Max Scherzer's contract worth less than face value

So Max Scherzer is now a member of the Washington Nationals. He is also a very rich man who was already a rich man even before signing his 7 year, $210 million contract.

Super-agent/sorcerer Scott Boras has been lauded to surpassing projections of a seven year, $180 million contract for Scherzer by $30 million. However, since Scherzer will actually be paid $15 million per year for 14 years, his contract is actually quite similar to the $180 million that many had projected; assuming a five percent interest rate, Scherzer's contract is worth the same as a deal for $179.62 million over seven years ($25.66 million per year). The 5% interest rate is arbitrary, but it is roughly what one can make on the stock market and has become a bit of a standard when doing WAR-to-dollars calculations for baseball contracts over multiple years.

Let's do the math: 15 + 15(1.05)^-7 = 25.66. The first 15 is the $15 million that Scherzer will get paid in year one. The second 15 is the $15 million that Scherzer will get paid in year eight. You multiply the second 15 by 1.05^-7 to bring that money back seven years into year one. Year eight can be brought back seven years into year two, year nine into year three, etc. Then, 25.66 multiplied by seven years = 179.62. Add six zeroes onto that and you have your tally for the actual value of Scherzer's deal.

To further illustrate how these respective dollar amounts are equivalent, let's imagine Scherzer had signed a deal worth $179.62 million for 7 years with no deferrals. This contract would an average annual value of $25.66 million per year. Each year, Scherzer could save $10.66 million of his salary, and assuming he could get five percent annually, have $15 million seven years later (10.66 * 1.05⁷ = 15). He could do this for each of the seven years of his contract to make his contract essentially $15 million per year for 14 years.

So, when you're playing Dave Dombrowski and considering whether or not you would have resigned Max Scherzer, ask yourself if you would have offered him $180 million over seven years, not $210 million over seven.