Ohtani’s Historic $700 Million Dodgers Deal
The sports world was on fire this week with the announcement that Shohei Ohtani got a whopping $700 million contract to play for the Dodgers!
Giants fans were irate because Ohtani spurned a similar offer by the Giants, and Diamondbacks fans literally SOBBED (the 20-second TikTok is very worth watching 😊)
The contract was an all-time record and exceeded estimates by $200 million! BUT – as Joe Pompliano explains in this excellent X thread, Ohtani is actually “only” getting $2 million per year, making everyone wonder ‘how will the poor man even survive?’
Well, survive he will, as he gets close to $50 million annually in endorsements (10x more than other superstars), and he will get a full $680 million paid out over 10 years starting at age 40.
Everyone thought he was deferring his comp to be a “good teammate” – to leave more salary cap room for the Dodgers to sign other star players – but he was probably doing this more for tax reasons.
Mr. Ohtani will very likely be living in another state or country when the extra $680 million rolls in, and … he will thus avoid California’s hefty 13.3% (and likely to increase) state income tax (Sorry Gavin…)
Is Jerome Powell To Blame?
Here is where the story really gets interesting, as explained by this WSJ article: Shohei Ohtani’s Dodgers Contract Features Jerome Powell as MVP
Interestingly, furious Giants and Diamondbacks fans can blame Jerome Powell for the fact they may forever lose to the Dodgers.
The WSJ explains that the $700 million contract is really “only” a $460 million contract when the time value of money is accounted for.
The Dodgers will buy annuities (that guarantee future payments) to ensure Mr. Ohtani gets his money, and those annuities are much less expensive now thanks to Mr. Powell’s high rates (higher rates make annuities cheaper) – making it obvious that Powell is a Dodgers fan (something I’ve always suspected).
But, what the contract and even the annuities don’t account for is the prospect of very high inflation rates – which are inevitable at some point.
This is, once again, because the Federal Government is not collecting and will never collect anywhere near enough tax revenues to cover its expenses and pay down its extremely high debt loads. And – as a result, our government will have to print money to just service its debt, let alone pay down the debt.
And when our government does start doing this, inflation rates could shoot into the double range (like what happened in the 1940s when the government “monetized” our WWII debt).
Warning: If any readers have $680 million sitting in a bank account now and inflation averages 10%, that money will only be worth $262 million in ten years (according to ChatGPT, which is wrong a lot, I have discovered, but I suspect that number is still close).
So, What Should the Dodgers Do?
They should of course buy rental properties for Mr. Ohtani! Both the property values AND the rental incomes are excellent inflation hedges, and the tax benefits are outrageously beneficial.
This is why Jason Hartman continues to scream about the benefits of rental property investments and how they still cash flow even with today’s high rates – IF you buy in the right (aka “boring” and “low end”) markets – but more on that in another blog…
