By - frmsea2okc
Why not 36 billion years, 1 cent per year?
Unfortunately the sun will have burnt out by then so the best MLB can do is 7 cents per year over 5 billion years.
This way the player gets a solid 2-3 billion years to enjoy the fruits of their labor! Should we start a sports agency?
because an 8-10 year 360M contract is worth more to the player than a 30 year 360M contract
To further add to this, the more money you get in a short amount of time, the quicker you can turn that money into more money (investments, gains on interest, etc). Due to inflation, if you spread out a 10 year deal over 30 years, while the overall dollar amount you make is the same, what it's worth and what it grows into is lesser in value
It's the Time Value of Money - a dollar today is worth more than a dollar tomorrow
This is a very good Tl;Dr, thank you. Going to start using that phrase lol
It really should be commonly understood. Goes to show how simple finance is not well taught in the US at all. I always think about it in a real world example rather than the actually mathematical formula… I could mow my lawn every week and rake leaves in the fall, and while it would save money, those are weekend hours I would rather not spend doing lawn work, so I’d rather pay someone. If you like doing lawn work then maybe that time spent and money saved makes it worth it
That's a great description of opportunity cost, the personal tradeoff between doing one activity and another. Every activity has a tradeoff, the cost of not doing something else, and in order to logically engage in it you have to determine that the value you get from it exceeds this cost. "There's no free lunch." That's opportunity cost.
By contrast, "Time value of money" is the discount rate, the value of a flow of money over time, which exists at social levels, and exists regardless of inflation or opportunity cost. Instead it reflects the investment value of a dollar today versus a dollar in the future -- a dollar today can be invested and used to generate additional economic activity and income. It's the banking song in "Mary Poppins" -- tuppence turns into future canals and whatnot. Different from "I'd rather give tuppence to the bird lady than to you," which is a marginal utility and opportunity cost argument. Therefore a dollar today is worth more than a dollar a year from now.
There is a moral dilemma built into the discount rate -- by the same logic, harms done in the future hurt less than harms done today -- harms today reduce investment and thus growth and thus a stream of future income. Harms in the future don't have this negative impact until they occur. So it is better to do something that kills a future person than one that kills one today. That's just economics, and math. Maybe even better to do something that kills two future people vs one today.
But now we've made a moral, ethical statement: lives in the future are worth less than lives today. But who are these "future people"? Your children, grandchildren. And most people would sacrifice themselves to save their grandchildren if they could. So we've hit a wall -- one way around it is to introduce a Social Discount Rate of zero or even a negative value, when measuring future harms. This has led to quite an argument around how we measure the projected impact of global climate change, for example.
hah yeah I guess my definition was too literal for what tvm is actually defined as and I really was describing opportunity cost. What I was getting at wasn't really relevant to the Judge question / answer but more making a point that time implicitly has a monetary value, so it needs to be a key factor in life decisions vs. just whatever the absolute $$ cost is
Yah, my inner econ instructor just kicked in. Absolutely. You need to think about the time and energy you spend trying to "save money."
I understand what you’re saying but I don’t think this applies to the time value of money concept
Maybe I’m missing something, but time value of money refers to the impact of earning interest and inflation.
If you earn a dollar today, you can then invest it, and it will be $1.05 tomorrow.
So if you earn a dollar today, due to interest it will be worth more tomorrow
A dollar today is worth more than a dollar tomorrow
So you front load the contract with 95% of the money paid in the first 5 years. Then the years after is like 3 million and you get released by year 10
MLB would shoot it down
MLB has allowed plenty of deferred money contracts with a signing bonus and long payout.
The Mets are still paying Bobby Bonilla over a million a year from a contract signed in I think 1999. And they still owe him for another decade plus.
Only if you aren't a idiot.
So why not sacrifice more money for less AAV to help the team stay competitive?
The example 8/360… what about 25/420 at 16.8 AAV?.
There are a lot of reasons. A player can’t retire without voiding his contract, so he’d have to embarrass himself for like 13 years from age 40-53 still trying to make it in the majors. Even if the team cuts you, you still can’t retire. Secondly, the team would be paying 17mil a year for a guy who isn’t playing for like 13 years, that’s a huge downside. There’s more reasons but those are prob the 2 most obvious
It boggles the mind really. 300k would be a life changing amount of money for a lot of people, let alone 3m, 30m, 300m or more. I guess the more you have the more you can spend or give away but I feel like if someone gave me 360m I'd never be able to spend it all.
You could just give them a signing bonus lmao and front load all the cash
In the MLB it would still be distributed across the entire contract
Money now is always worth more than the same amount of money later. People with bad financial advisors/agents take contracts like that.
30 years would get flagged by the league. But it would be an interesting case to see it. Technically the Bonilla contract was kinda like that, just situated and paid out (explained) differently.
Didn’t Edwin Diaz just sign a similar contract that he gets paid out for over a longer period of time than he is obligated to play
Defered money isn't years, he'll be paid over that period of time but he won't play for the Mets at that salary. Like Chris Davis wouldn't play for the Orioles in 2032 but he'll still be getting paid by us then.
I remember in the post-Harper signing interviews and reporting, it was mentioned that early on when they learned Bryce intended on finishing his career with the team he signed for, they workshopped a bunch of wild ideas like a 15-20 year contract or literal lifetime contract. But it never got serious enough to the stage where they ended up having to deal with it
Time Value of Money
Well, you could always try to defer the money, like with Bobby Bonilla.
But once he was done playing for the team, he was done.
Chances are no one is going to want a 15+ year commitment to anything. Especially when your role after you can no longer play is up in the air.
Could always do a ten year player contract with a contract for advisor role like the angels did with pujols
Those are banned now
They can. The Mets are paying Bobby Bonilla until 2035.
> just make him a lifer like chipper (bench coach, reporter, booth, etc after retirement) and give him like 250 million over 15 years?
Because paying a guy $15 million/yr to be a special assistant to the GM 10-15 years is $15 million you *don't* have 15 years from now to sign talent.
Also, deferring money like that long term is a bad deal for the player. A dollar now is a lot more valuable than a dollar 15 years from now. Even beyond the risks associated with deferred payments like that, there's just inflation. A dollar today is worth 70¢ in 2007.
This is a very common but it’s called deferred money, the Nats will be paying Sherzer for years to come, Bobby Bonilla is the poster boy for this
Not really the same as deferred money - if the player retires they don’t get that salary so they’d have to play for the full 30 years, or wait until they are cut. The AAV for tax purposes would be $12MM with this mega contract. And also this would be the only deal he could make, couldn’t sign another one in 11 years.
You just outlined why players take deferred money instead of whatever OP is suggesting
$12M in 30 years will be worth like $1M in today's money.
You have an extremely dim view of inflation.
$1 in 92 is worth $2.06 now. Not $12
That would be like 10% inflation for a decade, that would be economically crippling for the entire world.
What do you mean Hyperinflation isn't a good thing?
Bobby Bonilla is still getting paid
Simple answer: time value of money…minus deferred Compensation it’s always advised to take more money upfront then to spread it out. If you ever win the lottery, do not ever take the annuity always take the lump sum.
Albert Pujols has 10 years of "personal services" due to the Angels still, which covers things like coming back to help out coaching in spring training, or of he wants to be a broadcaster or work in the front office. I think Ichiro had a similar deal with the Mariners.
But you might be talking about more like what Bobby Bonilla has.
If this could be done I guarantee the Brewers would have tried it
They could, but I flatiron and the time value of money says it would make no sense for Judge to take it.
Money now is more valuable than money later.
From the player side, an increase in salary cap in 10+ years makes their contract even worse