Dec. 18, 2023

By Cody Malloy

Lawyer | Free Agent

Ohtanimania is here and running wild all over the sports world, brother.

About two-and-a-half weeks ago, I wrote about how Shohei Ohtani’s new contract would change everything. I am glad that I gave it some time before writing this follow-up article, because the information fallout has been riveting.

Ohtani’s 10-year $700-million contract (USD) with the Los Angeles Dodgers is the largest contract in North American sports history (for “on-field” compensation). With $680 million of Ohtani’s salary deferred over a subsequent 10-year period, Ohtani will be paid by the Dodgers over the next 20 years.

Despite the showstopping amount of money committed to Ohtani, here is why the contract makes sense for everyone involved:

Shohei Ohtani

Endorsement revenue: Ohtani can “afford” to defer his money. I have seen various figures reported, but it is fair to estimate in 2023 Ohtani earned somewhere between $40 million to $50 million in endorsements. For reference, the league’s second highest paid player in endorsements in 2023 is Mike Trout, at $5 million.

Tax savings: As reported by Joe Pompliano, Ohtani has the ability to dodge the hefty California state income taxes on his massive salary. According to US tax law, for deferred compensation payments over 10+ years, state income tax owed depends on the state in which you reside in at the time of those deferred payments. Put a future on Ohtani moving to a no state-tax state (or Japan) after the contract.

Reputation: Money today is always better than money tomorrow. Ohtani is surely taking a hit in terms of the net present value of his contract (the Player’s Association values the contract at $437.8 million, whereas MLB values it at about $460 million, since they both use different accounting methods). By giving his team payroll flexibility, it shows Ohtani’s commitment to winning, and he will undoubtedly have the respect of his teammates.

Legacy: By being on a much more competitive team, Ohtani can continue to add to his already impressive resume. Sure, personal accolades certainly matter in a Hall of Fame candidacy, but if Ohtani can add a World Series title to his resume (or multiple?), it will bolster his chances.

Marketability: By going to a competitive team, his endorsement reach just got even bigger. For comparison sake, the Dodgers generated almost 71% more revenue than the Los Angeles Angels did in 2022. By leveraging the Dodger brand in conjunction with playing in postseason games in October, the Ohtani brand is only going to grow.

Los Angeles Dodgers

Payroll flexibility: By paying Ohtani only $2 million per season, it frees up the team’s payroll and allows them to spend on other players. Remember that teams are subject to the competitive balance tax (CBT). In 2023, the CBT threshold was $230 million. In short, teams that spend over the threshold are “taxed” on those dollars, and the tax is dispersed through the revenue sharing pool. Ohtani’s CBT hit will be around $45 million per season (my research showed conflicting figures, so I took a middle ground estimate). The collective bargaining agreement (CBA) requires deferred payments to be fully funded within two years of them being earned. As such, by 2026, the Dodgers will have to put roughly $45 million in an escrow account every year. Originally, some commentary suggested the Dodgers could benefit from investing Ohtani’s salary until the deferred payments were due, but that is not the case.

Product markup: The team can now sell EVERYTHING at even more of a premium. Yes, even parking.

Merchandise galore: As it has been widely reported, Ohtani’s fresh white and blue #17 Dodgers jersey just smashed Fanatics’ 48-hour jersey sales record (passing Cristiano Ronaldo and Lionel Messi). Given the names mentioned in the previous sentence, I will leave it at that.

Brand exposure: The images of Ohtani at his Dodgers introductory press conference were seen by most of the 125 million folks in Japan over the past few days. Those images would have been on the front of every newspaper, news website, and TV (including TVs on the Tokyo subway, from my personal experience). Talk about expanding your market reach overnight. Brands will now have to get in line to sign sponsorship deals with the Dodgers.

Marquee player: Ohtani’s track record on the field speaks for itself.

The timing of Ohtanimania could not have been better for MLB. Baseball has faced harsh criticisms in recent years. To name a few, the game has been slow to modernize, pace of play has been too long, and a lockout delayed the start of the 2022 season.

In 2023, MLB rebounded. The league did an excellent job shortening games last year. The system is not perfect, but how can we expect it to be when humans are making the rules?

Now, look at the attention the Ohtani hoopla has given baseball. People who normally do not talk about baseball are now talking about it. Ohtani has been the lead sports story since he announced his commitment to the Dodgers on his own Instagram account last Saturday (by the way, I loved the fact he released his own news).

This is going to sound crazy, but it is true: Shohei Ohtani upstaged LeBron James in Los Angeles.

This is baseball’s perfect opportunity to pivot its marketing towards individual players. A lot of modern fans prefer to follow players, rather than teams. MLB has struggled to do this because superstar players like Aaron Judge and Mike Trout have yet to win World Series titles, amongst other issues.

The other leagues have excelled in marketing their best players. Consider how the NBA achieves this with LeBron, MLS does with Messi, the NFL does with Patrick Mahomes, and the NHL does (recently) with Connor Bedard.

Although we are in the middle of the offseason, Ohtani is currently the story of North American sports. The game made strides in 2023 by speeding the game up, and now, thanks to Ohtani, they have everyone’s attention.

For baseball, an incredible opportunity has presented itself. Leverage Ohtanimania to bring the game to new heights.