On December 9, 2023, Major League Baseball changed forever. Shohei Ohtani signed a record-breaking contract with the Los Angeles Dodgers for 10 years and an unprecedented $700 million.
Ohtani’s deal marks the largest contract signed by any professional athlete in terms of total value, shattering the largest MLB contract and even exceeding Lionel Messi’s 2017 contract with FC Barcelona by an estimated $26 million.
Below are some instant takeaways from Ohtani’s record-breaking contract.
This deal is unprecedented
Just as Ohtani is unprecedented as a two-way player, Ohtani‘s contract with the Dodgers is unprecedented in every meaning of the word. From the total dollar amount and the average annual value to the potential marketing impact to the effect this deal will have on future free agents, this contract will change baseball forever.
Dodgers are betting on Ohtani’s right shoulder
Ohtani suffered an injury in 2023 that required him to undergo his second Tommy John surgery. Although he was able to continue hitting and will be able to hit in 2024, Ohtani's camp has already indicated that he will not be pitching at all in 2024. There’s a possibility that he could be physically ready to serve in a relief role towards the end of the season, but it is unlikely that he will do so. This essentially turns Shohei Ohtani into a full-time designated hitter for all of next season.
Dodgers are hoping the deal will pay for itself
Ohtani is an international superstar with a massive and devoted following back in his home country of Japan. This loyal fan base will serve as a distinct new market of fans that will potentially provide a significant untapped revenue stream for the Dodgers.
Adding to Ohtani‘s marketability is the unique nature of his play. As the first two-way player to achieve significant success since Babe Ruth, Ohtani is a phenom, and he brings unique marketing opportunities to the table. Indeed, Babe Ruth had largely given up pitching by the time that he became the elite hitter that we remember him for being. In that sense, Ohtani is truly unprecedented.
This deal is extremely expensive no matter how you slice it, and luxury tax payments are going to cost the Dodgers significantly more money than just the numbers in the contract. The hope is that Ohtani’s marketing power, both in the United States and internationally, particularly in Japan, will bring in enough additional revenue to partially offset the costs the team will be incurring, both in terms of Ohtani’s salary and luxury tax payments.
This deal will likely have massive luxury tax penalties
No matter what the ultimate details of the deferral end up being (more on that later), a contract of this size is going to have serious luxury tax implications for the Dodgers. By itself, and without knowing the exact details of the deferments, this deal will likely propel the Dodgers close to the $300 million mark, if not exceeding it. This is irrespective of any additional moves the Dodgers make this offseason.
Ohtani will need to find other ways to contribute if he cannot return to the mound
If Shohei Ohtani is unable to return to the mound or returns for the 2025 season and then needs to give up pitching at some point in the next few years, this contract will almost certainly be an overpay. However, that doesn’t mean that all is lost. Ohtani has the athleticism to play in the outfield if necessary. This means that even if his arm betrays him, and he is unable to fully return to pitching, he should still be able to contribute beyond just hitting. While outfielders certainly need to throw, they do not use nearly the same amount of force and torque on their arms and elbows as pitchers do.
They also don’t throw nearly as frequently, With a busy game for an outfielder typically being between 4 to 7 throws that require maximum effort per game. Ohtani’s accuracy and velocity on the mound demonstrate that he certainly has the arm strength required to play in the outfield. He also has the speed and athleticism to be adequate. This benefits the Dodgers, as it will allow them to be somewhat flexible, and will not require Ohtani to be a full-time designated hitter.
If Ohtani ends up being a full-time designated hitter who doesn’t pitch or play the field, then this will be a massive overpay. It will likely be at least a slight overpay regardless, but that kind of situation could be catastrophic, crippling the Dodgers for several years. If he isn’t able to pitch, Ohtani will have to find other ways to contribute outside of when he has a bat in his hands.
Unprecedented deferrals and potential rule changes
Multiple reputable sources, including Jeff Passan and Ken Rosenthal, have reported that Ohtani’s deal with the Dodgers included “unprecedented” deferrals. While the exact details of his deal are not yet clear at this time, deferrals on this scale will play an extremely important role in the Dodgers’ ability to pay the rest of their players, and recruit additional free agents. That will be crucial to filling out the rest of their roster to maintain a competitive team around Ohtani.
While they have certainly already taken several steps towards that goal by having Mookie Betts and Freddie Freeman on the roster, three players are not enough to win a World Series on their own.
Los Angeles will need to extend other talented young players on the roster and bring in additional players via trade or free agency to complement their core. While they won’t necessarily need to go out and sign top tier, high-end players that will break the bank, this will still not be a cheap endeavor.
It appears that Shohei Ohtani is committed to winning, and the superstar went out of his way to afford his team maximum financial flexibility.
It is within the realm of possibility that Ohtani’s deferrals will draw the attention of Major League Baseball and that the league office will take exception to this method of attempting to dodge the luxury tax.
Particularly if the Dodgers use their flexibility effectively and build a dynasty around Ohtani, it is possible that the league office will attempt to change the rules, regarding the deferrals, and make it more difficult, or even impossible, to include deferrals in large contracts in the future.
What this means for Yoshinobu Yamamoto and Juan Soto
The question the rest of the league will be asking is what this deal means for Yoshinobu Yamamoto this winter and Juan Soto next winter.
Aside from Ohtani, Yamamoto is easily the best free agent pitcher available on the market this winter. Projections indicated the likely contract for Yamamoto would be slightly north of $200 million. However, with Ohtani signing such a massive deal, it is certainly possible that Yamamoto‘s agent may up the asking price, seeking a deal north of $250 million, even potentially approaching the $300 million mark.
Next winter, Juan Soto will be by far the best hitter available on the market. If the Yankees had any hopes that Scott Boras and Soto would negotiate an extension this offseason or during the 2024 season, that hope is likely out the window now. Unless the Yankees offer an extension that exceeds the $700 million mark, Boras will be highly incentivized to take Soto to free agency where he can negotiate with all 30 teams.
While Ohtani’s deal in all likelihood removed the Dodgers from contention for Soto, Boras will believe that he can use Ohtani‘s contract as the benchmark for a starting point in negotiations and force Steve Cohen and Hal Steinbrenner to compete, driving the price for Soto’s deal past the $700 million mark that Ohtani received.
A new arms race
It is possible that Ohtani’s massive contract with the Dodgers signaled the start of a new arms race between the big market teams in baseball.
With the Yankees and Mets both rumored to be finalists for Yamamoto‘s services and both teams likely to make a run at signing Soto next off-season, this could be the first salvo in a fight between these big market teams, with other wealthy teams potentially jumping into the fray as well. The Dodgers fired the first shot and won the first battle by signing Shohei Ohtani, but this war is far from over.
Baseball will never be the same again
The bottom line is that one thing is for certain: the MLB has changed forever and things will never go back to the way that they were.
This Shohei Ohtani deal will drive up the price of future contracts and potentially lead to rule changes. December 9, 2023 will be remembered in baseball history as the day that changed the game.
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