MLB unicorn Shohei Ohtani shocked the sports world twice within days by first signing the largest player contract in professional sports history and then deferring 97 percent of its value for a decade.
There are many reasons why the unusual payment structure should work for Ohtani—primarily tax-related—as well as for the Los Angeles Dodgers, his new employer—avoiding a big hit from MLB’s competitive balance tax, having more money to spend now on other players, etc.
Those reasons don’t exist for sponsorship rights holders, so no one expects properties to emulate the superstar from Oshu, Japan when it comes to negotiating contracts with their brand partners. However, getting creative with payment structures is still a good idea for rights holders to consider, especially if they are struggling to close a particular deal.
Deferral. A frequently cited objection from potential partners is lack of current funds. Taking less money up front and pushing more to a later time in the contract term can be an effective workaround in this situation. Unless inflation suddenly disappears, money today is more valuable than money tomorrow, so no property wants to push off receiving funds, but we are not talking about an Ohtani-like proportion. If it means the difference between securing a deal and walking away, forgoing immediate payment can easily be worth the haircut.
Extension. If a property is seeking a three-year commitment at $100,000 a year, negotiating for a longer term at a lower annual value (five years at $85,000 for example) can sometimes satisfy both sides at the table. In exchange for less money per year—which again eases immediate budget concerns for the sponsor—the rights holder receives security and doesn’t have to go back to market with the rights for an additional two years.
Set-Aside. As mentioned in a post this summer, activation set-asides or savings accounts are a good idea in general and a way to ease budget concerns in the negotiating process, as the property agrees to reserve some of the money it receives from a sponsor specifically for the purpose of allocating it later on for an unplanned activation program.
So although Ohtani’s contract model isn’t one to follow, it should serve as inspiration for some financial creativity when necessary.
And who knows, the famed two-way player’s deferral could also trigger some new partnership opportunities for brands. With a paltry $2 million a year in salary for the next 10 years, Ohtani may feel the need to add to his endorsement roster to boost his cash on hand. Estimates are that he earns about $40 million a year from current U.S. and Japanese partners including New Balance, Fanatics, Mitsubishi, Japan Airlines and Seiko.