Davis Signs With Baltimore (7/$161M, incl $42M deferred)

[weams]

I don't know anything about Olney or his numbers. Did you read Cameron's piece I linked?

Yes. I just assume that Dave is using a fair evaluation of something you can't really evaluate based on the extreme length of the no interest deferral. Dave is a bright guy, and like you and I, not without his prejudices.

[ArtVanDelay]

Really high on Stroman. Would not be surprised with a sub-3 ERA and 15+ wins. Gausman could be that but we don't know yet.

Behind him though, Dickey and Estrada are just ok (Estrada had quite the year last year though) J.A. Happ just confounds me why they paid him that money. And then there's the enigmatic Drew Hutchison who should be better.

You would think, will all the prospects they gave up, that they are rail thin behind their starting five.

They also have Jesse Chavez.

[Il BuonO]

Not sure what about the phrase "at this point" was confusing. The Orioles, like all teams, have to roll with the flow of the off season. Yes, they would have liked to get an affordable front of the rotation pitcher, but it wasn't in the cards. That simply doesn't mean that they should fold up the tent and assume that we are doomed. Quite the contrary.

Who's folding up? Your phrase at the end of a sentence doesn't change their intentions. That's you spinning it to fit your narrative. They said it was a goal to sign more pitching. Not in the cards implies they did their best. If you believe that instead of them making Davis the priority then you're deluded.

Their options to improve the rotation are limited at best "at this point", but it's the path they chose.

[Number5]

Okay, that's fine. Sounds like you simply don't trust the conclusion but acknowledge no factual issue with his work. If there wasn't room for emotion and "gut feels" then message boards would quickly turn into ghost towns, I reckon.

I think you are missing the fact that I simply do not have the knowledge/training to comment on Cameron's methodology. Just bexause he is showing some number manipulation, it does not make his work correct. It is very clear that he has come up with a number that disagrees with MLB's number by a wide margin. It is also worth noting that this second piece mysteriously follows up a piece where he lambasted the Orioles without knowing all of the facts. Why a writer would deem it necessary to write two long pieces dedicated to one baseball contract is anybody's guess, but one could easily believe that the purpose of the second article would be to in some way lessen the impact of the perceived bias and error of the first. Certainly, message boards involve bias and emotions. My point is that quite often Cameron's writing does, as well.

[Number5]

Who's folding up? Your phrase at the end of a sentence doesn't change their intentions. That's you spinning it to fit your narrative. They said it was a goal to sign more pitching. Not in the cards implies they did their best. If you believe that instead of them making Davis the priority then you're deluded.

Their options to improve the rotation are limited at best "at this point", but it's the path they chose.

Yes, I disagree with you. Therefore, I must be deluded. Have a nice day.

[ChicagoTerp]

My guess is that the NPV calculations differ so greatly for two reasons:

1) Different discount rate (obvious reason)

2) When discounting begins. Do you start discounting the value of the contract after year 7? Or do you start discounting after the first year? Economically speaking, discounting after year 1 makes the most sense: $17 million paid in 2022 is not the same as $17 million paid now. However, if you discount starting after 2016, that means that all contracts (including those without deferred money) should be reported with a lower NPV. So even AJ's 6/85.5 contract is not really worth $85.5.

I would say both methods have merit: discounting right away is useful to Peter Angelos to see the true economic value of the contract. Discounting starting in year 8 is useful for comparing CD's contract against other, non-deferred contracts. It may also be useful for MLB's luxury tax purposes.

Using a discount rate of 3%, I get the following NPVs:

Discount starting in 2017: $137.5M

Discount starting in year 8: $147.7M

Using a discount rate of 4%, I get the following NPVs:

Discount starting in 2017: $130.9M

Discount starting in year 8: $144.3M

Using a discount rate of 5%, I get the following NPVs:

Discount starting in 2017: $124.8M

Discount starting in year 8: $141.3M

**It is also possible that some calculations use time-varying discount rates, which would complicate matters even further.

[weams]

My guess is that the NPV calculations differ so greatly for two reasons:

1) Different discount rate (obvious reason)

2) When discounting begins. Do you start discounting the value of the contract after year 7? Or do you start discounting after the first year? Economically speaking, discounting after year 1 makes the most sense: $17 million paid in 2022 is not the same as $17 million paid now. However, if you discount starting after 2016, that means that all contracts (including those without deferred money) should be reported with a lower NPV. So even AJ's 6/85.5 contract is not really worth $85.5.

I would say both methods have merit: discounting right away is useful to Peter Angelos to see the true economic value of the contract. Discounting starting in year 8 is useful for comparing CD's contract against other, non-deferred contracts. It may also be useful for MLB's luxury tax purposes.

Using a discount rate of 3%, I get the following NPVs:

Discount starting in 2017: $137.5M

Discount starting in year 8: $147.7M

Using a discount rate of 4%, I get the following NPVs:

Discount starting in 2017: $130.9M

Discount starting in year 8: $144.3M

Using a discount rate of 5%, I get the following NPVs:

Discount starting in 2017: $124.8M

Discount starting in year 8: $141.3M

**It is also possible that some calculations use time-varying discount rates, which would complicate matters even further.

This is a good post. Thank you for explaining to those of use who did not understand that. Just because Cameron chose to value the contract in line with other 2016 contracts, his methods don't make his numbers so.

[SteveA]

Can I just ask WHY people are spending time arguing about the "true" value of the contract?

We know exactly what the contract pays each year until Chris is into his 50s. We know how much of the Oriole payroll will go to Chris for each of the next 20 years.

What does it prove if one accounting system values the contract at X and another Y? Does it matter one bit? Are we just arguing because it's cold and there's no baseball?

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[SteveO]

For years people have been squawking about PA's unwillingness to spend big money to keep or bring in big free agents. He finally does and now the squawking turns to what he spent it on (CD). Its a fair debate, lets not lose the fact that this contract could signify a significant change in the Orioles understanding of the economics of baseball and what type of financial commitment it takes to be the team they want to be. Its a good thing that this franchise has decided to join the economy of modern day baseball. Long term success requires some realistic understanding of the cost of success.

[ChicagoTerp]

This is a good post. Thank you for explaining to those of use who did not understand that. Just because Cameron chose to value the contract in line with other 2016 contracts, his methods don't make his numbers so.

Thanks, no problem.

I just read Cameron's blog post on CD's contract, and I now see how he came up with his $148M number.

The methodology isn't quite the same as what I just posted. Instead of starting to discount after year 7, he instead takes the NPV of the contract using a 4% discount rate, with discounting starting right away ($126.8M by his calculation) and imagines that that the contract were paid out in equal amounts over 7 years. He finds that in order to come up with the same $126.8M NPV, the contract would have 7 equal payments of $21.127M. This amounts to a 7/$147.8 contract.

His goal is the same, though: to be able to compare CD's contract to an equivalent non-deferred contract. In other words, the $148M number is a decent number to use when comparing CD's contract to other players' contracts. It's not the NPV of the deal, and should not be reported as such. However as I alluded to, AJ's 6/85.5 deal had an NPV of less than 85.5.

[scOtt]

I'm glad we resigned him because now I don't have to get rid of my Davis shirts, or change my avatar!

You should consider changing it anyways. That porn 'stache pic is just NOT working.

[Can_of_corn]

For years people have been squawking about PA's unwillingness to spend big money to keep or bring in big free agents. He finally does and now the squawking turns to what he spent it on (CD). Its a fair debate, lets not lose the fact that this contract could signify a significant change in the Orioles understanding of the economics of baseball and what type of financial commitment it takes to be the team they want to be. Its a good thing that this franchise has decided to join the economy of modern day baseball. Long term success requires some realistic understanding of the cost of success.

I think it should be noted that, for the most part, those squawking about PA's unwillingness to spend are not the same as those squawking about spending it on Davis.

[SteveA]

I think it should be noted that, for the most part, those squawking about PA's unwillingness to spend are not the same as those squawking about spending it on Davis.

Good point. I would like to see a Venn diagram of those who last year were upset we didn't sign Cruz and it cost us our chance to win, and those who are now upset we spent too much on Davis. Too see how much overlap there is.

Because there were certainly a lot of posts espousing both those things. Just not sure who fell in both categories.

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[weams]

Good point. I would like to see a Venn diagram of those who last year were upset we didn't sign Cruz and it cost us our chance to win, and those who are now upset we spent too much on Davis. Too see how much overlap there is.

Because there were certainly a lot of posts espousing both those things. Just not sure who fell in both categories.

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I was for resigning Cruz, though I was wrong. I am for resigning Chris and it's wrong too.

[TradeAngelos]

I think it should be noted that, for the most part, those squawking about PA's unwillingness to spend are not the same as those squawking about spending it on Davis.

Excellent point. Two completely different groups.

I would say the overlap is near zero.