In advance of tonight’s highly anticipated game seven between Major League Baseball’s Los Angeles Dodgers and the Toronto Blue Jays, it’s worth revisiting the economic and tax implications of baseball superstar Shohei Ohtani’s massive contract. Will Ohtani (and his highly structured deal) be the difference-maker tonight?

Although Ohtani’s megacontract has attracted scrutiny as a form of tax gaming, the contract also has substantial advantages under MLB’s luxury tax—a good example of how tax-advantaged deals may emerge when they also bring significant accounting advantages. And this second category of benefits may be especially salient for the Dodgers, which paid more than $100 million of MLB luxury tax in 2024.

Nathan Goldman (NC State, Accounting), Shohei Ohtani’s $700M Tax-Advantaged Contract Appears To Be Paying Off, Forbes (Oct. 28, 2025):

[Under Shohei Ohtani’s ten-year, $700 million contract that begain in 2024], Ohtani’s contracted payments are $2 million for each of the next 10 seasons that he will be part of the [Los Angeles] Dodgers. These payments represent just $20 million of the total $700 million contracted amount. The remaining $680 million will be paid off after Ohtani’s contract ends during years 11 through 20.

The reason this contract deferral leads to such a tremendous tax advantage is because of state income taxes. The Los Angeles Dodgers play their home games in California, which taxes income at the state level at a top marginal tax rate of 13.3%. . . .

The lack of income taxes in many states is what makes Ohtani’s contract so valuable. . . . [O]nce Ohtani is done playing for the Dodgers, he will be subject to the tax jurisdiction where he lives. Should Ohtani relocate to a state that does not tax income, he will effectively avoid 13.3% in taxes on the remaining $680 million of his contract – a savings of around $90 million.

The California Legislature has made efforts to close this tax loophole, led by Josh Becker (D-Menlo Park), who introduced SJR 14, limiting the state tax benefits associated with deferred compensation contracts in California. However, to date, no progress has been made . . . .

Related TaxProf Blog coverage:

• Baseball Can Be Taxing (Mar. 19, 2013)
• The Tax Consequences of Catching Home Run Baseballs (Apr. 11, 2009)
• Appleby: The Taxation of Record-Setting Baseballs (Dec. 27, 2008)

Other related coverage:

• J. Leonard Teti II & Jonathan J. Katz, Ohtani: State Tax Planning Potential of Deferred Compensation, 112 State Tax Notes 303 (Apr. 22, 2024)
• Andrew Baggarly, California Lawmaker Seeks to Close Shohei Ohtani Tax Loophole: “It’s a Massive Hidden Ball Trick,“ N.Y. Times (Apr. 10, 2024)
• Hunter Berry, Game-Changer: Shohei Ohtani’s Dodgers Move Sparks Luxury Tax Reform Talks, JETLaw Blog (Jan. 26, 2024)
• Janet Nguyen, How Does Shohei Ohtani’s $700 Million Deal Actually Work? It’s Complicated, Marketplace (Dec. 15, 2023)