View Full Version : Playing with numbers

11-10-2003, 01:13 PM
Say the Sox want to go and get A Rod. Now everyone knows we won't pay him 25 million a year, but how about 7 million, increases 4.5% for the next 19 years? This is how it could work. Say the Sox redo A Rod deal with the terms I provided, that give A Rod a NPV of the contract of 121 million dollars at a 5% discount rate, plus an extra 3 million in total dollars. Then the Sox get Aon or someone else to pay A Rod in 114 million in cash in exchange future cash flows from the Sox. So A Rod NPV then becomes 114 million. A Rod takes the cash and puts in an investment earing 8% over the 19 years of the contract. His NPV of the money earned form the contract becomes 457 million dollars, assuming he takes nothing out. Now if he stay with current contract structure and doesn't cash it in, his NPV is 160 million. If he was to invest those cash flows into investment without spending it or taxes, it comes out to 191 million dollars.

Now I know this is purely hypothetical and I don't know anything about the tax situation here. Texas has no income tax, IL does. A Rod lives in FL so home state income tax shouldn't be a major factor. One of the reason I thought of Aon is if this could be come a life insurance product of some sort, I think it would be tax favorable.

But the key point here, is the Sox can do somethings, they just need to be creative in their approach to the matter.

11-10-2003, 01:40 PM
I would suggest paying Rodriguez the league minimum for 5 years and then deferring the rest until 3164.