Now that Bryce Harper has officially signed with the Philadelphia Phillies on a 13 year, $330M megadeal, it’s interesting to conduct a retrospective look at the different offers he had on the table when making his decision. There has been a lot of publicity in recent hours about the amount of deferred money which the Nationals including in their “10 year, $300M offer”, especially compared to the Phillies deal which included no deferred money at all and also pays a $20M signing bonus. Furthermore, there’s even news that the Giants and Dodgers tried to splash the pot at the end with interesting offers of their own.
The Approach
Let’s take a look at the value of the offers Harper had to make his decision on, and use Net Present Value as a lens to understand how contract length, annual value, and present value intersect. This approach reveals a lot more information than strictly focusing on yearly pay totals because of the time value of money.
This concept is rooted in the fact that a dollar today is more valuable than a dollar next year, because we could have invested that dollar, earned a 7% return in the stock market (a common estimate for long-run earnings), and had $1.07 next year instead of $1. Because of the ability to invest money today to pay for tomorrow’s bills, an equivalent amount of money today is always worth more than the same amount of money into the future. As such, we need to discount future cash flows by the rate we expect to earn in the market (7% again) to actually understand what the Present Value of all of those cash flows are today. This gives us the best way of making an apples-to-apples comparison of options (in this case, Harper’s contract offers) that pay out differing amounts of money over varying amounts of times.
The Offers
Philadelphia Phillies
No crazy math here. Harper’s deal with Philadelphia is slightly front-loaded, which a win from his perspective. Note how the Yearly Present Value of his salary decreases over time - one good way to read this is to think: “In order to pay Bryce Harper’s 2031 salary of $22M, I only need to have $9.7M of capital invested to earn a 7% return - I don’t need the full $22M right now”.
This deal is both the longest (in terms of playing years) and most valuable by NPV of all of Harper’s offers, so while I’m not sure the Phillies necessarily entered “stupid money” territory as owner John Middleton suggested they were willing to do, it’s clear they are making a huge financial investment by bringing Harper into the organization.
| Year | Salary | Bonuses | Yearly Pay | Cumulative Pay | Cumulative NPV | Yearly Present Value |
|---|---|---|---|---|---|---|
| 2019 | $10,000,000 | $20,000,000 | $30,000,000 | $30,000,000 | $30,000,000 | $30,000,000 |
| 2020 | $26,000,000 | $26,000,000 | $56,000,000 | $54,299,065 | $24,299,065 | |
| 2021 | $26,000,000 | $26,000,000 | $82,000,000 | $77,008,472 | $22,709,407 | |
| 2022 | $26,000,000 | $26,000,000 | $108,000,000 | $98,232,217 | $21,223,745 | |
| 2023 | $26,000,000 | $26,000,000 | $134,000,000 | $118,067,493 | $19,835,276 | |
| 2024 | $26,000,000 | $26,000,000 | $160,000,000 | $136,605,133 | $18,537,641 | |
| 2025 | $26,000,000 | $26,000,000 | $186,000,000 | $153,930,031 | $17,324,898 | |
| 2026 | $26,000,000 | $26,000,000 | $212,000,000 | $170,121,524 | $16,191,493 | |
| 2027 | $26,000,000 | $26,000,000 | $238,000,000 | $185,253,761 | $15,132,237 | |
| 2028 | $26,000,000 | $26,000,000 | $264,000,000 | $199,396,038 | $14,142,277 | |
| 2029 | $22,000,000 | $22,000,000 | $286,000,000 | $210,579,723 | $11,183,684 | |
| 2030 | $22,000,000 | $22,000,000 | $308,000,000 | $221,031,764 | $10,452,042 | |
| 2031 | $22,000,000 | $22,000,000 | $330,000,000 | $230,800,028 | $9,768,263 |
Washington Nationals
The 10 year, $300M offer that the Nationals reportedly offered made to Harper is extremely interesting in its use of deferred compensation. It has been reported that approximately $100M of the offer was deferred, and that the deferrals would stretch into Harper’s early sixties. This is similar, but more extreme, that what the Nationals have done in the past with Max Scherzer and Steven Strasburg, each of whom will receive 7 more years of deferred compensation payments after their original contracts “end”.
This usage of deferrals has the effect of devaluing the present value of those contracts, as it is more valuable to receive $100 over 3 years than $100 over 8 years, because you could have spent the extra 5 years investing the capital yourself. Then you might have $120 eight years from now, not $100! With that said, there is also a benefit to spreading out each year’s salary and receiving income well into the future, so there are benefits to each side. That is basically why the entire annuities market exists!
To model how Harper’s offer from the Nationals might look, I spread the $100M of deferred compensation across 25 years following completion of his contract. Assuming a flat yearly salary before that, Harper would have projected to earn $20M a year for 10 years, and then $4M a year for 25 years as part of this deal.
While the Phillies’ offer of 13 years, $330M and the Nationals’ offer of 10 years, $300M may seem similar on the surface, it’s clear that by structuring the deal using many years of deferred compensation, the Nats’ offer has a much lower NPV over the life of the contract - $175M compared to the Phillies’ $230M. As such, we could say that the present value of this offer is roughly $60M less than what the Phillies were offering.
To me, this gap suggests that the Nationals may never have been willing to shell out top dollar to retain Harper. Instead of risking an escalating bidding war (which I’m sure Boras spent all winter trying to drum up), Nats’ and the Lerners were instead hoping that putting a team-friendly deal like this out in advance might be enough if no other suiters came in with a big offer, and that the deferrals would dramatically soften the long term financial impact of paying out the $300M.
| Year | Salary | Deferred Compensation | Yearly Pay | Cumulative Pay | Cumulative NPV | Yearly Present Value |
|---|---|---|---|---|---|---|
| 2019 | $20,000,000 | $20,000,000 | $20,000,000 | $20,000,000 | $20,000,000 | |
| 2020 | $20,000,000 | $20,000,000 | $40,000,000 | $38,691,589 | $18,691,589 | |
| 2021 | $20,000,000 | $20,000,000 | $60,000,000 | $56,160,363 | $17,468,775 | |
| 2022 | $20,000,000 | $20,000,000 | $80,000,000 | $72,486,321 | $16,325,958 | |
| 2023 | $20,000,000 | $20,000,000 | $100,000,000 | $87,744,225 | $15,257,904 | |
| 2024 | $20,000,000 | $20,000,000 | $120,000,000 | $102,003,949 | $14,259,724 | |
| 2025 | $20,000,000 | $20,000,000 | $140,000,000 | $115,330,793 | $13,326,844 | |
| 2026 | $20,000,000 | $20,000,000 | $160,000,000 | $127,785,788 | $12,454,995 | |
| 2027 | $20,000,000 | $20,000,000 | $180,000,000 | $139,425,970 | $11,640,182 | |
| 2028 | $20,000,000 | $20,000,000 | $200,000,000 | $150,304,645 | $10,878,675 | |
| 2029 | $4,000,000 | $4,000,000 | $204,000,000 | $152,338,042 | $2,033,397 | |
| 2030 | $4,000,000 | $4,000,000 | $208,000,000 | $154,238,413 | $1,900,371 | |
| 2031 | $4,000,000 | $4,000,000 | $212,000,000 | $156,014,461 | $1,776,048 | |
| 2032 | $4,000,000 | $4,000,000 | $216,000,000 | $157,674,319 | $1,659,858 | |
| 2033 | $4,000,000 | $4,000,000 | $220,000,000 | $159,225,588 | $1,551,269 | |
| 2034 | $4,000,000 | $4,000,000 | $224,000,000 | $160,675,372 | $1,449,784 | |
| 2035 | $4,000,000 | $4,000,000 | $228,000,000 | $162,030,310 | $1,354,938 | |
| 2036 | $4,000,000 | $4,000,000 | $232,000,000 | $163,296,608 | $1,266,298 | |
| 2037 | $4,000,000 | $4,000,000 | $236,000,000 | $164,480,064 | $1,183,456 | |
| 2038 | $4,000,000 | $4,000,000 | $240,000,000 | $165,586,097 | $1,106,033 | |
| 2039 | $4,000,000 | $4,000,000 | $244,000,000 | $166,619,773 | $1,033,676 | |
| 2040 | $4,000,000 | $4,000,000 | $248,000,000 | $167,585,825 | $966,052 | |
| 2041 | $4,000,000 | $4,000,000 | $252,000,000 | $168,488,678 | $902,853 | |
| 2042 | $4,000,000 | $4,000,000 | $256,000,000 | $169,332,466 | $843,788 | |
| 2043 | $4,000,000 | $4,000,000 | $260,000,000 | $170,121,052 | $788,586 | |
| 2044 | $4,000,000 | $4,000,000 | $264,000,000 | $170,858,049 | $736,997 | |
| 2045 | $4,000,000 | $4,000,000 | $268,000,000 | $171,546,831 | $688,782 | |
| 2046 | $4,000,000 | $4,000,000 | $272,000,000 | $172,190,552 | $643,721 | |
| 2047 | $4,000,000 | $4,000,000 | $276,000,000 | $172,792,161 | $601,609 | |
| 2048 | $4,000,000 | $4,000,000 | $280,000,000 | $173,354,412 | $562,251 | |
| 2049 | $4,000,000 | $4,000,000 | $284,000,000 | $173,879,881 | $525,468 | |
| 2050 | $4,000,000 | $4,000,000 | $288,000,000 | $174,370,973 | $491,092 | |
| 2051 | $4,000,000 | $4,000,000 | $292,000,000 | $174,829,937 | $458,965 | |
| 2052 | $4,000,000 | $4,000,000 | $296,000,000 | $175,258,876 | $428,939 | |
| 2053 | $4,000,000 | $4,000,000 | $300,000,000 | $175,659,753 | $400,877 |
San Francisco Giants
There isn’t as much detail publicly available on the Giants’ offer to Harper beyond its duration (12 years) and total value ($310M), but it has widely been assumed that the contract structure was fairly standard. If one assumes a flat salary rate across the 12 years, Harper would take home just under $26M a year, albeit much less once California’s high state income tax was deducted. The NPV of this offer still chases the Phillies’ offer, but is still much higher than what has offered by the Nats.
| Year | Salary | Yearly Pay | Cumulative Pay | Cumulative NPV | Yearly Present Value |
|---|---|---|---|---|---|
| 2019 | $25,833,333 | $25,833,333 | $25,833,333 | $25,833,333 | $25,833,333 |
| 2020 | $25,833,333 | $25,833,333 | $51,666,667 | $49,976,636 | $24,143,302 |
| 2021 | $25,833,333 | $25,833,333 | $77,500,000 | $72,540,469 | $22,563,834 |
| 2022 | $25,833,333 | $25,833,333 | $103,333,333 | $93,628,164 | $21,087,695 |
| 2023 | $25,833,333 | $25,833,333 | $129,166,667 | $113,336,291 | $19,708,126 |
| 2024 | $25,833,333 | $25,833,333 | $155,000,000 | $131,755,100 | $18,418,810 |
| 2025 | $25,833,333 | $25,833,333 | $180,833,333 | $148,968,941 | $17,213,841 |
| 2026 | $25,833,333 | $25,833,333 | $206,666,667 | $165,056,643 | $16,087,702 |
| 2027 | $25,833,333 | $25,833,333 | $232,500,000 | $180,091,878 | $15,035,235 |
| 2028 | $25,833,333 | $25,833,333 | $258,333,333 | $194,143,500 | $14,051,622 |
| 2029 | $25,833,333 | $25,833,333 | $284,166,667 | $207,275,856 | $13,132,357 |
| 2030 | $25,833,333 | $25,833,333 | $310,000,000 | $219,549,087 | $12,273,231 |
Los Angeles Dodgers
The Dodgers reportedly came in late with a shorter, but very high Average Annual Value (AAV) deal for Harper, hoping to sell him on the opportunity to play in LA, earn life-changing money for a few seasons, and then double-dip into free agency again at 30 years old, where he could still likely command a second large free agent deal. The contract structure below assumes a 4 year, $180M deal with flat yearly salary of $45M (!!).
Given that the cost of a “win” on the free agent market (basically each unit of WAR, or Wins Above Replacement, that a free agent provides) has been recently estimated at $9M, the Dodgers’ offer makes sense if you project Harper to produce about 5 WAR per year over the next four seasons. If you’re a believer in Harper’s health and production, it’s certainly likely that he can meet and even exceed that baseline - his 2015 NL MVP season produced over 10 WAR, so even a year or two of production at that rate would make his contract worth it. Consistent All-Start level production of 6 to 7 WAR over the four years would provide the Dodgers’ with a massive surplus of value, even at $45M a year.
It’s fascinating to look at the value of this contract in comparison to the Nationals offer - this deal clocks in at $163M of NPV in only four years, while the Nats’ will take thirty five years to pay out $175M of value. In fact, the Nats’ offer would take until 2036 to hit the NPV figure of $163M that the Dodgers’ deal hits in only 2022.
As I mentioned earlier, one of the big draws (from a player’s perspective) of a shorter contract is the ability to hit free agency twice. That possibility is very much a double-edged sword however - if Harper were to play at an All Star level for four seasons and then sign another deal, he would likely make a lot more at the end of his career than by taking the Phillies’ deal. However, if injuries or slippages were to derail his play (which is very possible, given his track record), that second massive free agent deal might not materialize. In that case, it might never be possible to recoup the ~ $70M gap in NPV between the Phillies’ and Dodgers’ offers. Interesting decisions….
| Year | Salary | Yearly Pay | Cumulative Pay | Cumulative NPV | Yearly Present Value |
|---|---|---|---|---|---|
| 2019 | $45,000,000 | $45,000,000 | $45,000,000 | $45,000,000 | $45,000,000 |
| 2020 | $45,000,000 | $45,000,000 | $90,000,000 | $87,056,075 | $42,056,075 |
| 2021 | $45,000,000 | $45,000,000 | $135,000,000 | $126,360,818 | $39,304,743 |
| 2022 | $45,000,000 | $45,000,000 | $180,000,000 | $163,094,222 | $36,733,404 |
Visualizing the Offers
Wrap Up
In conclusion, it’s fascinating to look at how the deals for Harper were structured and think about the different motivations for each team in doing so. It think it must have been an interesting decision for Harper to pick between the Phillies’ and Dodgers offers - while the option of hitting free agency twice during one’s prime is enticing, I can also completely understand the desire to lock in the financial security (and ease of mind) that a very long term deal provides.
I’ll miss having Bryce on the Nats, but also can’t wait to see Max strike him out - which will undoubtedly be a weird experience for a long time.