So $700 million for baseball star Shohei Ohtani was a surprise?
Not to my trusty spreadsheet.
Back in July, this “unicorn” athlete who oddly excels at pitching and hitting – then with the Angels – was headed toward free agency after the season ended. Speculation swirled about the heft of his future payday. I could not resist the mathematical opportunity.
My guess (before he injured his elbow in August): a $701 million contract over 10 years, perhaps the most generous estimate one could find.
Last week, we learned the Dodgers and Ohtani agreed to a record-smashing $700 million deal – though most of it will be deferred and paid in the decade after his 10-year playing commitment ends.
My science was relatively simple, as I wrote five months ago: “All the spreadsheet did is take what teams are currently paying top stars and extrapolate those salaries to account for this peerless, two-way phenom.”
Let’s say there were doubters. The Washington Post claimed such lofty estimates seemed “extraordinarily high for a player who recently turned 29, an age that historically has been the start of a player’s on-field decline.”
Perhaps, they missed my conclusion: “Team owners are billionaires for a reason. They understand quality. They like expensive toys. But they also don’t like to overpay. Yet it only takes one to make Shohei Ohtani an extremely wealthy man.”
Self-platitudes aside, several economic lessons live within Ohtani’s dealmaking.
California still has sizzle
Sure, the Golden State might not be for everyone. And yes, it takes a pretty fat paycheck to comfortably afford to live here.
Still, Ohtani‘s decision to stay is a reaffirmation that California offers huge potential to people or companies who want to reach a massive audience with a cosmopolitan composition and significant wealth.
His move up the 5 Freeway won’t cure any California ills. But, at a minimum, Ohtani won’t be added to the list of business assets that exited the Golden State.
Star power remains
This is an age in which “influencers” make big bucks on social media, and there’s a horde of entertainment streamed through various networks.
That disparate universe of content helps explain why a handful of truly larger-than-life personalities land commensurate compensation. Say, Tom Cruise or Taylor Swift.
Or Shohei Ohtani.
He’s an authentic brand, tied to his athleticism. His unique mastery of both pitching and hitting has not been seen by baseball since the fabled Babe Ruth a century ago.
That buzz added more than a few dollars to his contract value.
Think globally
Ohtani is also a vivid reminder of international appeal.
Business opportunities usually look better when the potential is broader than a single metro area, state or even a country. Ohtani’s revered statue in his native Japan – he’s the local boy who’s conquered America – only boosts his legendary magnetism.
Over the last six baseball seasons, Japanese-language marketing could be seen at Angel games or on the team’s TV broadcasts, Meanwhile, the stadium became a destination stop for Japanese tourists. The same will be true as Ohtani moves to Dodger Stadium.
Perhaps Ohtani’s ascension to superstardom – followed by the passioned response when soccer legend Lionel Messi moved to Miami – will awaken the often-myopic American professional sports industry to its global potential.
Extra credits count
Intangibles matter when valuing an asset with sizzle.
The typical analysis of an athlete is tied to their game performance – wins, losses, home runs, touchdowns, goals, etc.
But it’s not just those numbers that sell tickets and merchandise and get viewers to the television. Yet, athletic connection to an audience is hard to quantify.
Maybe I had an edge in estimating Ohtani’s worth. Attending a few Angel games when he pitched (which he won’t be able to do again until 2025), I was amazed at the shopping bags fans were toting, stuffed full of Ohtani’s No. 17 gear bought at souvenir stands.
It’s like the “synergies” cited in corporate mergers, or the “curb appeal” of a home for sale.
Ohtani isn’t just about his two Most Valuable Player awards in three years. Ringing cash registers helped make him the $700 million man.
Terms matter
Sports contracts are not the only transactions where the devil is in the details.
Any big money deal, from corporate mergers to today’s home purchases, often has hidden quirks that can alter the “true” value.
Ohtani, for example, chose to defer much of his income for a decade. So in today’s dollars, his contract’s “present value” – drawn from geeky math – is probably half the headline number.
Consider a typical home purchase. Who pays for the repairs and similar expenses — the buyer or the seller? Those are dollars that might not show up in the final purchase price.
Or ponder a big corporate deal: Does the stated price include the debts of the acquired company or loans used to finance the purchase?
Thus, the splashy, public price tag isn’t always the most accurate one.
Dollars aren’t destiny
Signing the big contract is the easy part.
History tells us that big-money deals frequently underperform – from the playing fields to corporate boardrooms.
Every sport’s franchise has made its share of woeful signings. Hey, Ohtani’s elbow required a second surgery this summer. Could that limit or end his pitching days?
But sports aren’t alone with overpayments.
Look at the biggest business merger in US history: Early internet provider AOL and entertainment’s Time-Warner teamed up in 2000 for $168 billion. The textbook bad corporate marriage didn’t survive a decade.
Or dare I mention those who chose to buy homes in the bubble of the mid-2000s?
Plus, while Ohtani’s paychecks are likely “guaranteed” – he gets paid regardless of how or if he plays – consider some sports business trivia: How did hockey superstar Mario Lemieux end up as an owner of the Pittsburgh Penguins, the team he played for?
In 1998, the Penguins went bankrupt and the player’s deferred salary made Lemieux the largest creditor. He traded pay for a stake in new ownership.
Now, I’m not saying the Dodgers will go broke signing Ohtani. And, curiously, ownership worked out well for Lemieux.
The NHL Hall of Famer played five seasons as a player/owner and then helped run the team until it was sold two years ago. That deal got him a reported cashout worth more than $200 million.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
