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Tuesday, December 06, 2011
Whither Albert Pujols?
Presuming he signs a 10-yr deal, he gets paid 5MM$ for a win in 2012, and the cost for each win in subsequent years inflates at 5%, while his value diminishes by 0.5 wins, here’s the inference to make:
He signs for ____ , they value him for __ wins in 2012.
160MM$ -> 5 wins
190MM$ -> 5.5 wins
220MM$ -> 6 wins
250MM$ -> 6.5 wins
290MM$ -> 7 wins
Place your bets.
***
If you need a shorthand, each win is going to cost over the life of the deal 20% higher than it would cost in 2012. So, if you have the cost at 5MM$ per win in 2012, then it’s going to cost a weighted average of 6MM$ per win over the next 10 years.
So, that’s what you do:
Total lifetime wins
x cost per win in 2012
x 1.2
If you want a shorthand for Total lifetime wins:
wins in 2012 x 10 minus 22.5
Putting it together: if you have 6 wins in 2012, then lifetime wins over next 10 years is 6x10-22.5 = 37.5
And so, cost for those wins is
37.5 x 5 x 1.2 = 225MM$
Isn’t math great? Stay in school kids.
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