Move over, Bobby Bonilla. Baseball has a new king of deferred money, and his name is Shohei Ohtani.
Turns out the Los Angeles Dodgers’ newly minted $700 million man—who recently signed the largest contract in sports history, eclipsing Lionel Messi’s $673 million deal with FC Barcelona—will only receive a paltry $20 million of his $700 million contract with the Dodgers over the next 10 years, with $680 million payable from 2034-43 in an unusual structure that gives the Dodgers greater payroll flexibility in coming seasons, according to a Dec. 12 Associated Press story.
Ohtani’s earth-shattering deal, agreed to last Saturday, calls for annual salaries of $70 million, according to details obtained by The Associated Press. “Of each year’s salary, $68 million is deferred with no interest, payable in equal installments each July 1 from 2034-43,” the AP story said.
July 1? That’s long been known as Bobby Bonilla Day, in mock celebration of the former Mets star who still receives a check for $1,193,248.20 annually on that day from the New York Mets, even though he hasn’t played a baseball game in about 25 years.
Bonilla will continue to get that check every year until 2035, thanks to a 1999 deal he and his agent, Dennis Gilbert, made with former Mets owner Fred Wilpon and GM at the time Steve Phillips, who wanted to buy out Bonilla’s final contract year and the $5.9 million salary owed to Bonilla for the 2000 season.
Rather than accepting the $5.9 million lump sum, Gilbert and Bonilla convinced the Mets to defer the money for over a decade in exchange for a guaranteed 8% interest rate.
Yes, that deal has long been celebrated as a great retirement move for Bonilla, but in 10 years, that annual $1.19 million Bonilla gets on July 1 will be dwarfed (is there a stronger word?) by the $68 million Ohtani will begin receiving from the Dodgers annually on that day.
Phillips took to X (formerly Twitter) this week to “celebrate” Ohtani’s deal with the Dodgers:
“I want to clarify reports that the Dodgers consulted with me before giving all of the deferred comp to Shohei Ohtani. They did not. But I am sure glad they did it, because it takes me off the hook for Bobby Bonilla. July 1, 2024 just got way better for me.”
By receiving the vast majority of the contract money when he very well may be living outside of the United States, Ohtani also figures to have a tax benefit, as California’s top tax rate for residents is currently a very high 13.3%.
Reportedly, the heavy salary deferrals in the contract were Ohtani’s idea, as he wanted to lower his competitive balance tax number and in doing so, give the Dodgers greater ability to spend on the team around him due to his stated desire first and foremost to win after not making the playoffs during his years playing for the California Angels.
A player’s competitive balance tax (CBT) number is the average annual value of his contract, so a straight 10-year deal worth $700 million would carry a payroll-busting $70 million CBT hit for 10 years, as explained in a recent article on CBS Sports.com. Deferrals lower the present-day value of the contract and thus the CBT hit because $1 today is worth more than $1 tomorrow.
Despite the out-of-this-world contract, many are figuring the Dodgers will be able to recoup their investment as 29-year-old Japanese national Ohtani is easily baseball’s most marketable global star as perhaps the greatest two-way player—pitcher and hitter—of all time. While an elbow injury will prevent him from pitching again until 2025, he will be featured in the Dodgers 2024 lineup as designated hitter.
“Dodger fans, thank you for welcoming me to your team,” Ohtani said in a statement released by the Dodgers after the deal was signed. “I can say 100% that you, the Dodger organization and I share the same goal—to bring World Series parades to the streets of Los Angeles.”
Ohtani’s deal also includes a full no-trade provision, no opt-out or option year clauses and provides for a hotel suite on road trips, a premium luxury suite for home games and a full-time interpreter.
Dodgers double down on deferred salaries
The Dodgers in particular have gotten on the “buy now, pay later” plan when it comes to their roster. As the AP reported, Ohtani’s contract, combined with those of Mookie Betts and Freddie Freeman, raises the Dodgers’ total of deferred money owed to the three to $857 million from 2033-44.
Betts has a $365 million deal covering 2021-32 that includes $115 million in deferred salaries payable from 2033-44 and has the final $5 million of his signing bonus payable from 2033-35. Freeman has a $162 million, six-year deal for 2022-27 that includes $57 million in deferred money payable from 2028-40.
The Dodgers high points of the deferred payments are 2038 and 2039, when the trio will be owed $83 million, and 2040, when they will be due $84 million. For comparison, in 2023, five Major League Baseball teams (in a league with no salary cap) had total payrolls totaling less than $84 million, with the Oakland A’s having the lowest payroll at $56,895,000.
SEE ALSO:
• ‘Bobby Bonilla Day’ Rings in July
• Smiling All the Way to the Bank: Happy ‘Bobby Bonilla Day’
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
