Moneyball Economics: Efficiency & Salary Allocation at the World Series

INTRODUCTION

The New York Yankees and Los Angeles Dodgers operate within the MLB as microcosms of the economy, where limited resources make the efficient allocation and use of funds vital. Management must balance team success with consumer expectations while simultaneously minimizing costs and adapting to factors of randomness such as contract negotiations, injuries, or losing streaks. 

The award-winning 2011 film Moneyball explores the Oakland A’s efficiency development; through a heightened focus on the use of true data, they were able to assign real value to previously subjective variables— increasing the team’s overall efficiency and success rate by leaps and bounds. 

In light of the World Series, we can take inspiration from Moneyball to explore how efficiently the resources involved are allocated. Specifically, we can look at the Dodgers’ implementation of an incredibly creative contract design for superstar Shohei Ohtani, in which a portion of his salary is deferred as a means to mitigate immediate pressures from resource and cash flow constraints. Compared to traditional MLB contracts, how does Ohtani’s contract represent the “Moneyball” approach of resource optimization, and how can it affect the Dodgers’ short-term and long-term success? 

SHOHEI OHTANI’S CONTRACT DESIGN

Shohei Ohtani is a world-renowned designated pitcher for the MLB’s Los Angeles Dodgers. He first made history in 2021, becoming the first player to be named an MLB All-Star as both a pitcher and position player. He continued to shine in 2024, becoming the only MLB player to hit 50 home runs and steal 50 bases in the regular season (Lewellen). His incredible starpower has resulted in an unprecedented contract with the Dodgers; preceding the 2024 season, Ohtani signed a 10-year, $700 million contract. However, $680 million is deferred until year 10, with Ohtani taking home $2 million each year until 2034, followed by $68 million for the next 10 years (Lewellen). 

Although it’s not entirely uncommon for professional athletes to defer salary, they often receive interest payments on deferred compensation, and with contracts of much lesser value. These deferred compensation packages aim to help free up liquidity for teams, allowing them to build better rosters and adapt more effectively to unexpected costs. This is no different than companies deferring employee compensation to create more cash flow in the short-term. However, both a lack of interest payments received and the sheer magnitude of Ohtani’s deferred compensation make his contract stand out as extremely unique (Lewellen). For example, Aaron Judge, the Yankees’ superstar and player with the third-largest contract in MLB history, has a total package worth $360 million— around half of Ohtani’s (Axisa & Perry). 

WHY DEFER SALARY?

Why would a player of Ohtani’s caliber sign a contract of this sort? While the details aren’t fully transparent, avoidance of major income tax is a likely reason for a player of Ohtani’s level to make such an agreement with the Dodgers. The state of California has the highest state income tax for the highest earning bracket, at 14.4% (Lewellen). By deferring $680 million of his earnings and taking no interest, Ohtani sidesteps these California taxes while he plays for LA. In doing so, he’ll avoid around $90 million in taxes— a loophole that’s fallen under question by state representatives (Baggarly). By deferring his earnings until year 10, Ohtani is able to finish out the decade with the Dodgers, declare a new permanent residence outside of California (presumably Japan), and avoid paying tens of millions of dollars in income tax to the state in which it was earned. 

LIQUIDITY FOR THE DODGERS

Ohtani’s largely deferred salary gives the Dodgers a valuable financial advantage by preserving much of their short-term liquidity. Similarly to a company retaining current capital to fund growth opportunities, the team has been able to preserve much-needed cash to fund success. Most importantly, the team has gained an unprecedented level of financial flexibility that has allowed them to invest in a world-class lineup without being limited by a single contract. 

This flexibility has eliminated many of the typical financial risks associated with signing a player like Ohtani. Usually, a star like Ohtani consumes most of a team’s payroll; this results in an unbalanced roster that rides on the success, health, and performance of a single star. In an ultra-competitive league like the MLB, where the highest-performing teams are stacked with talent, this is extremely risky. 

By minimizing the proportion of the payroll spent on Ohtani, the Dodgers were able to bypass these risks and form a well-rounded team. Their success is not determined by a single star, and they successfully added depth to a roster built to highlight Ohtani’s talent even further. 

ROSTER  

Nothing illustrates the effects of their payroll flexibility better than the quality of the 2024 roster. To put Ohtani’s salary deferral in perspective, the Dodgers’ payroll in 2024 amounts to $241 million dispersed across the entire roster, despite its strength (Treacey). Of that, the top 10 highest-paid Dodgers players account for approximately $150 million as follows:

Mookie Betts ($30 million), Freddie Freeman $27 million), Tyler Glasnow ($17.5 million), Teoscar Hernandez ($15 million), Chris Taylor ($13 million), Will Smith ($11.6 million), Max Muncy ($9.5 million), Yoshinouby Yamamoto ($9.2 million), Walker Buehler ($8 million), and Joe Kelley ($8 million) (Treacey). 

Evaluating each player, there is no shortage of value. For example, the recently signed Yoshinouby Yamamoto is an Olympic gold medalist, Pacific League MVP, and Japan Series Championship pitcher. Yamamoto will earn 9.2 million alongside a $50 million signing bonus in 2024, the beginning of a 12-year, $325 million contract, with no deferred earnings (Adler). 

CONCLUSION

In an ultra-competitive environment, we can only imagine the level of analysis that goes into payroll allocation and contract negotiations such as this. The success of these contracts, however, is clearly contingent on the ability to form agreements between players, managers, and teams. Was Ohtani an outlier, simply a unique case swayed by a tax break? Or will other players follow this lead and agree to similar terms? In addition, the presence of government concerns regarding deferral may lead to tax regulations that prevent ultra-wealthy athletes from benefiting in this way, virtually eliminating this contract design entirely. 

For now, however, the Dodgers have undoubtedly discovered their own version of a “Moneyball” formula to optimize and allocate capital extremely effectively. Using a blend of contract frameworks ranging from Ohtani’s full deferral contract to Yamamoto’s entirely deferral-free deal, the Dodgers have taken an innovative approach to resource management that will undoubtedly inspire other teams’ navigation of future negotiations. 

References 

Baggarly, Andrew. “California Lawmaker Seeks to Close Shohei Ohtani Tax Loophole: ‘It’s a Massive Hidden Ball Trick.’” The New York Times, The New York Times, www.nytimes.com/athletic/5406619/2024/04/10/shohei-ohtani-tax-loophole-legislation/. Accessed 24 Oct. 2024. 

Lewellen, Nathan Goldman and Christina. “Inside Shohei Ohtani’s Unusual Contract.” Poole Thought Leadership, 23 Sept. 2024, poole.ncsu.edu/thought-leadership/ article/inside-shoehei-ohtanis-unusual-contract/#:~:text=Before%20the%202024%20season%2C%20Ohtani,for%20the%20next%2010%20years. Accessed 27 Oct. 2024.

“Shohei Ohtani.” Encyclopædia Britannica, Encyclopædia Britannica, inc., 27 Oct. 2024, www.britannica.com/biography/Shohei-Ohtani. Accessed 27 Oct. 2024.

Spotrac. “2025 Los Angeles Dodgers Payroll Table.” Spotrac.Com, www.spotrac.com/mlb/los-angeles-dodgers/payroll/_/year/2025. Accessed 4 Nov. 2024.

Spotrac. “Los Angeles Dodgers 2025 Financial Summary.” Spotrac.Com, www.spotrac.com/mlb/los-angeles-dodgers/overview/_/year/2025/sort/cap_total2. Accessed 4 Nov. 2024.

Spotrac. “New York Yankees 2025 Financial Summary.” Spotrac.Com, www.spotrac.com/mlb/new-york-yankees/overview/_/year/2025. Accessed 4 Nov. 2024.