previously published at: http://eutawstreetreport.com/manny-machado-contract-financial-advisor/
I have no idea how large or for how many years the contract will be that Manny Machado signs when he becomes a free agent in 2018. If he gets the kind of staggering money that is being discussed, the planning opportunities to make him one of the richest people that have ever lived are endless.
If Manny earns the $400 million that is being batted around, either as one gigantic contract or a series of smaller contracts over the next 10-13 years, here are some mind boggling statistics about just how much money that is and how that wealth can compound. For perspective, currently the value of the entire Orioles organization is $1 billion, if Manny received a $400 million contract from the Orioles he would be nearly half their worth!
$400 million in earnings isn’t actually $400 million of course. Without getting into tax rates, agent fees, or how the contract might be structured, let us just assume after taxes Manny nets half of that or $200 million. What would you do with $200 million? With just 10% of that money he could ensure his post baseball income each year for the rest of his life would be no less than $1 million a year. That’s without working and without using a dime of the remaining $180 million. He could do this by creating a $10 million annuity for life that would start paying out 10 years after he gets his big contract or when he’s 36. Each year from that point forward he would be paid approximately $600,000, or $50,000 a month, as long as he was alive. With the other $10 million he could buy municipal bonds. Those are bonds where you are lending money to states, counties, hospital facilities and so on and they pay federally tax-free interest. If the average rate on those bonds was 4% that would be $400,000 a year of federally tax-free interest without even touching the initial $10 million investment.
As for the remaining $180 million, here is some more perspective. The average annual income in U.S. dollars for a resident of the Dominican Republic, his ancestry, is $6,700. Or the entire revenue of the city of Annapolis, Maryland in 2015 was approximately $59 million. He would make more than the entire city of Annapolis takes in from all its residents and visitors in three years.
All that for playing a game well. Alright, very well. For his sake here’s hoping he stays healthy, and earns all that money playing in black and orange. One, because he is a great player. Two, I love the idea of Baltimore getting back to the World Series one of these years. Three, just think of all the great local charitable works he could single-handedly fund with that kind of money! Everyone wins.