Kevin Pritchard

I’m going to explain why Shohei Ohtani’s $700 million contract with the Los Angeles Dodgers will not equal $700 million in terms of MLB accounting or the present-day value of the deal. When money in a contract is deferred, the competitive-balance tax number — the luxury tax — is discounted. With a source saying a “majority” of Ohtani’s contract is deferred, the discount could be significant. Typically, a CBT number is the average annual value of a deal — in this case $70 million. But depending on the size and length of the deferrals, Ohtani’s CBT number is likelier to wind up in the $40-50 million-a-year range, an enormous benefit for the Dodgers. The deferrals also affect the net present value of the deal. There’s a rule of thumb across all walks of life: Money today is more valuable than money tomorrow, inflation being what it is. When you defer money, you’re taking less. The Dodgers are operating in an environment in which the prime rate is 8.5%. And with money today being so pricey, it lowers the present-day value of the deal by a significant margin. Regardless, in the end, Shohei Ohtani will be paid 700 million US dollars by the Dodgers. It’s an obscene amount of money. It’s just going to be seen as less by the league’s accounting — and will allow the Dodgers to add even more around Ohtani as they try to win a championship.