TIme Value Of Money And Baseball

In case you missed it, two days ago, Steven Strasburg signed a record 7-year, $245 million contract to pitch for the Washington Nationals. One day later, Gerrit Cole signed a 9-year, $324 million contract to pitch for the New York Yankees. As we discuss in the textbook, many sports contracts are actually paid out longer than is stated. You need the time value of money to properly evaluate such contracts. For example, Bruce Sutter signed a then record 6-year, $9.1 million contract with the Atlanta Braves in 1984. While this works out to a little over $1.5 million per year, Sutter was actually paid only $750,000 per year in interest for the six years of the contract. The rest of the money was paid as a deferred annuity. Sutter last pitched in 1988, but, in 2022, he will receive his last annuity payment. Importantly, note that it was believed at the time that a one-time payment of $1.7 million would have funded the annuity.