gbs
There are a lot of different ways to calculate the value of the contract
IMO, the three most important ways are:
1) the straight way: 4 years, $240 million. Not the best way, but that’s what you’ll see reported.
2) The CBT value: this is important in baseball terms. It can seem a bit convoluted because it was bargained for. So there are compromises in it. Teams don’t want payments to be discounted players do. It makes the contract look bigger if future payments aren’t discounted.
The CBT value is the AAV which is calculated by: the total amount paid during the life of the contract (including the signing bonus) divided by the contract length. In this case it’s ($240 million – $30 million in deferrals) $210 million/4 years = $52.5 million. Then the deferrals are added back in. Any money that is deferred 10 or more years gets discounted. That’s why most deferrals are paid 10 years later. Assuming this is true for Tucker those are 4 payments of ($30/4) $7.5 million made starting 10 years from now.
You can use a calculator like this to estimate their value.
calculator.net/present-value-calculator.html?cyear…
Four yearly payments of $7.5 million at a 5% discount rate has a value of $26.6 million
But that $26.6 million has to be discounted 10 more years.
Doing that gives it a present value of $16.3 million.
Now the total contract is ($210 million from above plus $16.3 million) $226.3 million. Divide by 4 about $54 million per year
*My calculations always come up a little less than the official number. I’m not sure why. I think part of it is the discount rate. Whatever, the process is correct as far as I know
3) Then there is the financial present value. This is the money from the player’s and team’s perspective.
First, the signing bonus. Some bonuses are paid all at once. Some are spread out. If they are spread out, they need to be discounted. Tucker’s is paid upfront. $64 million is $64 million.
Next are the regular payments. Those are ($240 million – $64 million signing bonus – $30 million deferred) $146 million. That’s over 4 years. So $36.5 million per year. That gets discounted and has a PV of $129.4 million.
calculator.net/present-value-calculator.html?cyear…
Then add in the deferred payments of $16.3 million.
Add everything up and it’s ($64+129.4+16.3) $209.7 million
So a $240 million contract can be $240 million, $226 million or $210 million.