For more than 20 years, former New York Met Bobby Bonilla has collected $1,193,248.20 every time July 1 pops up on the calendar. The practice, which began in 2011 a decade after Bonilla retired from Major League Baseball, will continue until 2035. The money comes Bonilla’s way each year because he was owed $5.9 million when the Mets released him in 1999. Wanting to keep the cash on hand so they could invest in their roster, the Mets agreed to make $29.8 million in deferred payments to Bonilla through 2035 — at 8% interest.
While the exact details of the massive $700-million contract Shohei Ohtani signed with the Los Angeles Dodgers over the weekend have not been released, ESPN’s Jeff Passan reports that he’s been told a “majority” of Ohtani’s deal is deferred. If true, that’s a huge win for Los Angeles and likely means that both Ohtani and Bonilla will be collecting hefty checks from their former employers in 2035.
Passan explains: “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.”
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At the end of the day, the 29-year-old is going to be paid $700 million by the Dodgers and will also likely make a hefty amount of cash in endorsements and other earnings. If Los Angeles wins the World Series during Ohtani’s deal, which seems very likely considering the reigning unanimous American League MVP will be slotting into a stacked lineup that already includes MVP winners Mookie Betts and Freddie Freeman, that will only increase his earning potential in LA.
Deferring cash may put less money in Ohtani’s pocket in the short-term, but it shouldn’t end up costing him too much in the end and may ultimately pay off in a big way if the Dodgers are able to win the World Series. And if July 1 eventually becomes known as Shohei Ohtani Day instead of Bobby Bonilla Day, so be it.