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      07-06-2018, 06:28 PM   #10
Flying Ace
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Quote:
Originally Posted by BayMoWe335 View Post
It’s good, but it’s essentially a $6M investment (what he could have taken in 2000) paid out as an annuity with an 8% return. It will be around $30M when the last payment is made.

Had he taken the $6M in full in 2000 and invested it in the S&P 500, he’d probably actually do a little better than this deal.
bingo. Someone who gets it. This is a great deal to many people who just sees this as compensation without working. In reality, Bobby is just getting paid for work that's already been "performed", granted his last MLB years were terrible. But that's how the business works, just ask how the Angels if they're are getting their return for paying Pujols.

It's akin to you working on a contract basis for an employer. Would you want your employer to pay you your money today, as you perform the work, or for the rest of your life. Any cash flow streams over course of multiple years must take into account the opportunity cost of not having the money.

Had Bobby invested in the S&P 500 he would have gotten about a 80% return thus far, but he would have had small cash flow from investing it (~2% dividend yield) ~ $100,000 per year of dividends.

Ultimately, the math on Bobby's side is will he have come out ahead taking the cash option early and investing it (stocks, bonds, businesses, cars, hookers, coke, strippers, 6th wife) or better off getting this 8% return and indirectly getting a managed consistent cash flow? Also, bc this stuff is a contracted annuity, Bobby can find a bank to "cash him out". Basically, a bank gives him the present value of the remaining cash flows. Bobby get his cash in today's value, and that bank takes this 8% return until 2035.



I'd like to also see the analysis on how it was beneficial for the Mets to structure this payment. If this wasn't a baseball team (I don't know how teams gets their payroll funds and how it relates to luxury tax hit, revenue sharing, cash flow from media contracts), a company will have to have financed $6mm immediately (or in accordance to the payment schedule/conditions in the contract e.g. guaranteed money) through borrowings or from equity. There may have been a significant cost of allocating this $6mm at that point in time when they signed the contract. Corporate borrowing rates at that time were in the 7% range, but no one would have known that corporate borrowing rates would continue to drop down to today's 5% level...this or that the Mets are just idiots.
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Last edited by Flying Ace; 07-06-2018 at 06:48 PM..
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