LOS ANGELES, CALIFORNIA – OCTOBER 17: Shohei Ohtani #17 of the Los Angeles Dodgers rounds the bases after hitting a home run during the first inning against the Milwaukee Brewers in game four of the National League Championship Series at Dodger Stadium on October 17, 2025 in Los Angeles, California. (Photo by Ronald Martinez/Getty Images)
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In December of 2023, Shohei Ohtani signed a 10-year $700 million contract to play baseball for the Los Angeles Dodgers. What many may not have noticed is that this contract carries an important tax advantage that will allow Ohtani to legally avoid paying around $90 million in California state income tax. Moreover, this contract has been mutually beneficial for both him and the Dodgers, who are in their second straight World Series and are poised to take home the trophy once again. This article discusses Ohtani’s dominance since joining the league and, in particular, the last two seasons on the Dodgers, as well as explains the unique tax benefits resulting from his contract’s structure.
Shohei Ohtani’s Emergence And Dominance On The Diamond
Ohtani began playing for the Los Angeles Angels at the start of the 2018 MLB season. Since starting his professional play in the U.S., he was named the 2018 Rookie of the Year, named to the All-Star Team five times, has won three MVP Awards (and is the Vegas Odds favorite to win a fourth at the conclusion of this season), and has won one World Series. As a member of the Los Angeles Dodgers in the 2024 season, he \became the first player in MLB history to join the 50-50 club, meaning he had 50 home runs and 50 stolen bases in a single season.
To illuminate Ohtani’s superb play, during Game 3 of the 2025 World Series, Ohtani hit two home runs and two doubles. As the game headed into extra innings (ultimately resulting in a thrilling 18-inning win for the Dodgers), the Toronto Blue Jays walked Ohtani five times to avoid his at-bat. Put differently, the Blue Jays preferred just to let Ohtani get on base with the equivalent of a single because the risk of letting him bat and potentially doing more damage was far too high. Even more compelling, Ohtani is also a pitcher, and he will take to the mound as the Dodgers’ starter for Game 4 of the World Series. His ability to dominate as both a hitter and a pitcher puts him in a unique place in MLB history, according to Forbes.
To say that his impact has been felt only on the baseball diamond would be an understatement. Ohtani has blossomed into a pop culture sensation, according to Hollywood Branded, and he has spearheaded the rise of MLB players with multinational brands, according to Medium.
Simply put, Ohtani has taken over the baseball world, and, at the age of 31, he appears to have plenty more years left to extend this dominance.
The Unique Tax Advantage Of Shohei Ohtani’s Contract
The typical MLB contract involves the player getting a sum of salary spread out over many years, along with a signing bonus that is often paid up front. Ohtani’s 10-year $700 million contract with the Dodgers which was signed in 2023 and set to begin in the 2024 season, according to NBC News, also featured these details, but this contract was different in a clear tax-advantaged way.
According to a Poole Thought Leadership article written by me and Dr. Christina Lewellen, Ohtani’s contracted payments are $2 million for each of the next 10 seasons that he will be part of the 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%. Thus, highly compensated athletes (not unlike Ohtani) must pay 13.3% of their income to California on top of the 37% to the Federal government.
While the Federal income tax applies to all taxpayers, there is considerable variation in state income tax rates. While some states impose high tax rates on income (i.e., California, New York, New Jersey, Minnesota, Washington, DC), nine states do not tax income at all, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
The lack of income taxes in many states is what makes Ohtani’s contract so valuable. When he is playing for the Dodgers, he is subject to California income taxes (or other jurisdiction income taxes while playing games on the road due to the jock tax, according to a Forbes contributor piece). However, once 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, and athletes like Ohtani can continue deferring compensation in a tax-efficient manner.
At the time of Shohei Ohtani signing his contract, it was somewhat perplexing why a player would choose to defer income so far into the future. However, once the details could be explored, it became clear that the deferral was due, in part, to the tremendous tax benefits that could be afforded to Ohtani, should he wish to leave the state of California and recognize this income as a resident of a state with low or no income taxes. While all of this may seem like a deal too good to be true for Ohtani, the Dodgers are also clearly benefiting from his talents as he continues to be a dominant force in MLB, and the Dodgers are once again in the driver’s seat for a World Series title. What remains to be seen is if more players will follow Ohtani’s lead and play for high-tax-rate jurisdiction teams while deferring their compensation to future periods. Furthermore, these same concepts might apply to other high-paid individuals, such as doctors, lawyers, and business executives. Ohtani’s contract deferral has the potential to provide a blueprint for tax avoidance for any highly compensated individual who is working in a high-tax state.