At the end of last year, Shohei Ohtani signed the largest contract in US sporting history - USD700m for 10 years with his new team, the Los Angeles Dodgers.
The contract is not just notable for its sheer size. Rather than receiving $70m per year for each of the 10 years he will play for the Dodgers, Ohtani will “only” receive $2m per year. The remaining $680m will be paid interest free in annual instalments of $68m between 2034 and 2043.
Deferred payments are nothing new in baseball contracts, but a contract containing a deferral equal to over 97% of the contract sum at the outset is remarkable.
Ohtani received a reported $40m last year in endorsements on top of his $30m salary for his former team. He is therefore well placed to take a risk that he will receive $68m per year for 10 years in retirement and that the Dodgers will have the means to pay that sum well into the 2040s. He also had the bargaining position to include an opt out clause which he can trigger if two key individuals (Chairman Mark Walter and President of Baseball Operations Andrew Friedman) lose their roles in the Dodgers organisation. This may in his view partly offset the risk in such a large deferral.
But there is a broader question of whether Ohtani’s contract will be the start of a trend towards “buy now pay later” contracts in baseball and even in other sports. And if it does happen, what consequences will there be for such a significant shift in contractual risk both for players and also for the teams themselves?