Shohei Ohtani contract could change how teams are valued
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The Los Angeles Dodgers this week signed two-way phenom Shohei Ohtani to a 10-year, $700 million contract that's the largest ever in pro sports. For context, the sad-sack Oakland Athletics paid less for their entire roster over the past 10 years.
Why it matters: If such contracts become the norm, they could become a liability drag on future Major League Baseball team sale prices.
- Most of the money is deferred into the decade after Ohtani's contract expires, meaning he'll get paid just $2 million next season but $68 million each year between 2034-2043.
By the numbers: The $700 million is a bit of a misnomer, perhaps intended to top what soccer star Lionel Messi recently got in Miami.
- Most of the money is deferred into the decade after Ohtani's contract expires, meaning he'll get paid just $2 million next season but $68 million each year between 2034-2043.
- Ohtani will get every dime, but inflation and depreciation brings the effective price closer to $500 million.
Inside baseball: Ohtani is partially betting on lower inflation in his home country of Japan than in the U.S., plus his ability to avoid California taxes once he's no longer an active Dodgers player.
- The Dodgers are betting that the deal will help them own the Japanese market, much like the Seattle Mariners once did with Ichiro Suzuki, and bang out the park every night for a decade.
- Both sides are assuming Ohtani will be able to pitch again in 2025, despite recently undergoing his second major elbow surgery, although the contract is guaranteed even if he's just a hitter.
The big picture: This is hardly the first deferred contract in baseball. For example, the Boston Red Sox last offseason signed Rafael Devers to an 11-year, $331 million deal that reportedly includes around $75 million of payments between 2034-2043.
- And then there's Bobby Bonilla, who retired in 2001 but who's still getting paid annually by the New York Mets via a dunderheaded buyout agreement.
- All of this is allowed by MLB's collective bargaining agreement, but don't be surprised to see owners try to close the loophole. Much like the Premiere League just did with amortized transfer fees that Chelsea F.C. used to bypass league limits.
- Fun fact: The LA Dodgers and Chelsea ownership groups have several names in common.
The bottom line: The only certainties are death, taxes, and the increasing value of pro sports clubs.
- Mark Walters and company bought the Dodgers for around $2 billion in 2012, and Forbes pegs its current value at around $4.8 billion.
- If he chooses to sell before 2043, when Walters would be in his early 80's, he's certain to make a hefty profit. Even if the buyer subtracts what's still owed to Ohtani.
- But now imagine if the Dodgers (and other teams) have dozens of deferred contracts, because everyone was emboldened by the Ohtani deal and not stopped by the league. Those liabilities get a lot more significant. And, suddenly, that price appreciation could run into a Bobby Bonilla-sized wall.
