The SF Giants missed out on Shohei Ohtani after the Los Angeles Dodgers signed him to a 10-year, $700 million deal over the weekend. The division rivals appear poised to make more moves as it was confirmed that Ohtani would be deferring a significant portion of that deal, per Jeff Passan of ESPN.
SF Giants division rivals take advantage of CBA loophole, likely to continue spending spree.
As Passan reports, Ohtani will be receiving $2 million per season over the next 10 years. The remainder will be paid out in the 10 years following that.
This would reduce his Competitive Balance Tax (CBT) from $70 million to $46 million. This is because of his deferred payments, the current value of his deal is closer to $460 million using a discount rate of 4.5 percent. He will still get paid $700 million over the next 20 years, but the CBT hit is calculated at its present value of future payments. His cap hit is still the highest in baseball, but it puts the Dodgers in a position to continue adding to the roster.
I will add that however a player wants to schedule his payments for his new contract is up to him and the team. This is a player's decision at the end of the day. Agents often recommend that their players elect not to defer money, but Ohtani is in a unique position where a significant portion of his annual earnings comes from endorsements.
It has been reported that Ohtani would have been willing to do this with whichever team he joined to help them put the best team on the field. While his case might be considered an anomaly, it is a concerning precedent that will likely come up during the next Collective Bargaining Agreement (CBA). However, that is three years away, so it will have no impact in the near future.
How does this impact the Dodgers? According to Cot's, the Dodgers had a CBT payroll of $267 million in 2023, exceeding the $233 million CBT threshold by $34 million. They will be taxed on the overage. On top of this, they will lose a second-and-fifth-round pick as well as $1 million in international bonus pool money for signing Ohtani, who rejected a qualifying offer earlier in the offseason. When you sign a player of Ohtani's caliber, those penalties are rather minor.
However, Ohtani's decision to defer a significant portion of his money has the Dodgers at approximately $222 million against the cap. The CBT threshold in 2024 is $237 million, so Los Angeles is $15 million below the cap and about $55 million below last year's mark. They still have plenty of room to spend.
They need pitching. There is no doubt about that. Tampa Bay Rays hurler Tyler Glasnow makes a lot of sense. Plus, Clayton Kershaw is expected to return from offseason surgery midway through the 2024 season. They can add multiple arms and maybe even add a frontline starter such as Yoshinobu Yamamoto or Blake Snell. They can only improve from here. The CBA loophole that has been leveraged here is not good for baseball.