Monday, January 19, 2015
Scherzer Deal
?Dave notes that we need to understand the present-day value of the deal in order to compare it to other deals. The key is to use the right discount rate, which I will assume is going to be somewhere around 5%. That is, the Nationals will take the savings they take in each of the first 7 years, and earn a(n after-tax) return on it. Which they can then take and pay it to Scherzer in the last 7 years.
From that standpoint, the Nationals would be ambivalent between a 210MM$ deal, evenly paid over 14 years, and a 178MM$ deal evenly paid over 7 years.
I'll leave it to the financial analyst experts out there as to the best discount rate to use.
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