Implications of Ohtani's Contract Structure for the Diamondbacks
The Diamondbacks division rival Los Angeles Dodgers have signed Japanese superstar Shohei Ohtani to a record breaking contract that adds the best all around player in the game to their roster for the next 10 years. In addition the structure of that contract means the Dodgers will still have the flexibility to add multiple starting pitchers. How is this possible?
Ohtani will only received two million per year for each of those first ten years, with $68 million deferred each year. He will then receive $68 million per year starting in 2034 after he presumably retires. By deferring over 97% of the money, not only do the Dodgers have tremendous flexibility in the near term, but also reduce the amount that goes against their Competitive Balance Tax payroll. Instead of $70 million the figure has been calculated by some sources to be $46 million.
The Dodgers will likely still go over the luxury tax in most years, and a $46 million cap hit is still a record. That said, the fact is they'll only be paying Ohtani a nominal amount up front, and the savings from these deferments will create benefits that offset some of the revenue sharing tax the Dodgers likely pay. Deferments are part and parcel of the Major League payroll landscape. They've just never been used in such an extreme and unique way before. Ohtani is able to do this because he earns over $50 million per year in off field endorsements. He wants to win, and as reported by Tom Verducci of Sports Illustrated this structure was his suggestion to enable his team to better compete.
When Shohei Ohtani reached free agency last month, he asked his agent, Nez Balelo, “What if I defer all my salary so that my team has a better chance to compete?” Balelo says he dove into collective bargaining agreement language and found no limit on how much salary a player could defer. The only provision: a player must be paid at least the minimum salary.
To that end, once the Dodgers bolster their shaky starting rotation, which they will do in short order, the on paper projection gap between the Dodgers and Diamondbacks will grow a great deal. If Ohtani is able to recover from surgery and avoid further arm injuries, then starting in late 2024 or in 2025 he will be providing value on the mound as well. There is no way to sugar coat this for Diamondbacks fans. This move by the Dodgers and Ohtani deals a blow to future competitiveness when it comes to winning the division. The difficult task of removing the Dodgers from atop the NL West just got substantially harder. According to one online betting site, the dodgers are the favorite for the 2024 World Series title, while the D-backs are ranked 15th. The Padres and Giants rank 17th and 18th.
Of course the game is played on the field, and injuries and other unforeseen factors can knock even the biggest giants down to size. The New York Mets opened 2023 with a record $330 million payroll, and they ended up spiraling to down to 4th place as they sold at the trade deadline and ended up 75-87. The Yankees opened 2023 with a $273 million payroll and missed the playoffs finishing 82-80. The Dodgers have been managed far better than that throughout the years however, so the failure of other large market teams with bloated payrolls should not provide too much solace.
The path forward for Arizona will remain building a competitive team through the draft and development, while making smart strategic trades and free agent signings. By doing so they may not be able to get past the Dodgers in the regular season, but if they can win a Wild Card spot again, then anything can happen in the postseason, as we learned in 2023. The D-backs made it all the way to the World Series before bowing out to the Rangers. The moves the Dodgers have made this week and will yet make over the coming days are going to narrow the path to the top of the NL West even further.
