Shohei Ohtani contract: Deferrals? Opt outs? Everything to know about the record $700 million Dodgers deal

In the end, Shohei Ohtani landed where most expected him to land. Saturday afternoon, Ohtani announced he is signing with the Los Angeles Dodgers. The contract terms are staggering: 10 years and $700 million. It is the largest contract in sports history, eclipsing Lionel Messi’s $673 million contract with FC Barcelona.

Here are the largest contract in baseball history:

1. Shohei Ohtani, Dodgers: $700 million
2. Mike Trout, Angels: $426.5 million
3. Aaron Judge, Yankees: $360 million
4. Manny Machado, Padres: $350 million
5. Francisco Lindor, Mets: $341 million

Needless to say, Ohtani’s record-setting contract is very complicated — he will not be paid a straight $70 million per year for 10 years — and the full details have not yet been reported. Here’s what we know about Ohtani’s deal with the Dodgers in the immediate aftermath.

‘Unprecedented deferrals’

Ohtani’s contract includes “unprecedented deferrals,” according to MLB.com, and the deferrals were supposedly Ohtani’s idea. He wanted to lower his competitive balance tax number and give the Dodgers more freedom to spend on the team around him. The majority of Ohtani’s salary is deferred. The exact terms of the deferrals are unknown at this time.

“(The deferrals are) primarily about allowing the team to be successful on the field, because above all else he wants to win,” a source told MLB.com.

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. Deferrals lower the present day value of the contract and thus the CBT hit because $1 today is worth more than $1 tomorrow.

As an example, Max Scherzer signed a seven-year contract worth $210 million with the Nationals in 2015. That’s $30 million per year, on average. However, Scherzer agreed to defer half his salary each year, which lowered the present day value to approximately $185 million. That lowered his annual CBT hit to $26.4 million or so.

Again, the exact terms of Ohtani’s deferrals are unknown. The Dodgers had a $267.2 million payroll for CBT purposes in 2023. The franchise record is $297.9 million in 2015. The Mets hold the all-time record with a $366.2 million CBT payroll this year.

Mookie Betts and Freddie Freeman both have substantial deferrals in their contracts with the Dodgers.

No opt outs

It had been speculated Ohtani could seek an opt out (or even multiple opt outs) to cash in further once he completes his elbow surgery rehab and shows he’s a healthy and productive pitcher, but that did not happen. His contract does not include any opt out clauses, reports ESPN. It’s a 10-year contract with no opt outs or option years or escape hatches on either side. 

Don’t forget about endorsements

This past season, Ohtani made approximately $40 million in endorsement deals, according to the Los Angeles Times. He has agreements with New Balance, Fanatics, Topps, plus scores of companies in Japan. That $40 million is on top of the $30 million salary the Angels paid him. Ohtani’s endorsements will only grow, both in quantity and value, with the Dodgers. Between endorsements and his salary, he is very likely to be a $100 million a year athlete moving forward.

The Dodgers are making money too

No player in the sport generates revenue like Ohtani. He sells tickets and jerseys, and opens the door to new Japanese sponsors and fans. According to the Los Angeles Times, Ohtani made the Angels $10 million to $20 million a year in advertising, marketing, and whatnot. The Dodgers, a more global brand that outdrew the Angels by nearly 15,000 fans per game in 2023, figure to make substantially more in Ohtani-related revenue. There’s a reason they invested $700 million in him. They expect him to generate multitudes more for them.