Kereen Nugen

Just a Big Fish swimming in a small pond.....

[Joe Pompliano @JoePompliano]

Shohei Ohtani's $700 million deal is one of the most unique contracts in sports history.

He'll earn $2 million annually over the next ten years and then $680 million in payments starting at age 40.

But the details indicate it goes much deeper than Ohtani just being a good teammate.

Here's what you need to know 👇

Deferred contracts in baseball aren't new.

There is a reason why we talk about Bobby Bonilla every year, and players like Max Scherzer and Mookie Betts have tens of millions in deferred payments, too.

But Shohei Ohtani is taking it to a different level.

His $2M salary makes him the 17th highest-paid player on the Dodgers, and he'll earn less than retired players like Chris Davis, Ken Griffey Jr., and Manny Ramirez.

2024 MLB Compensation
• Chris Davis: $9.1M
• Ken Griffey Jr.: $3.5M
• Manny Ramirez: $2.1M

And in the fact that Ohtani isn't getting any interest — Bobby Bonilla receives 8% from the Mets — and it's even crazier.

So why is Shohei Ohtani doing this? MLB is treating it like a 10-year, $460 million deal from an accounting perspective, and Ohtani is leaving hundreds of millions on the table from a net present value perspective.

The wholesome answer is that he doesn't need the money — Ohtani will make $50M in endorsements this year versus someone like Aaron Judge or Bryce Harper, who typically earn $5M to $6M annually — and the additional financial flexibility will allow the Dodgers to sign other players and help Ohtani win a championship.

But I think there is more to it than that.

For example, was Ohtani really ever worth $700M?

Many MLB executives were predicting a $500 million contract, and that was before he had elbow surgery — Ohtani also had Tommy John surgery in 2018.

These deferrals were also offered to every team, which they would have taken into account and calculated the actual value of the deal before making an offer.

Instead, think about it this way...

This unique structure made it so Ohtani could sign the richest contract in U.S. sports history — by a mile — and just days later, were calling him a good teammate who just wants to win. How often does that happen?

That's some damn good agent work if you ask me.

Furthermore, there are some tax incentives at play.

Ohtani is set to be paid out $680M over ten years.

Maybe it's just a coincidence — I doubt it — but tax law stipulates that if you take your deferred compensation payments over a period of 10 years or more, those payments will be taxed in the state where you reside rather than in the state in which you earned the compensation, potentially reducing your tax liability.

That's what Bobby Bonilla did by moving from New York to Florida, and Ohtani could save ~$90 million by doing something similar.

And this is also a good deal for the Dodgers.

They will increase prices across the board — tickets, luxury suites, concessions, parking, and more — and they are probably already out negotiating multi-year sponsorship deals with Japanese brands.

Avg. Ticket Prices (Before & After Ohtani)
• Opening Day: $474 to $811 (+74%)
• All Home Games: $327 to $482 (+47%)

The team's valuation has already increased 200% over the last decade — from $1.6 billion to $4.8 billion — and given MLB teams trade at a ~6x revenue multiple, the Dodgers will make up Ohtani's $700M contract in valuation growth alone over the next 10-20 years.

That makes the deal a win-win for everyone.

Ohtani gets $700M, potentially wins championships, and grows his brand in the massive LA media market.

The Dodgers make a ton of money (and potentially win championships) by acquiring one of the world's best baseball players.

And baseball fans get to see much more of Shohei Ohtani on TV, which we can all agree is a good thing.

** If you enjoyed this breakdown, share it with your friends and follow me @JoePompliano for more!

[Matt | FNTrailers @MFTFGames]

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[Kereen Nugen @kereennugen]

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[Kereen Nugen @kereennugen]

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[Kereen Nugen @kereennugen]

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[Kereen Nugen @kereennugen]

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