What makes Shohei Ohtani’s 10-year contract intriguing?
Shohei Ohtani, a Major League Baseball player, recently made headlines with his groundbreaking 10-year contract with the Los Angeles Dodgers, valued at $700 million. What makes this deal particularly intriguing is its unique structure. Instead of a typical high annual salary, Ohtani is set to earn a modest $2 million per year over the contract’s duration. This arrangement contrasts sharply with his impressive earnings from endorsements, which are believed to be upwards of $45 million annually, solidifying his status as MLB’s most marketable player.
The financial intricacies of Ohtani’s deal reveal a strategic approach to salary distribution. A significant portion of the contract value, amounting to $680 million, is deferred. This means Ohtani will receive annual payments of $68 million from 2034 to 2043, long after the contract’s active years. This deferral benefits Ohtani and provides the Dodgers with financial flexibility. In 2024, Ohtani’s ranking as the 17th highest-paid Dodger enables the team to allocate resources effectively, enhancing their capability to build a competitive squad around him.
However, Ohtani’s earnings are subject to various taxes. He will pay 37% in federal tax and 13.3% in California state tax, along with additional charges for Medicare, Medicare surcharge, and State Disability Insurance (SDI), significantly reducing his take-home pay. Despite these deductions, the arrangement remains beneficial for Ohtani and the Dodgers.
Questions have been raised regarding the legality of such a deal. The Collective Bargaining Agreement (CBA) under Article XVI clarifies that there are no limitations on the amount of deferred money in a contract, making Ohtani’s deal completely legal. This creative structuring allows the Dodgers to retain one of baseball’s elite players at a comparatively low cost for the next decade, demonstrating a savvy blend of sports acumen and financial strategy………
Rising Dough
Consider the economic and business implications when a top athlete like Ohtani defers a large portion of their contract’s value. How might this strategy influence the team’s short-term and long-term financial planning, and what are the potential benefits or risks for the player regarding financial security and market value?
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