Deciding whether Juan Soto tops Shohei Ohtani for baseball’s largest contract could be in the eye of the beholder due to the significant amount of deferred money in Ohtani's deal. Ohtani agreed to a groundbreaking $700 million, 10-year contract with the Los Angeles Dodgers in December, surpassing the previous high set by Mike Trout's $426.5 million, 12-year agreement with the Los Angeles Angels.
Ohtani's deal includes a staggering $680 million in deferred money payable from 2034-2043. The valuation of this deal in current dollars varies depending on the method used:
- For baseball's luxury tax, the average annual value is calculated at $46.08 million using a 4.33% discount rate.
- The players' association uses a 5% rate, resulting in a value of $43.75 million per season.
- For MLB's regular payroll, a 10% rate equates to a $28.21 million per year rate.
Soto is speculated to potentially secure a contract of 10-to-15 years worth $600 million or more. His agent, Scott Boras, expressed reservations about deferred money, suggesting that teams may be less insistent on delaying payments to players.
Deferred compensation must be funded by the second July 1 after the season in which it was earned, discounted to a present-day value at a 5% rate. The Los Angeles Dodgers owe over $1 billion in deferred payments from 2028-2046 to several players, with Ohtani's share comprising two-thirds of the total.
While MLB proposed to eliminate deferred compensation for contracts entered into after the effective date of the Basic Agreement, the idea was rejected by the union and not included in the current five-year agreement set to expire in December 2026.
Various perspectives exist within MLB organizations regarding deferred compensation, with some emphasizing the importance of wise funding and financial expertise in managing deferred payments. Despite differing viewpoints, the practice of deferring compensation remains a significant aspect of player contracts in the baseball industry.
