How inflation adjusts market value in baseball

[bedir than average]

Present Value by Gassko

Those, approximately, were the first words to come out of my mouth after hearing about the Cubs signing the soon-to-be 31-year-old slugger. After a few offseasons of fiscal sanity, owners flush with cash have decided to bust their wallets open and throw money left and right. Soriano’s contract is the biggest signed since the infamous 2000-01 offseason, when five players—Alex Rodriguez, Derek Jeter, Manny Ramirez, Todd Helton, and Mike Hampton—all received nine-figure deals worth a combined $863.5 million.

So damn. That was my initial reaction. Then I asked myself, well how much did he really get? Soriano’s contract calls for him to receive $17 million a year, but as you might imagine, $17 million in 2014 is not the same as $17 million in 2007. That’s why lottery winners often take a lump payment of about half their winnings instead of the total value of their ticket paid out over a number of years. Inflation renders the same amount of money in the future less valuable than it is today. A hundred dollars could buy you a whole lot more in 1906 than it can in 2006 (actually, $100 in 1906 is equivalent to about $2,050 these days).

Its an intriguing study, and one we too often ignore in the baseball community.