Dave has acting experience so he can play himself. You might have seen him in the Addams Family movies playing the part of Pugsley back in the early 90s.
Fred
15 years ago
Dave you keep talking up the inflation assumptions on the Tulo contract – your analysis in your blog post was wrong as for some reason you stopped inflation in the year 2015 for your analysis.
Could you please stop with this ridiculousness that the Rockies are banking on this winter’s inflation to continue forever? Re-do the math… they don’t need to assume a 10% inflation rate and you should acknowledge your error.
I didn’t do it wrong. The contract would only be negotiated once at a fixed price. The inflation rate in subsequent years is irrelevant to the price the Rockies would have had to pay if they had attempted to re-sign him when his current contract ended.
No it’s not…. 20mil in year 6 is not the same as 20 mil in year 1, unless you live in a zero inflation world. And the contract doesn’t **have** to be negotiated at a fixed price, you are choosing to assume this has to be true and it is irrelevant. Perhaps the fixed price the Rockies chose is actually accounting for this (though this would be giving them some actual credit and not fit the conclusion you want to draw about them having to rely on absurd inflation rates)
The fact that current contracts don’t typically account for this (you think), doesn’t mean you are doing it right or that it has to be that way going forward. If you are going to claim to be modeling the actual discount of inflation you should do it correctly…. the fact that current contracts do a fixed price doesn’t mean the inflation factor isn’t there.
On longer contracts it DOES matter and it alters the number significantly (you are off nearly 2X). 20mil in 2020 is 13.5mil today. 20mil in 2015 is 16.5 mil…that is a simple economic fact if you are assuming a 5% inflation rate. Whether past contracts ignore that effect is irrelevant – those savings are real are they not?
Perhaps the Rockies front office is smart enough to realize on longer contracts this is important and don’t do the zero inflation model that you are using?
No one’s using a no-inflation model. Here’s another explantion, and hopefully this one is clearer.
The Rockies signed Tulowitzki to a six year, $119 million extension now, believing that they are getting a significant enough discount on the future price of that extension to mitigate the risk they are taking. Their entire savings is the difference between what they would have paid over those six years and what they actually paid.
If inflation is 10 percent annually, then the exact same contract would cost them $131 million in one year, $144 million in two years, $158 million in three years, or $174 million in four years. Under this inflation assumption, their potential savings is either $12 million, $25 million, $39 million, or $54 million, depending on when they would have otherwise chosen to extend his deal.
After 2014, it does not matter what future inflation is because Tulowitzki would have either signed a new contract or not, and that price would not have changed regardless of what baseball salaries did afterwards. Whether inflation went 10%, 10%, 10%, 10%, 0%, 0%, 0%, 0%, 0%, 0% or 10%, 10%, 10%, 10%, 50%, 50%, 50%, 50%, 50%, 50% is irrelevant, because his price would have never been subjection to the inflation in years 5-10 – he would have already signed those away.
We are not talking about value. We are talking about price.
Hopefully, this clears up your misunderstanding.
Bill O'Reilly
15 years ago
we’ll do it LIVE!! i’ll write it and we’ll DO IT LIVE!!
Dave has acting experience so he can play himself. You might have seen him in the Addams Family movies playing the part of Pugsley back in the early 90s.
Dave you keep talking up the inflation assumptions on the Tulo contract – your analysis in your blog post was wrong as for some reason you stopped inflation in the year 2015 for your analysis.
Could you please stop with this ridiculousness that the Rockies are banking on this winter’s inflation to continue forever? Re-do the math… they don’t need to assume a 10% inflation rate and you should acknowledge your error.
I didn’t do it wrong. The contract would only be negotiated once at a fixed price. The inflation rate in subsequent years is irrelevant to the price the Rockies would have had to pay if they had attempted to re-sign him when his current contract ended.
No it’s not…. 20mil in year 6 is not the same as 20 mil in year 1, unless you live in a zero inflation world. And the contract doesn’t **have** to be negotiated at a fixed price, you are choosing to assume this has to be true and it is irrelevant. Perhaps the fixed price the Rockies chose is actually accounting for this (though this would be giving them some actual credit and not fit the conclusion you want to draw about them having to rely on absurd inflation rates)
The fact that current contracts don’t typically account for this (you think), doesn’t mean you are doing it right or that it has to be that way going forward. If you are going to claim to be modeling the actual discount of inflation you should do it correctly…. the fact that current contracts do a fixed price doesn’t mean the inflation factor isn’t there.
On longer contracts it DOES matter and it alters the number significantly (you are off nearly 2X). 20mil in 2020 is 13.5mil today. 20mil in 2015 is 16.5 mil…that is a simple economic fact if you are assuming a 5% inflation rate. Whether past contracts ignore that effect is irrelevant – those savings are real are they not?
Perhaps the Rockies front office is smart enough to realize on longer contracts this is important and don’t do the zero inflation model that you are using?
No one’s using a no-inflation model. Here’s another explantion, and hopefully this one is clearer.
The Rockies signed Tulowitzki to a six year, $119 million extension now, believing that they are getting a significant enough discount on the future price of that extension to mitigate the risk they are taking. Their entire savings is the difference between what they would have paid over those six years and what they actually paid.
If inflation is 10 percent annually, then the exact same contract would cost them $131 million in one year, $144 million in two years, $158 million in three years, or $174 million in four years. Under this inflation assumption, their potential savings is either $12 million, $25 million, $39 million, or $54 million, depending on when they would have otherwise chosen to extend his deal.
After 2014, it does not matter what future inflation is because Tulowitzki would have either signed a new contract or not, and that price would not have changed regardless of what baseball salaries did afterwards. Whether inflation went 10%, 10%, 10%, 10%, 0%, 0%, 0%, 0%, 0%, 0% or 10%, 10%, 10%, 10%, 50%, 50%, 50%, 50%, 50%, 50% is irrelevant, because his price would have never been subjection to the inflation in years 5-10 – he would have already signed those away.
We are not talking about value. We are talking about price.
Hopefully, this clears up your misunderstanding.
we’ll do it LIVE!! i’ll write it and we’ll DO IT LIVE!!
This.
Best news outtake ever.