How to Sign Shohei Ohtani

The Shohei Ohtani show has unofficially begun. After missing over a month with a thigh issue, Ohtani returned to the mound two weeks ago, with scouts from half of the Major League teams reportedly in attendance. For his start on Tuesday night, both Andrew Friedman and Jerry Dipoto were known to be in the stands to watch in person, a start in which Ohtani was clocked at 101 mph and allowed just one hit over 5.2 innings. And after that start, reports from Japan have begun to suggest that there’s an agreement in place for Nippon to post Ohtani this winter, clearing him to come to the Majors for the 2018 season.

Yahoo’s Jeff Passan has a good breakdown of the situation.

It isn’t about the money. Athletes reflexively say this, and sports fans roll their eyes, because of course it’s about the money. It’s always about the money. Then along comes Shohei Ohtani, 23 years old, the finest baseball player Japan has produced in years, maybe decades, a once-in-a-generation sort who can throw 102 mph and hit tape-measure home runs, a player whose free-market value would start at $200 million if Major League Baseball didn’t restrict the signings of international players under 25 to barely $10 million.

Only Ohtani, it seems, does not mind the prospect of giving up literally hundreds of millions of dollars to play in the greatest league in the world. Multiple reports out of Japan on Wednesday morning there said the same thing: Ohtani, who has been called the Japanese Babe Ruth, will enter the posting system this winter and play for a major league team in 2018. This came as no surprise to the general managers and scouts who have flocked in recent weeks to watch him pitch for the Hokkaido Nippon Ham Fighters. It also didn’t lessen their excitement any.

“It’s really happening,” one GM said, half-mocking, half-giddy at the prospect of the 23-year-old spicing up the free agent market this winter. And fascinating as his courtship would be in normal circumstances, the prospect of the best player available signing one of the most piddling contracts makes it unlike any free agency sports has seen: One where it literally isn’t about the money.

Because last year’s CBA raised the age of international prospects covered by the bonus-pool system to 25, Ohtani isn’t eligible for true unrestricted free agency for two more years. Rather than wait that long — and as a pitcher, two more years of good health is no guarantee — Ohtani will reportedly be posted this winter and then sign under the same rules by which 16-year-olds are bound. He’ll receive a signing bonus of some size (up to about $10 million) depending on which club he ultimately joins and then sign a standard uniform player contract that binds him to the arbitration system until he accrues six years of service time.

That means that, as a rookie next year, Ohtani will be scheduled to make something like $545,000, the league minimum for 2018. And he won’t be in line for a real market-rate salary until after the 2023 season. If Ohtani stayed in Japan for two more years and stayed healthy, he’d be able to land the monster free-agent deal four years sooner. There’s no way around it: coming over this winter will cost Ohtani a lot of money.

And as Passan goes on to note in his piece, with Ohtani walking away from such a significant paycheck in 24 months, there’s little reason to believe that he’ll choose his next destination based on whether a team can offer him $10 million or $300,000, a sum to which many teams will be limited because of penalties they’ve incurred for exceeding their bonus pools in recent years.

But let’s also be realistic: money still matters. While the league has already made it clear that they won’t allow side deals to circumvent the bonus-pool limitations, Ohtani and his advisors will almost certainly factor potential future earnings into their decision of where to sign. And future earnings aren’t just driven by endorsement deals or marketing agreements. It’s basically impossible to imagine a scenario where every single MLB team agrees not to make some kind of overture about what they might be willing to do with Ohtani’s next contract.

And there will be a next contract. The only question is when, and what sum MLB will determine is allowable. I wrote about this last year when the CBA was announced.

But let’s just go along with the hypothetical for a second. Let’s say that Ohtani doesn’t mind leaving a couple hundred million in guaranteed money on the table, and he really is willing to come over after next season and go through the bonus pool system. In talking with people with knowledge of the language that will go into the actual contract that the league and the MLBPA will sign, I’ve confirmed that teams will not be allowed to circumvent the bonus rules to treat Ohtani differently. They can’t give Ohtani a shorter-term contract with free agency at the end of the deal, like other Japanese veteran free agents often receive. Anything that was seen by MLB as an agreement made to side step the bonus pool limitations would be disallowed.

But it brings up an interesting question; for how long must Ohtani and the MLB team that signed him stick with the standard pre-arb contract? At what point could the league no longer argue that a long-term extension was a pre-arranged deal designed to circumvent the rules? Because it is no longer unusual for players to sign long-term extensions very early in their careers.

Passan gets at this in his piece too.

Since the new rules regarding international players were announced, the question surrounding Ohtani has been some derivation of: How is he going to skirt them? Officials at MLB insist any effort to subvert the spirit of the rule will not be allowed. Would the league, for example, attempt to cancel a nine-figure contract extension for Ohtani if he stars in his first season? One official said precedent will matter, and any contract that doesn’t have a forebear will be considered a violation. Might a team attempt to negotiate an under-the-table deal to make whole Ohtani as well as the Fighters? It could, though MLB believes the possibility of being caught and sanctioned will scare teams straight.

Every good young player gets approached about signing a long-term deal these days, and there’s no way MLB can order teams not to treat Ohtani similarly. So the question will be how close to the “forebearers” does Ohtani’s next deal have to look? And when can he sign it? And if you want to sign Ohtani this winter, the ability to — legally, which means not officially putting it in so many words during the official visit — provide a clear and legitimate plan for getting Ohtani to his next contract might be the deciding factor.

Obviously, this is all wild speculation given that we don’t even know officially that Ohtani will be posted yet. But if Passan’s right about the standard being that it just has to look something like prior early-career extensions, then teams should be able to convince Ohtani that he’s not that far away from a significant guarantee.

The current record for largest guaranteed dollar amount to a player with one year of service is the $58 million extension Andrelton Simmons signed with the Braves back in 2014. It was a seven-year contract that bought out five years of team control and two years of free agency. That deal was nearly smashed this spring, however: it’s widely believed within the industry that the Indians offered Francisco Lindor more than $100 million to sign a long-term deal to stay in Cleveland, an offer which Lindor reportedly turned down.

Both of those young shortstops were coming off terrific seasons. In all likelihood, Ohtani will have to put up a strong rookie season to get himself and his new team’s executives enough distance from his original signing to allow the deal to pass muster. There have been some long-term extensions for guys with almost no big-league experience (Evan Longoria, Jon Singleton, Matt Moore, and Salvador Perez), but the guarantees on those deals were so small that Ohtani wouldn’t be interested in using them as comparisons. To get to some real money, he needs to get a year of service under his belt.

And then it gets interesting. If Ohtani shows he can impact the game as both a pitcher and a hitter next year, it’s not that hard to argue that he’s more valuable than Lindor, and Lindor reportedly walked away from seven figures. If Ohtani lives up to the hype, I think a team could reasonably argue that the singularity of his abilities, along with the rapid rise in the valuation of young players, combine to make a deal for $100 to $150 million sufficiently comparable to precedent that the league couldn’t stop it.

But Simmons’ deal and the reported offer to Lindor both required those players to surrender free-agent years. Teams basically don’t do arb-only extensions for early-career players anymore, and after already pushing his chance at free agency back four years, Ohtani might be disinclined to push that back even further. So if a team wants to interest Ohtani, they might be well served to (through backchannels, of course) communicate an idea about how they might get him a pretty decent guarantee without forcing him to surrender the chance at free agency following the 2023 season.

And one way to do it might be to include both an opt-in and an opt-out.

Since Ohtani’s next deal will have to have some predecessor, perhaps the arbitration language could be borrowed from the deals signed by guys like Jose Abreu. As a true free agent, Abreu signed a six-year, $68 million contract that guaranteed him $34 million over his three arbitration years. It offered him the ability to opt-in to arbitration, though, instead of accepting the agreed-upon salaries for the last three years if he felt he could earn more by going through the arbitration system.

Abreu did just that, and agreed to a one-year, $10.8 million deal to avoid arbitration last winter. It was only a small raise over what he was originally guaranteed, but it’s a precedent that a team could use to suggest to Ohtani how they could structure a deal next year.

Say, for instance, a team — in a way that maintained plausible deniability, of course — suggested to Ohtani that they’d be open to guaranteeing Ohtani significant money over a seven-year term while also giving him the right to void the agreed-upon salaries if arbitration promised more significant raises. That way, Ohtani would get the security of guaranteed money if he gets hurt, but would retain the ability to make even more money in arbitration if he does prove to be a two-way superstar.

That’s the opt-in portion of the offer and would ensure that Ohtani didn’t have to sign some early-career extension that stuck him in a Madison Bumgarner or Chris Sale position, making a fraction of his value through his prime years. That could be an appealing option for any young pitcher.

The opt-out portion could hinge upon whether Ohtani chose to use the opt-in.

For instance, let’s say this hypothetical offer (after Ohtani successfully completes a strong rookie season) is something like $125 million over seven years, a supersized version of what Cleveland reportedly offered Lindor. But, citing as a comparison every contract the Washington Nationals have offered the last few years, the deal would be heavily backloaded, with most of the money coming after a fifth year opt-out. Maybe you even put $100 million of the $125 million in those last two years, knowing that $50 million a year in 2024/2025 won’t look that crazy once Mike Trout and Bryce Harper reset the free-agent landscape in the next few years. But you make the opt-out disappear if Ohtani chooses to void the guaranteed salaries in lieu of going to arbitration.

Then you’d effectively set Ohtani up for a choice after his third year, assuming he was effective and stayed healthy.

1. Opt-in to arbitration and dramatically increase his earnings from 2021-2023, but forego the opportunity to become a free agent until after 2025.
2. Remain significantly underpaid through his arbitration years but reach free agency after six years instead of after eight years.

In the first scenario , the team would get Ohtani for a total of eight years instead of just six and could reasonably argue that the contract offers enough long-term upside for them that it’s within the realm of what other great young players have been offered with one year of service time. I don’t know how MLB could justifiably refuse to let a team sign Ohtani to an extension that bought them two free-agent years.

In the second scenario, which probably represents the more likely one should Ohtani live up to the hype, the signing team locks in underpriced arbitration salaries for an elite player, and the league gets to avoid having Ohtani just blow the roof off any prior arbitration records. The signing team wouldn’t get extra years of control, but they would get Ohtani’s arbitration years for a total of $25 million, when he’d probably double that if he had gone year to year.

In either scenario, as long as Ohtani turns into an elite player, the signing team gets a long-term cost savings. And if Ohtani isn’t good or gets injured, he’s guaranteed no less than $125 million in career earnings, so he trades some financial upside for a very high floor. That exactly the security/savings trade-off that these early-career extensions are supposed to provide; this one just happens to be on a much grander scale.

Now, again, MLB teams can’t just stick this kind of promise in the presentation they’ll make to Ohtani and his agents, and maybe he really will just choose to sign with whomever he wants and postpone any thought of his next deal to a later date. But despite the league’s desire not to have the bonus pools circumvented by a promise of money above and beyond the initial signing bonus, it’s hard for me to imagine a scenario where no one tries to suggest something along these lines.

If you want your team to sign Ohtani this winter, you probably better hope that they are already figuring out what their second offer to him might look like, because the first contract might not be the one that matters.