At first glance, it seems like financial magic: The Los Angeles Dodgers have somehow figured out a way to pay the two-way superstar Shohei Ohtani $700 million, while also kind of only paying him $460 million, at least as far as Major League Baseball’s luxury tax rules are concerned.
But what the team is doing actually relies on some pretty familiar financial math. Many readers who will never be in the conversation for best baseball player of all time employ a similar maneuver in their own lives—albeit at far lower dollar levels—if they have a retirement plan. It might even become more common, thanks in part to Jerome Powell and the Federal Reserve’s interest-rate policies.
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Los Angeles Angels pitcher/hitter Shohei Ohtani once again found a way to make headlines, this time by cementing a major contract renewal which features a surprising MVP: Federal Reserve Chairman Jerome Powell.
Ohtani, the two-way player and highly sought-after talent from Japan, announced on Tuesday that he had agreed to a new contract with the Los Angeles Dodgers that includes an eye-popping $325 million, the largest contract ever for a Japanese player. However, the key to the deal was the involvement of Powell, whose testimony during congressional hearings two weeks ago cooled off fears of a sharper-than-expected economic slowdown.
The market impact of Powell’s appearance was significant, as it caused investors to pour money into the stock market. That influx of cash worked to the favor of the Dodgers, who not only got Ohtani to sign—making them the first team he has been on with a Major League Baseball contract—but offered him the highest figure ever for a Japanese player.
The Dodgers were tight-lipped about Powell’s influence in the deal but one can easily draw the correlation between the resurgence of investor enthusiasm due to Powell’s testimony and the massive deal they offered to Ohtani.
For Ohtani, the deal was a no-brainer, as it provides him with a long-term commitment to the Dodgers and allows him to play baseball freely without the fear of economic instability.
Although it may not be the most glamorous part of the deal, the involvement of Powell certainly gave the Dodgers the edge they needed to clinch the highest-paying deal in Japanese major league history. Powell’s testimony acted as a signal to the market that the economy is likely to remain strong, and in turn gave the Dodgers the financial breathing room to make the offer they did.
By linking the success of his influential testimony to the economic well-being of several franchises, including the Dodgers, Powell may well have become the MVP of Ohtani’s deal.
