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LA Dodgers’ Historic Shohei Ohtani Contract Sees Pushback, Deferred Payment Causes Tax Law Debate

Published 01/10/2024, 9:30 AM EST

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via Reuters

The massive $680 million of deferred payments for Shohei Ohtani raised more than a few eyebrows. While baseball fans wondered if this loophole gave an unfair advantage to the Los Angeles Dodgers, a much bigger question has been raised by California Controller Malia M. Cohen.

Cohen has urged Congress to change the tax code to ensure contracts like this don’t become the norm. Her reasons are simple: it’s a practice that benefits those in the highest tax bracket. With questions now being raised, it is important to understand the existing laws and how this contract benefits Ohtani in the long run.

The $700 million contract of Shohei Ohtani raises questions over fairness

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While deferred payments are a common thing in baseball, the sheer scale of what was done with Ohtani was unprecedented. 97% of Shotime’s contract was deferred to 2034–43. This ensured two things: 1) the Dodgers would have enough money to create a winning squad, and 2) Ohtani would potentially get a massive tax benefit if he left California after 2033. It’s the second reason that has caught the eye of Malia M. Cohen.

“The absence of reasonable caps on deferral for the wealthiest individuals exacerbates income inequality and hinders the fair distribution of taxes. I would urge Congress to take immediate and decisive action to rectify this imbalance.” Cohen’s statement was reported by the Los Angeles Times.

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The worry is simple: Ohtani can save up to $98 million in state taxes through this deal if he moves out of California. The state currently has a 13.1% income tax rate and a 1.1% payroll tax for State Disability Insurance. If the two-way phenomenon shifts to Japan after 2033, he will avoid these taxes.

This system has been a controversial subject for a long time. Many, like Cohen, believe this permits high-income individuals to defer their income without any limits. The issue? This system also prevents the taxation of pension income. As a result, the topic of deferred payments has remained a contentious issue for all.

Watch this story: Shohei Ohtani’s Two-Way Dream: Before Injury, He Always Wanted Both!

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The question then emerges: could a potential change in rules affect Ohtani’s payment?

What does this mean for Shotime’s contract?

Normally, the date of passing is when the tax changes take effect. As a result, Ohtani’s deferral is relatively safe for now. However, a potential change could hinder other teams from making similar payments. In the short term, this could benefit the Dodgers, as they’ve already signed their biggest star without much pressure on their payroll.

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But this contract has increased the noise for changes in the way the league functions. Fans are already demanding salary caps. So it’ll be worth watching how the league deals with this situation.

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Written by:

Sanskar Dubey

810Articles

One take at a time

“Rigidity leads to demise, while adaptability paves the path to vitality." Driven by a deep passion for sports, I’m glad I found baseball. Now serving as an MLB writer at EssentiallySports, I love to write about the thrilling tussle between the National League and American League throughout the season, although I may have a fondness for a particular Yankees icon named Alex Rodriguez.
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Edited by:

Riya Singhal