The largest contract in sports history comes with a twist: he only takes $2M/year now. The other $680M is deferred — and the reason why is worth up to $90 million.
Contract + Endorsements · California Tax Deep DiveWhen Shohei Ohtani signed with the Los Angeles Dodgers in December 2023, the $700 million headline number broke every record in professional sports. But the structure of that contract — specifically, the decision to defer $680 million of it — is where the real story lives.
During his playing years (2024–2033), Ohtani earns just $2 million per year from the Dodgers. The remaining $680M is paid out in $68M annual installments from 2034 to 2043 — after he retires, potentially after he has left California, and potentially subject to very different tax treatment than his current income.
Add an estimated $35 million per year in endorsements (New Balance, Seiko, Porsche, and others), and Ohtani's actual annual earnings right now are around $37M — a far cry from the $700M figure in the headlines.
Ohtani's career splits into two distinct income periods, each with its own tax profile.
$2M Dodgers salary + ~$35M endorsements. California resident. Combined federal + state rate ~49%. After-tax: approximately $19M/year.
Deferred contract payments begin. Federal tax (37%): ~$25M/yr. California state (if applicable, 13.3%): ~$9M/yr. After-tax: $34M–$43M/year depending on state residency.
| Dodgers contract salary | $2,000,000 |
| Endorsement income (est.) | $35,000,000 |
| Total gross income | $37,000,000 |
| Federal income tax (~37% bracket) | −$13,500,000 |
| California state income tax (13.3%) | −$4,900,000 |
| Estimated annual take-home | ~$18,600,000 |
| Annual deferred payment from Dodgers | $68,000,000 |
| Federal income tax (37% bracket) | −$25,160,000 |
| California state tax (13.3%) | −$9,044,000 |
| After-tax (if CA taxes it) | ~$33,796,000 |
| Annual deferred payment from Dodgers | $68,000,000 |
| Federal income tax (37% bracket) | −$25,160,000 |
| California state tax | −$0 |
| After-tax (if CA cannot tax it) | ~$42,840,000 |
California is one of the most aggressive states in taxing non-residents on income earned within its borders. The Franchise Tax Board (FTB) has a specific position on deferred compensation: income earned while working in California is California-source income, even if paid years later when the taxpayer has left the state.
The FTB will almost certainly argue that Ohtani's $680M in deferred payments was "earned" while playing in California from 2024–2033 and is therefore subject to California income tax (13.3%) regardless of where he lives in 2034. At $680M, that's a $90.44 million California tax bill — money the state will pursue aggressively.
Ohtani's legal team will likely counter-argue that the payments constitute compensation for services rendered over the life of the agreement, that they are not currently vested income, or seek protection under federal statutes limiting state taxation of retirement-type income. This is unsettled legal territory at this dollar amount.
California's 13.3% top rate is the highest in the nation. Several MLB teams play in states with zero income tax. On a $700M contract, the state tax difference is enormous.
| Team / State | State Rate | State Tax on $700M | After Federal + State |
|---|---|---|---|
| Texas Rangers / Astros (TX) | 0% | $0 | ~$441M |
| Seattle Mariners (WA) | 0% | $0 | ~$441M |
| Miami Marlins (FL) | 0% | $0 | ~$441M |
| Los Angeles Dodgers (CA) ★ | 13.3% | ~$93M | ~$348M |
| New York Yankees / Mets (NY) | 10.9% | ~$76.3M | ~$364.7M |
| Chicago Cubs / White Sox (IL) | 4.95% | ~$34.7M | ~$406.3M |
Federal tax (~$259M at 37%) already subtracted from all figures. State tax applied to full $700M at top marginal rate. The Dodgers offered significantly more money — the contract value difference more than compensated for the state tax premium, at least before the deferred structure potentially recovers much of the gap.
These scenarios are speculative and illustrative — they show how different legal strategies would have affected the outcome. Actual tax results depend on individual circumstances, legal residence, contract terms, and IRS/FTB rulings. Not financial or legal advice.
Texas has no state income tax. The entire $700M contract would have been subject only to federal taxes — no California Franchise Tax Board, no 13.3%, no deferred comp litigation risk.
Federal: ~$259M · CA state: ~$93M · After-tax on full $700M (worst case, CA wins deferred comp)
Federal: ~$259M · State: $0 · No deferred comp risk, no litigation, clean exit
The real tradeoff: The Dodgers offered significantly more guaranteed money than any other bidder. If Texas had matched at $607M (same after-tax result), Ohtani would have been indifferent. The deferred structure means Ohtani's LA contract could still outperform Texas on an after-tax basis if California loses the deferred comp argument. He made the bet — and built an escape hatch.
→ Learn about the State Move strategyThe deferral isn't just a tax strategy — it's an insurance policy. Without it, California's claim on the full $700M is unambiguous. With it, there's a legitimate legal argument that $680M of deferred income isn't California-source income at all.
California taxes $700M at 13.3% without any dispute. No legal argument available. Full exposure, no option.
If he leaves CA before 2034: strong argument CA gets nothing on $680M. Worst case is same as no deferral. Best case: saves $90.4M.
The asymmetry: If the deferral fails legally, Ohtani is in the same position as if he had never deferred. If it succeeds, he keeps $90.4M more. The cost of the strategy was essentially zero — making this one of the highest expected-value tax moves in sports history.
→ How deferred compensation worksDuring his playing years, Ohtani earns ~$37M/year ($2M salary + ~$35M endorsements). After federal and California taxes at roughly 49% combined, he keeps approximately $18–19M per year. Starting in 2034, his $68M/year deferred payments begin. After federal taxes, he keeps $42.8M/year — reduced to $33.8M/year if California also taxes the deferred income.
Two reasons: tax strategy and team flexibility. By deferring $680M to 2034–2043, Ohtani may receive those payments as a non-California resident — potentially avoiding the state's 13.3% top rate and saving up to $90 million. The structure also gave the Dodgers payroll flexibility during his playing years, as the team benefits from the use of that capital in the near term without being required to pay it immediately.
This is the central legal question — and it's genuinely unsettled at this dollar amount. California's Franchise Tax Board argues that income earned while working in California is California-source income regardless of when it's paid. Ohtani's legal team will likely argue the opposite. With $90.4 million on the line, this may ultimately be litigated or settled, potentially creating new precedent for deferred compensation taxation in professional sports.
Ohtani's endorsements are estimated at $35–45 million per year, making him one of the highest-earning athletes in endorsements globally. Known deals include New Balance footwear, Seiko watches, Porsche, and others. Forbes estimated his total 2024 earnings — salary plus endorsements — at approximately $45–50 million. Endorsement income is subject to the same federal and California income tax rates as his contract salary.
On his current ~$37M annual income, Ohtani's combined federal and California effective rate is approximately 48–50%. The top federal bracket is 37% and California's top rate is 13.3%, for a nominal combined rate of 50.3% on income above ~$1M. Standard deductions and lower bracket income on the first portion of earnings bring the effective rate slightly below the top nominal rate.
Signing with the Texas Rangers, Seattle Mariners, or Miami Marlins — all in states with zero income tax — would have saved Ohtani approximately $93 million in state income tax on the $700M contract compared to California. However, the Dodgers offered the largest total contract, and the deferred structure may ultimately recover much of that difference if California cannot tax the deferred payments.
Potentially. If Ohtani returns to Japan after retiring, Japan taxes residents on worldwide income at rates up to 55% combined (45% national + 10% local). However, the US-Japan tax treaty provides credits to prevent full double taxation — he would generally pay the higher of the two countries' rates rather than both in full. His post-career tax situation, depending on residence, is highly complex and likely to require dedicated international tax counsel.
Ohtani's gross career earnings are estimated at over $1 billion — $700M in contract income plus approximately $350–450M in endorsements over 10 years. After federal and California taxes, his estimated after-tax take-home is approximately $500–$550 million if California taxes everything, or up to $590–$640 million if the deferred structure successfully avoids California state tax on the $680M.
California's 13.3% top rate applies to any income over $1 million. See the exact breakdown.
California Paycheck Calculator →All earnings figures are estimates based on publicly reported data and sports industry analyses. Contract details are based on reported terms. Tax scenarios are illustrative. California's treatment of Ohtani's deferred compensation has not been publicly adjudicated. Not financial or legal advice.