment of an NFL player,” by Dan Pompei in The Athletic (December 14, 2023).
. . . a court-mandated change to the NCAA’s transfer rules? “Judge's ruling favors NCAA athletes seeking 2nd transfer,” by the Associated Press (December 13, 2023).