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Sunday, January 9, 2011

Did Cliff Lee Read My Blog?

I wrote a post about how Cliff Lee would be better off accepting a shorter deal for more money per year. When you consider inflation and "time value of money", the later years of a multi-year contract are worth less than it seems.

It might be better to take a shorter contract with more salary per year, and invest the difference in gold. That's what Cliff Lee did. His Phillies contract is less in absolute dollars, compared to the Yankees' and Rangers' offer. His Phillies contract is more per year.

If you expect hyperinflation, a shorter contract is better. Future inflation probably isn't fully priced into current offers. A shorter contract lets you renegotiate after inflation. However, athletes can get injured. Cliff Lee is getting older. Cliff Lee may have "mean reversion".

Did Cliff Lee read my blog? If you consider true inflation, the Phillies' contract may have actually been the best offer. It's for fewer years, but for more per year.

1 comment:

dionysusal said...

I posted that article of yours on the message boards (giving you due credit of course). I know for a fact that baseball players lurk on those message boards, so it's possible that he did read what you wrote about him. I'd be curious to know if he will indeed invest the difference in gold as you suggest.

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