Shohei Ohtani’s massive $700 million deal with Dodgers defers $680 million for 10 years

Shohei Ohtani’s 10-year, $700 million contract with the Los Angeles Dodgers is actually worth $460 million because of its heavy deferrals, according to MLB’s calculations, a high-ranking executive with direct knowledge of the contract told USA TODAY Sports.

Ohtani will be paid just $2 million a season for 10 years, two persons with direct knowledge of the contract said, with the deferred payments beginning in 2034 with no interest.

The persons all spoke on the condition of anonymity because the details of the contract have not been officially announced.

The deferred payments, easily the most in baseball history, permits the Dodgers to lower their luxury-tax salary from $70 million to just $46 million a year. The annual salary is calculated at $28 million because of the 10% interest rate used by the Basic Agreement.

It was Ohtani’s idea to keep the payment low, two persons close to baseball star said, enabling the Dodgers to keep adding players to their payroll without the worry of luxury tax repercussions.

HOT STOVE UPDATES: MLB free agency: Ranking and tracking the top players available.

OPINION:Why Ohtani will be worth every penny of $700 million contract for Dodgers

“The concept of the extreme deferrals in this contract came from Shohei himself,’’ a person close to Ohtani said. “He had been educated on the implications and process of deferrals and felt it was the right thing to do. So, when negotiations were getting near the level where they ended up, Shohei decided he wanted to defer almost all of his salary.’’

Still, it’s a staggering discount, with the contract worth about $387 million in today’s market, according to a 4% inflation rate that is used by the players union.

Yet, considering Ohtani earned about $40 million in endorsements last year, easily a record for a baseball player, it’s hardly as if it will affect his modest lifestyle. Besides, deferring such a massive amount of money saves Ohtani from paying about 13.3% in California state taxes. If he moves from California after his contract expires, he’ll avoid the high taxes. Effective on Jan. 1 the state income tax rate increases to 14.4%.

OPINION:In MLB's battle to stay relevant, Ohtani's contract is huge win for baseball

Ohtani’s decision to defer the $680 million certainly indicates how badly he wanted to play for the Dodgers. Finalists like the Toronto Blue Jays, San Francisco Giants, Los Angeles Angels, and Chicago Cubs could have easily matched such a team-friendly deal, but Ohtani wanted to stay in Southern California after spending the last six years with the Angels.

Dodgers officially announce Shohei Ohtani signing

The Los Angeles Dodgers released a long statement on Monday night officially announcing the team's 10-year deal with Ohtani.

"On behalf of the L.A. Dodgers and our fans everywhere, we welcome Shohei Ohtani to the Dodgers, the home of Jackie Robinson, Sandy Koufax and Hideo Nomo, three of the sport's most legendary and pathbreaking players. We congratulate him on his historic contract with our storied franchise," said Mark Walter, Chairman of the Los Angeles Dodgers and Guggenheim Baseball.

"Shoehei is a once-in-a-generation talent and one of the most exciting professional athletes in the world. Our players, staff, management and ownership look forward to working together with Shohei to help the Dodgers continue to add, improve and strive for excellence on the field."

Ohtani also commented in the statement, thanking Dodgers fans for welcoming him to the team.

"I can say 110 percent that you, the Dodger organization and I share the same goal – to bring World Series parades to the streets of Los Angeles," Ohtani said.

Follow Nightengale on X: @Bnightengale