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Tigers Sign Damon - 1 yr, 8 mil; NTC


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QUOTE (Pants Rowland @ Feb 17, 2010 -> 02:37 PM)
Exactly. Discount the individual cash payments back to the start date of the contract to get the net present value. Not sure what percentage you would use, though.

I don't know what the discount rate, but I assume it would be 7 to 8%.

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QUOTE (Balta1701 @ Feb 17, 2010 -> 02:36 PM)
Because, due to inflation, deferred money is worth less than money paid up front.

 

Technically, it's not really "worth less," it just that you don't get it for a few years. And if it's subject to interest, it's worth more in 2010 market dollars.

 

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QUOTE (Chisoxfn @ Feb 17, 2010 -> 04:40 PM)
No, that wouldn't be right either, well who knows. I'm thinking more on the finance side of what a PV calculation entails.

 

But if you gave him 4M up front with 2M deferred over the next 5 years, the value of the entire contract in todays values might be right around 4.5M.

 

Who knows, either way, I could see this making a whole lot of sense.

You're right, I misunderstood.

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QUOTE (Chisoxfn @ Feb 17, 2010 -> 05:40 PM)
No, that wouldn't be right either, well who knows. I'm thinking more on the finance side of what a PV calculation entails.

 

But if you gave him 4M up front with 2M deferred over the next 5 years, the value of the entire contract in todays values might be right around 4.5M.

 

Who knows, either way, I could see this making a whole lot of sense.

 

Depends on the discount rate and the amount of time to payout. If they are paying $2.5M over 10 years with a high discount rate 8-10%, the present value in todays dollars is probably very low. If they paying the deffered money with a low discount rate and over just a couple years and the PV in todays dollars is probably much higher.

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QUOTE (Chisoxfn @ Feb 17, 2010 -> 04:40 PM)
I don't know what the discount rate, but I assume it would be 7 to 8%.

 

Not a bad assumption, and I believe you are correct that he would probably get paid some amount like $3MM in 2010, with another $X.X million deferred. The total sum, discounted back to today is roughly $4.5MM.

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QUOTE (WCSox @ Feb 17, 2010 -> 02:41 PM)
Technically, it's not really "worth less," it just that you don't get it for a few years. And if it's subject to interest, it's worth more in 2010 market dollars.

Here, let me lay out how the PV calculation would work. You'd essentially have a few factors.

 

The up-front money, would obviously be un-discounted. Than you have the yearly payment and the discount rate to factor into and obviously the term.

 

So if he were to defer 5M at a set percent of interest, you could do a pretty quick PV calculation and get to where you'd need to be.

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Last Year the White Sox hit 184 homeruns and scored 724 runs. Using CHONE projections our offense appears to have a lot less power, but a touch more versatility. With the pitching staff and the Tigers step backwards, we're in really good shape. Especially, because I think a couple of these guys will outperform their projections.

With a Damon deal and assuming a 12-man bench.

 

Our projected 2010 Offense with Nix on Bench

161 Homeruns. Runs Scored: 758

Our projected offense with Kotsay on Bench

155 Homeruns Runs Scored: 745

 

I don't find the power projections that reasonable, but i think we have a fair shot of scoring some runs.

Edited by Thunderbolt
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QUOTE (Balta1701 @ Feb 17, 2010 -> 02:36 PM)
Because, due to inflation, deferred money is worth less than money paid up front.

 

If you're talking about the current economic situation where the dollar is losing value (and projected to lose more over the next few years), I understand what you're saying. My bad.

 

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QUOTE (joeynach @ Feb 17, 2010 -> 02:43 PM)
Depends on the discount rate and the amount of time to payout. If they are paying $2.5M over 10 years with a high discount rate 8-10%, the present value in todays dollars is probably very low. If they paying the deffered money with a low discount rate and over just a couple years and the PV in todays dollars is probably much higher.

Ya, its hard to guess cause the three major variables is how much will be deferred, over what period and what the discount rate would be. The good news is (from the Sox perspective) is that I would assume the discount rate used (and really it all depends since it is up to him to decide what the contract is worth in todays dollars and he'll need to determine the appropriate discount rate) would be less due to the economy (since spreads are much lower right now than they were 4 to 5 years ago).

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If we do a simple NPV calculation in excel we can see the present value of a contract that has differed payments.

 

Lets assume a discount rate of 6% (.06) and up front money of 4Mil with 3M paid out in 5 years.

 

Use =NPV(.06,4,0,0,0,0,3) = $5.89M would be the present value

 

You can tinker with it.

 

Lets assume a discount rate of 9% (.09) and up front money of 4Mil with 3M paid out in 5 years.

 

Use =NPV(.09,4,0,0,0,0,3) = $5.46M would be the present value

 

 

Lets assume a discount rate of 8% (.08) and up front money of 3Mil with 4M paid out in 5 years.

 

 

Use =NPV(.08,3,0,0,0,0,4) = $5.30M would be the present value

 

Basically you can see that anything to get him around $7M contract with upfront payment of about $3-$4M is gonna cost in today dollars on the budget something around $5.5M. So you have to assume the sox have around that much sitting around for an extra player (the DH), or a mid season acquisition.

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QUOTE (JPN366 @ Feb 17, 2010 -> 05:21 PM)
Damon is a tease, sign already! Anyway, the real question is, who goes from the 40 man roster if Damon is signed? My money's on Lillibridge, since he has Damon's number.

 

Nobody wants him anyways...

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QUOTE (bmags @ Feb 17, 2010 -> 06:30 PM)
Who among us could tell that cute little boy he couldn't be on our baseball team?! My god, the powty lips! We'd have to buy him a puppy to make up for it.

Last Spring in an effort to get his autograph, i told BRENT Lillibridge i though he had a good chance of staying on this roster. I lied.

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QUOTE (Thunderbolt @ Feb 17, 2010 -> 05:33 PM)
Last Spring in an effort to get his autograph, i told Brett Lillibridge i though he had a good chance of staying on this roster. I lied.

 

Unfortunately, your thought became a partial reality.

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