Shohei Ohtani - MLB, Los Angeles Dodgers

Shohei Ohtani, a pitcher and designated hitter, recently signed a contract with the Los Angeles Dodgers that made national headlines. Surprisingly, the media buzz had less to do with the staggering $700 million the team agreed to pay Ohtani and more to do with the player’s decision to defer most of that salary until a decade from now.

Under the arrangement, Ohtani will receive an annual salary of $2 million for the next 10 years, his contract term with the team. Then from 2034 through 2043, Ohtani will receive $68 million per year to round out the $700 million.

Why would Ohtani do such a thing? For two reasons:

• It allows the Dodgers to lower their luxury-tax salary from $70 million to $46 million per year, which lowers the team’s current payroll obligations, providing financial flexibility to sign additional players and bolster their chances of winning.
• It potentially saves Ohtani from paying excess state taxes. As a resident of California, the player’s income is subject to a 13.3% tax rate in 2023, which jumps to 14.4% in 2024. By deferring a significant portion of his salary until after he’s done playing baseball, Ohtani could potentially move to a more tax-friendly state and save millions in state income taxes.

In case you’re worried about how Shohei Ohtani will survive on just $2 million per year for the next 10 years, keep in mind that the baseball superstar also earns approximately $40 million a year in endorsements, likely being earned in a favorable state tax situation. 

Ohtani’s decision to defer such a large portion of his salary offers a great segue into the importance of tax planning for professional athletes. And you don’t have to have a $700 million contract to implement smart tax planning strategies.