The Los Angeles Dodgers completed a landmark addition by signing Shohei Ohtani to a record-setting 10-year, $700 million contract.
While the total value of Ohtani’s contract reaching $700 million was a stunner, additional details have been just as surprising, if not more so. Among them was Ohtani choosing to defer $680 million of his salary until after the 10-year deal expires.
The purpose of that was to lower his average annual value in order to provide the Dodgers with more financial flexibility with respect to the luxury tax threshold.
According to Tom Verducci of Sports Illustrated, it has been determined Ohtani’s AAV is just north of $46 million on the Dodgers’ payroll and for the competitive balance tax (CBT):
Ohtani will cost the Dodgers an annual value of $46.06 million, according to a source familiar with the formula for how the CBA calculates present day value for luxury tax purposes.
Despite attempts to get below the luxury tax for the 2023 season and reset their penalties, the Dodgers were unable to do so. They remain on track to exceed the CBT threshold once again in 2024, which has been set at $237 million.
The Dodgers conceivably will go past the luxury tax by a minimum of $40 million if they were to sign Yoshinobu Yamamoto, and that will bring about a higher surcharge tax rate on the overage.
How Shohei Ohtani’s Dodgers contract compares
Ohtani’s contract not only is the richest in MLB history, but also the largest ever in professional sports.
Former Los Angeles Angels teammate Mike Trout signed a 12-year, $426.5 million extension in March 2019 that was the richest contract in MLB history.
It also was the largest contract in North American Sports history at the time, but that then was exceeded in the NFL with Patrick Mahomes signing a 10-year, $450 million contract in 2020. Ohtani wound up shattering Mahomes’ record with his $700 million Dodgers contract.
Before Ohtani, Lionel Messi had the all-time sports record for biggest contract at $674 million he received from FC Barcelona.
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