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Justin Upton's contract is more valuable than Chris Davis' deal

On paper, Chris Davis' $161 million contract with the Orioles is much larger than Justin Upton's $132.75 million deal with the Tigers. However, once considering Davis' deferred payments and Upton's buyout, the latter comes out on top.

Justin Upton's opt-out carries significant value.
Justin Upton's opt-out carries significant value.
Brad Mills-USA TODAY Sports

The free agent market for position players has developed notably later than usual this offseason. Into January, almost all of the major bats remained on the board, and some began to call players like Justin Upton or Yoenis Cespedes good candidates for one-year pillow contracts. Very suddenly, that attitude changed.

First, Alex Gordon re-signed with the Kansas City Royals on a four-year, $72 million deal (with significant deferrals). It was considered a bargain for the reigning World Series champions and a potential sign that the market was low on hitters. Then, Gerardo Parra and Denard Span each signed for small multi-year deals.

The market then changed, as two major deals dropped without much build-up. Chris Davis finally re-signed with the Baltimore Orioles on a seven-year, $161 million contract with significant amounts deferred over 22 seasons. Following that came the bombshell that the Detroit Tigers had signed outfielder Justin Upton to a six-year, $132.75 million deal, with an opt-out following the second season.

Very quickly, it was noted that the significant amount deferred on Davis' deal ($42 million) did significantly change the present value of the contract. Once that, and the value of Upton's opt-out is considered, it's actually the case that Upton's smaller deal (on paper) is actually the more valuable of the two.

Matt Swartz of MLB Trade Rumors did research earlier this month and found that, with some case-by-case variation, opt-outs this offseason are worth roughly $20 million. Presumably, were that amount instead negotiated as cash, it would be split among the six guaranteed seasons of Upton's contract. With this estimate, his yearly salary increases from $22.125 million to $25.468 million per season.

With regard to Davis' deferred payments, ESPN's Buster Olney shed some light onto the Orioles' own evaluations of the deal's true cost.

Already, one can see that the reported value of Upton's deal, before including the opt-out valuation, is larger than Baltimore's own expected cost to keep Davis. However, to make this apples to apples, the same interest rate should be applied to Upton's opt-out adjusted deal over six years, to calculate the total difference.

The complete annual breakdown of both deals can be found on the players' respective FanGraphs pages (here and here). Since Davis' present value is already known ($127.5 million), as well as each year's future value payment, working backwards in Excel with a Time Value of Money formula can produce the interest rate used to calculate that present value.

In this case, it appears that the Orioles approximated a 4.767 percent interest rate over that time, a value which can then be applied to Upton's deal as seen below.

Future Value Present Value
Davis Upton* Davis Upton*
2016 $17.00 $25.46 $17.00 $25.46
2017 $17.00 $25.46 $16.23 $24.30
2018 $17.00 $25.46 $15.49 $23.19
2019 $17.00 $25.46 $14.78 $22.14
2020 $17.00 $25.46 $14.11 $21.13
2021 $17.00 $25.46 $13.47 $20.17
2022 $17.00 $12.86
2023 $3.50 $2.53
2024 $3.50 $2.41
2025 $3.50 $2.30
2026 $3.50 $2.20
2027 $3.50 $2.10
2028 $3.50 $2.00
2029 $3.50 $1.91
2030 $3.50 $1.82
2031 $3.50 $1.74
2032 $3.50 $1.66
2033 $1.40 $0.63
2034 $1.40 $0.61
2035 $1.40 $0.58
2036 $1.40 $0.55
2037 $1.40 $0.53
Total $161.00 $152.75 $127.50 $136.39
* Upton's salaries include the calculation for the opt-out.

The difference ($8.89 million) is even more stark when considering that Davis is under contract for an additional season beyond Upton - in average annual value terms, Davis will make an adjusted $18.21 million per season, while Upton's contract is worth an adjusted $22.73 million per season.

While this example illustrates that surface level figures can be a little misleading, it also shows why the 2016 offseason will likely be remembered as an innovative period in MLB contract negotiation, particularly in the use of opt-outs and deferred payments.

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Spencer Bingol is a Featured Writer at Beyond the Box Score. You can follow him on Twitter at @SpencerBingol.