The $1 Billion Contract

Is Shohei Ohtani on the path to becoming a billionaire? Time will tell as the young Japanese mega-star and reigning unanimous AL MVP tackles free agency this offseason. Outside of baseball, we have already seen billionaire athletes like LeBron James, Tiger Woods, and Lionel Messi. However, achieving billionaire status as an athlete requires business acumen, savvy investments, and a marketable persona. Such status comes from a combination of endorsements, financial ventures, and salary. Never before has the world of sports witnessed a ten-digit contract.

In other sports such as soccer and football, we have seen significant milestones. Lionel Messi's previous 4-year deal with FC Barcelona was capped at $674,000,000 (that’s $168,000,000/year!), and Patrick Mahomes signed a 10-year deal with the Kansas City Chiefs in 2020 worth $450,000,000. Ohtani’s former teammate and fellow once-in-a-lifetime talent Mike Trout holds the richest MLB contract to date, a 12-year deal for $426,500,000 agreed upon in 2019. Pundits wonder if Ohtani, a never-before-seen 6-tool athlete at only 29 years old, could be on the verge of surpassing the billion-dollar mark.

But how did these massive contracts come to be? Let’s dive into a bit of history. With the establishment of the National League in the late 1800s, organized baseball truly came to fruition. Yet, with no union representation, players were, in the words of Monte Ward, the Hall of Fame 19th-century pitcher-shortstop and Columbia-educated lawyer, "bought, sold, and exchanged as though they were sheep." At a time when a player's salary ranged from $1,500 to $2,500 (roughly $60,000 today), athletes were compensated for their time but had little to no say in the whereabouts and the tangibles of their situation.

The "Reserve Clause" allowed a team to reserve a player for as long as they liked, leaving players with limited options for negotiation. If a player wanted an increase in salary, his only leverage was to threaten retirement, as it was prohibited for any other team to sign him. Players were at the mercy of team ownership, unable to leave, refuse a trade, or negotiate for a raise.

Finally, in 1969, the situation boiled over with the situation of Curt Flood. Flood, an all-star caliber centerfielder for the St. Louis Cardinals for 12 years, was traded to the Philadelphia Phillies after requesting a raise. Citing frustration and other concerns, Flood wrote a letter to then baseball commissioner Bowie Kuhn, requesting to be declared a free agent. Kuhn denied the request, leading to a lawsuit against Kuhn and Major League Baseball, alleging the reserve clause violated antitrust laws as a collusive measure that reduced competition.

The case made its way all the way up to the United States Supreme Court. Flood v. Kuhn was not the first baseball case granted certiorari. In the 1922 case of Federal Baseball v. National League, the Court decided that professional organized baseball was not interstate commerce, exempting it from federal antitrust law under the Sherman Act. Despite the subsequent rulings of United States v. International Boxing Club and Radovich v. National Football League declaring boxing and football, respectively, as interstate commerce, in Flood, SCOTUS upheld the antitrust exemption carved out by Federal Baseball some 50 years prior on stare decisis grounds, ruling in favor of the league.

Flood’s efforts were not in vain, as the Curt Flood Act of 1998 ended baseball's antitrust exemption in player-owner interactions, though it didn’t fully strike it down, preserving the exemption in other areas like franchise relocation. The exemption faced a recent challenge from minor league teams, but the case settled before reaching the Supreme Court earlier this November.

It wasn’t until after the brief lockout of 1976 that the reserve clause was finally abolished, marking the beginning of the era of free agency in baseball and a surge in player salaries. Nolan Ryan's four-year, $4.5 million free-agent contract with the Houston Astros in 1979 made headlines, not just for being the largest baseball salary at the time but also for its rapid growth—from $3,600 in 1966 to $100,000 in 1974 and then $200,000 in 1977.

Alas, here we find ourselves in 2023, speculating whether Sho-time Ohtani will secure that elusive billion-dollar deal. Not to be anticlimactic, but due to injury concerns, the answer will likely be no. However, don’t be surprised to see the first 10-digit deal occur in the world of soccer within the next couple of years (*cough cough* Saudi Arabia), with the NBA and NFL likely following suit within a decade from the time of this writing.

Aaron Polonsky is a 3L at the Boyd School of Law @ UNLV. He can be found at https://www.linkedin.com/in/aaron-polonsky/.

Sources

Roger Abrams, Legal Bases Baseball and the Law, 1998.

Robert Goldman, One Man Out, 2008.

John Minan, Kevin Cole, The Little White Book of Baseball Law, 2009.

https://www.expensivity.com/baseball-inflation-huge-increase-mlb-salaries/