The historical rarity of Shohei Ohtani’s game has taken the baseball world by storm. Ohtani’s novelty—a player who provides superstar value on the mound and at the plate — has only one historical model: Babe Ruth. Even that is imperfect; Ruth’s hitting didn’t flourish until he abandoned pitching. Truly there is no precedent for Ohtani making the 2020 All-Star Game as both a hitter and a pitcher.
Ohtani is shattering records on the field and will likely do so off it as well: unprecedented play deserves unprecedented compensation.
At the moment, Ohtani is under contract only for 2021 and 2022. Technically, the Angels possess his rights through 2023, meaning if no extension can be reached, the two sides would head to arbitration, where a third-party judge would decide Ohtani’s 2023 salary. That figure would likely almost double the standing record.
The arbitration process was introduced to baseball as a way of staying demands from the Major League Baseball Players’ Association (MLBPA) for free agency. Though free agency was eventually enacted in 1977, arbitration remains part of the Major League Baseball landscape.
Today, a player is eligible for arbitration after accruing 3 years of major league service time. In the fourth through sixth years, if no contract is agreed upon, the arbitration process begins. Both sides submit a figure and plead their case to a third party, who selects one of the figures as the player’s new salary.
There are no set rules or limits to what is argued in arbitration. However, the most common topics tend to be the following:
Player’s performance in their “Platform Year,” the year immediately prior to the arbitration.
Player’s performance in the two years preceding the Platform Year, or PY-1 and PY-2.
Recent salaries of players of similar position and production value.
Contribution to team success.
The current mark for the highest salary in the third year of a player’s arbitration is $27 million to Mookie Betts, then of the Boston Red Sox, in 2020. We believe each of the above factors favor Shohei Ohtani soaring past Betts’s award.
Shohei’s PY-2 year, was affected both by an injury (which kept him off the mound) and the COVID-19 pandemic. But his performance this year, “PY-1”, clearly demonstrates a sky-high ceiling for Ohtani: one of the MLB’s ten best hitters and ten best pitchers. His platform year performance is unknown for now; we’ll cautiously assume it to be similar to, if slightly less than, this year’s.
As for comparing him to players of similar production, one would have to believe he is in a class of his own. His value to the Angels lies in both his superb play on the field and his immense star power: He accounted for over 28% of All-Star merchandise revenue and has obvious marketing potential not just to American baseball fans but fans in Japan, the second biggest baseball market in the world.
Metrics love Ohtani, and yet sell his performance short. His Wins Above Replacement are currently first in baseball. But because is a starting pitcher who produces at the plate on his off days, he effectively serves as two different players while taking only one roster spot, effectively creating a free roster spot for his club.
An agent arguing for Ohtani in 2023 could state:
Hits at an MVP caliber level, similar to Betts in 2020, when he got a $27 million award.
Pitches at a borderline Cy young level, similar to David Price in 2012 who got $19.75 million after a Cy Young campaign.
Creates a free roster spot for his team, an asset arguably worth millions on its own.
Is one of the most marketable stars in the game both in this country and in his native Japan.
Will Ohtani Even Make it?
Given the unique nature of the player, it seems unlikely the Angels will allow the process to get to arbitration. But if they did, what would a fair offer be?
His hitting alone would seem likely to be worth north of $30 million given Betts award in 2020 and the inclination of arbitration award to increase. Similarly, his pitching should be worth at least $20 million. Counterweighting his less impressive PY-2, yet giving some value to his free roster spot and marketability, $50 million seems like a reasonable place to start. we’d expect the Angels to submit a number just north of that.
The real question is the value of that roster spot, and his marketing value. While those specific values are worthy of deep analysis on their own, it’s our position that $50 million— slightly less than double the current record – could be reasonable compensation.
Britton Yoder and Samuel Roos are rising 1L students at Penn State Dickinson Law.