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The Ohtani contract is huge, but small market teams can still compete

The Great Equalizer

Shohei Ohtani #17 of the Los Angeles Angels celebrates with Taylor Ward #3 after hitting a home run against the Kansas City Royals during the fifth inning at Kauffman Stadium on June 18, 2023 in Kansas City, Missouri.
Shohei Ohtani #17 of the Los Angeles Angels celebrates with Taylor Ward #3 after hitting a home run against the Kansas City Royals during the fifth inning at Kauffman Stadium on June 18, 2023 in Kansas City, Missouri.
Photo by Kyle Rivas/Getty Images

Shohei Ohtani announced over the weekend that he will be playing for the Los Angeles Dodgers for the next decade. The deal will be worth $700 million, which is a lot of money in the same way that Mike Trout’s $426 million extension with that other Los Angeles team is a lot of money.

But it’s not just a lot of money in raw dollars. It’s a lot of money compared to other contracts in baseball, and it’s a lot of money compared to the other contracts in American sports. The biggest contract in the NHL? Alex Ovechkin’s extension with the Washington Capitals for $124 million. The biggest contract in MLS? Lionel Messi can make up to $150 million with Inter Miami. The biggest contract in the NBA? Jaylen Brown’s extension with the Boston Celtics for $303 million. The biggest contract in the NFL? Kansas City’s own Patrick Mahomes, whose Chiefs extension is worth $450 million.

And then there’s Ohtani, whose shiny new contract is worth a quarter of a billion dollars more than the next closest competitor. Wild.

As you might expect, the Ohtani contract has generated a ton of discourse. One of the biggest parts of that discourse has been general despair about the ramifications for the small market teams like the Royals. After all, the Royals seem to be effectively priced out of the $70 million free agent and extension market—how can they possibly compete with the $700 million free agent market?

While I agree that the financial system of Major League Baseball is tilted in favor of large market teams in a way that it is not for, say, the NFL, the Ohtani contract doesn’t actually represent a new paradigm or the ultimate doom for small market clubs.

There are a few reasons for this, but we’ll start with one of the simplest: Ohtani’s contract actually makes total sense in the broader historical context when it comes to unusually young free agents testing the market and getting record-setting deals. Case in point: after the 2000 season, Alex Rodriguez signed a 10-year contract with the Texas Rangers for $252 million.

Back in 2000, the median MLB payroll was a whopping $57.5 million, meaning that Rodriguez’s deal was 4.4 times as large as the median payroll. If you do the same math for Ohtani, taking into account the 2023 median payroll of $159.5 million, you’ll find that Ohtani’s deal is...4.4 times as large as the median payroll.

The second reason why Ohtani’s contract doesn’t spell the end for small market club is because small market clubs could afford a $700 million contract if they wanted to. Before you scoff so hard that your eyebrows fall off your face, consider that in 2017 the Royals fielded a $146 million payroll. The 2024 Royals payroll right now projects to be around $70 million with the addition of Will Smith. The Royals could have paid Ohtani $70 million and they’d still A) not even break their payroll record and B) be ~$20 million under the median payroll.

Now, obviously the Royals would be stupid to spend over half their payroll on one player. But it’s just objectively untrue that the Royals can’t pay a top-tier free agent $35 million a year with their current payroll situation. They can spend a lot of money and likely still be profitable considering that they pull in over $150 million in revenue every year before selling a single ticket.

Finally, and most importantly, is the playoffs. One of the first popular responses to Jeff Passan’s post about Ohtani’s megadeal was this:

“The Dodgers just paid someone 700 million dollars for a divisional round exit” is a good joke, but it’s also an unintentionally poignant fact that, on a per game basis, the best teams in the league just aren’t that much better than the worst teams in the league.

Does that sound crazy? Let’s think about it for a second. Since Jackie Robinson broke the baseball color line in 1947, the worst team in the history of integrated baseball was the 1962 New York Mets. That team won 40 games and lost 120, good for a winning percentage of .250. Likewise, the best MLB team in the history of integrated baseball was the 2001 Seattle Mariners, who went 116-46 for a winning percentage of .716.

Last year in the NFL, six teams had a winning percentage greater than .716, and three had a winning percentage less than .250—almost a third of the entire league.

One way to think about overall talent is by Elo ratings. Created by Arpad Elo for Chess, the rating system is designed to predict the results of a contest between two players and to update afterwards to show each party’s new skill level. Without getting too into the specifics (though they are fascinating), a player with an Elo rank 400 points better than their opponent would be expected to win 91% of the time, while a 200-point difference and a 100-point difference would result in win expectations of 75% and 64%, respectively.

Fortunately, we don’t have to do our own calculations here. FiveThirtyEight ran both NFL and MLB predictions by Elo, both of which consider an Elo score of 1500 to be an average team. Last year’s NFL champion Kansas City Chiefs ended the year with an Elo ranking of 1733, with the league worst Houston Texans at an Elo of 1307. But in the 2022 MLB season—the last full season when FiveThirtyEight ran these calculations—the World Series champion Houston Astros only had an Elo of 1591, with the league worst Washington Nationals only at 1432.

What does this all mean? Does it mean anything? Well, yes. Because the team talents in baseball are so close to each other, it makes short series like there are in the playoffs incredibly volatile. In a match between two good teams with a 50-point Elo difference in a best-of-five series, the underdog wins 37% of the time. And in a match between more evenly matched teams—say, a 15-point Elo difference—the underdog wins 46% of the time.

In other words, making the playoffs with a good (but not great) team can be enough for a deep playoff push. Just look at this year’s MLB playoffs, with the 84-win Arizona Diamondbacks making it all the way to the World Series, whose recent history has included such entries as the 87-win Philadelphia Phillies (2022), the 88-win Atlanta Braves (2021), the 88-win San Francisco Giants (2014), the 89-win Royals (2014), and the 88-win Detroit Tigers (2012).

Ironically, the hardest part about getting to the playoffs is getting there. Once you’re in, anything can happen. No, small market teams do not have the same advantages that large market teams do. But Ohtani’s mega deal isn’t anything new for the Royals and for other small market teams, and it’s certainly no excuse for skimping on payroll. They can still compete.