Shohei Ohtani's $700 million contract calls for him to be paid only $2 million a year for the next 10 seasons, with $680 million deferred until the end of the deal, sources confirm to ESPN.

The CBT hit on the contract is going to be around $46 million, a huge discount for L.A.

— Jeff Passan (@JeffPassan) December 11, 2023

Lol damnit, yes you're right

Wrote this while in a meeting

So the 680 is occurring interest from the get?

Not according to what I read. No interest, but not certain it was accurate.

Considering that most that he was worth $500 million, it's probably a fair deal. He has an extra $200 million baked in for inflation and missed opportunity cost.

If he moves out of California, will the $680 million be taxed the same?

clobby said:

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If he moves out of California, will the $680 million be taxed the same?

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My guess is the state of California will allocate the $680 million proportionate to the number of games played within California during the contract period just like is done for all professional athletes. The state (and local?) income taxes on that amount of income is probably worth fighting over, so this may turn into a lawsuit if/when Ohtani recieves his actual salary from 2034-2043.

One article estimates he will make $50 million annually in endorsement deals, so I can see why he would forego so much of his salary.

The present value of his contract is ~$46 million annually which only slightly higher than the Mets paid Scherzer and Verlander. I think that's a fair deal when you add in the fact that Ohtani can hit a ball in addition to being a great pitcher.

In a few years, the Dodgers may look like geniuses if Ohtani continues to perform and pitcher salaries continue to rise.

TxAg20 said:

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clobby said:

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If he moves out of California, will the $680 million be taxed the same?

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My guess is the state of California will allocate the $680 million proportionate to the number of games played within California during the contract period just like is done for all professional athletes. The state (and local?) income taxes on that amount of income is probably worth fighting over, so this may turn into a lawsuit if/when Ohtani recieves his actual salary from 2034-2043.

One article estimates he will make $50 million annually in endorsement deals, so I can see why he would forego so much of his salary.

The present value of his contract is ~$46 million annually which only slightly higher than the Mets paid Scherzer and Verlander. I think that's a fair deal when you add in the fact that Ohtani can hit a ball in addition to being a great pitcher.

In a few years, the Angels may look like geniuses if Ohtani continues to perform and pitcher salaries continue to rise.

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Pretty sure players on California teams have to pay Cali state taxes even on games outside of California. If they're playing in another state with a state income tax, like New York, they can deduct that from the state taxes they owe to Cali, but they don't get out of paying state taxes when playing games in a state like Texas.

I've read that deferred money is not subject to state income taxes if he moves from people much smarter than me. But, it would shock me if states didn't have something in place to prevent that....

Just an unfathomable amount of money. Give me a hundredth of his contract and I will disappear onto my central Texas ranch and never be seen again.

He's VERY LONG tax planning

I couldn't make it on that.


It does make sense from a "wanting to win" standpoint but finding someone willing to defer their pay that much is very unusual. I dunno if that's cultural or he's just a born team player. Maybe some of each

So my big question is...what happens when the dodgers have to pay out 680 million in a year? Does it go against the luxury tax for just that one year? Is that the big reason why this works? Be able to build a big team now, and only pay a premium one year?

Its such a big cost, does he become a secured debt holder against the dodgers if they can't pay?

htxag09 said:

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one MEEN Ag said:

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So my big question is...what happens when the dodgers have to pay out 680 million in a year? Does it go against the luxury tax for just that one year? Is that the big reason why this works? Be able to build a big team now, and only pay a premium one year?

Its such a big cost, does he become a secured debt holder against the dodgers if they can't pay?

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No, it goes against the luxury tax during his contract years, deferred payments are calculated to a present value.

So, their Ohtani contract for this year isn't only $2mm towards the luxury tax, even though that's what they're paying him. The deferred money is calculated so the actual hit towards luxury tax for his contract is $46mm.

But when the contract is over, the money paid to him his no longer calculated.

ETA: for the last part. I'm pretty sure the MLB players union requires the Dodgers to fully fund all deferred money the year it's accrued. So they'll have to fully fund the $68mm his first year of the contract, just allocated somewhere, doesn't go to him....

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Thanks for the insight. So the deal is even more of a headscratcher for me.
-He isn't avoiding california state income tax because he still owes tax based upon the work performed in california, even if it is deferred.
-The dodgers aren't avoiding luxury tax because of this structure
-It doesn't look like he's going to gain anything Japan tax wise because of this either.

He's really just trying to create salary space right now at the expense of torpedoing the dodgers salary cap in 2034.

There's a lot of things that can wrong in life and in this country in ten years to wait that long on such a big IOU.

one MEEN Ag said:

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htxag09 said:

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one MEEN Ag said:

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So my big question is...what happens when the dodgers have to pay out 680 million in a year? Does it go against the luxury tax for just that one year? Is that the big reason why this works? Be able to build a big team now, and only pay a premium one year?

Its such a big cost, does he become a secured debt holder against the dodgers if they can't pay?

---

No, it goes against the luxury tax during his contract years, deferred payments are calculated to a present value.

So, their Ohtani contract for this year isn't only $2mm towards the luxury tax, even though that's what they're paying him. The deferred money is calculated so the actual hit towards luxury tax for his contract is $46mm.

But when the contract is over, the money paid to him his no longer calculated.

ETA: for the last part. I'm pretty sure the MLB players union requires the Dodgers to fully fund all deferred money the year it's accrued. So they'll have to fully fund the $68mm his first year of the contract, just allocated somewhere, doesn't go to him....

---

Thanks for the insight. So the deal is even more of a headscratcher for me.
-He isn't avoiding california state income tax because he still owes tax based upon the work performed in california, even if it is deferred.
-The dodgers aren't avoiding luxury tax because of this structure
-It doesn't look like he's going to gain anything Japan tax wise because of this either.

He's really just trying to create salary space right now at the expense of torpedoing the dodgers salary cap in 2034.

There's a lot of things that can wrong in life and in this country in ten years to wait that long on such a big IOU.

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Not sure we're following each other.....

They are avoiding luxury tax. If he had a normal $70mm per year contract, that'd be $70mm towards luxury tax. By deferring so much of the salary, their actual luxury tax impact is only $46mm. Obviously not avoiding $68mm, but still avoiding $24mm.

This will have zero impact on the luxury tax of the Dodgers in 2034. Again, it's only applied to the luxury tax during the contract. What's deferred to outside the contract will have zero impact on the luxury tax when it's paid.

As for state taxes, I have no idea. I assume he'd still have to pay them. But have read if he moves he wouldn't. Haven't really been able to get reasoning behind that, so who knows. I'm curious of this aspect as well.

Literally the only reason any of this works is because he has exponentially more endorsement deals than any other player. He's bringing $30-40mm per year in on endorsements. By having those endorsements he can defer the money. And, we don't really know the specifics, maybe he would have only gotten a 10 year $450mm contract. But by agreeing to defer he was able to bump that to $700mm. There is nothing stating that the alternative to deferring $700mm was getting the $700mm now.....

htxag09 said:

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one MEEN Ag said:

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htxag09 said:

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one MEEN Ag said:

---

So my big question is...what happens when the dodgers have to pay out 680 million in a year? Does it go against the luxury tax for just that one year? Is that the big reason why this works? Be able to build a big team now, and only pay a premium one year?

Its such a big cost, does he become a secured debt holder against the dodgers if they can't pay?

---

No, it goes against the luxury tax during his contract years, deferred payments are calculated to a present value.

So, their Ohtani contract for this year isn't only $2mm towards the luxury tax, even though that's what they're paying him. The deferred money is calculated so the actual hit towards luxury tax for his contract is $46mm.

But when the contract is over, the money paid to him his no longer calculated.

ETA: for the last part. I'm pretty sure the MLB players union requires the Dodgers to fully fund all deferred money the year it's accrued. So they'll have to fully fund the $68mm his first year of the contract, just allocated somewhere, doesn't go to him....

---

Thanks for the insight. So the deal is even more of a headscratcher for me.
-He isn't avoiding california state income tax because he still owes tax based upon the work performed in california, even if it is deferred.
-The dodgers aren't avoiding luxury tax because of this structure
-It doesn't look like he's going to gain anything Japan tax wise because of this either.

He's really just trying to create salary space right now at the expense of torpedoing the dodgers salary cap in 2034.

There's a lot of things that can wrong in life and in this country in ten years to wait that long on such a big IOU.

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Not sure we're following each other.....

They are avoiding luxury tax. If he had a normal $70mm per year contract, that'd be $70mm towards luxury tax. By deferring so much of the salary, their actual luxury tax impact is only $46mm. Obviously not avoiding $68mm, but still avoiding $24mm.

This will have zero impact on the luxury tax of the Dodgers in 2034. Again, it's only applied to the luxury tax during the contract. What's deferred to outside the contract will have zero impact on the luxury tax when it's paid.

As for state taxes, I have no idea. I assume he'd still have to pay them. But have read if he moves he wouldn't. Haven't really been able to get reasoning behind that, so who knows. I'm curious of this aspect as well.

Literally the only reason any of this works is because he has exponentially more endorsement deals than any other player. He's bringing $30-40mm per year in on endorsements. By having those endorsements he can defer the money. And, we don't really know the specifics, maybe he would have only gotten a 10 year $450mm contract. But by agreeing to defer he was able to bump that to $700mm. There is nothing stating that the alternative to deferring $700mm was getting the $700mm now.....

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Okay gotcha. Thanks for the more detailed explanations. I thought he was paid $680 his last year of the contract, which isn't the case. Its paid AFTER the last year.