Shohei Ohtani Contract: Not a Tax Evasion Strategy

Shohei Ohtani's recent contract sparks widespread discussion and analysis.

by Nouman Rasool
Shohei Ohtani Contract: Not a Tax Evasion Strategy
© Michael Reaves/Getty Images

In a groundbreaking move, Shohei Ohtani has inked a $700 million contract with the Los Angeles Dodgers, featuring an unconventional deferral structure. This arrangement sees Ohtani earning a modest $2 million annually over the next decade, followed by a staggering $68 million per year from 2034 to 2043.

Contrary to popular belief, this setup is not a scheme to circumvent the competitive balance tax (CBT). The collective bargaining agreement (CBA) outlines specific guidelines for calculating the CBT impact of contracts with deferred payments.

Reports indicate that Ohtani's deal results in a $46 million average annual value (AAV) and corresponding CBT charge for the Dodgers. This figure surpasses Max Scherzer's previous AAV record and exceeds Aaron Judge's $40 million AAV, the highest for a long-term contract.

Ohtani's AAV: Expectations vs Reality

Ohtani's $46 million AAV aligns with pre-deal predictions, with MLB Trade Rumors forecasting a $44 million AAV and other experts suggesting similar figures. The initial reports of a $70 million AAV, however, caused confusion, leading some fans to mistakenly believe the Dodgers are exploiting a loophole to reduce their CBT liability.

The MLB has mechanisms to prevent CBT circumvention, but Ohtani's contract, as per the CBA, does not violate these rules. The agreement explicitly allows for deferred compensation without limitations. The real advantage for the Dodgers lies in the contract's structure, which enables them to pay Ohtani significantly less in the short term, potentially freeing up resources to acquire additional talent.

This arrangement raises questions about the fairness and future of contract structures in baseball. While the MLB Players Association (MLBPA) has historically resisted limits on deferrals, offering players flexibility, the next CBA negotiations might revisit this topic.

However, it's unlikely to become a major contention point, given the rarity of such deals. Ohtani's decision to accept deferred payments, a move he negotiated with all interested teams, suggests a focus on championship aspirations over immediate financial gain.

His unique position as a top-tier player with substantial endorsement income allows for such flexibility. This approach, while legal and within the rules, offers the Dodgers a distinct payroll advantage and could influence future contract negotiations in the MLB.

Shohei Ohtani