Week in Insights: Ohtani’s Contract Pokes Holes in Luxury Tax

Curated by Daniel Xu

The MLB’s competitive balance tax, often referred to as the luxury tax, is a check on teams with deep pockets. The CBT levies a tax on payrolls over a certain annual threshold, redistributing wealth to less financially endowed teams.

A trend among high profile player contracts is the incorporation of deferred income arrangements. This month, two-way star Shohei Ohtani inked a record-breaking $700 million 10-year deal with the Los Angeles Dodgers. While a simple calculation might suggest an annual salary of $70 million, the reality is more complex.

Ohtani agreed to defer his annual salary, save ...