I have no idea how large or how long of a contract Manny Machado will sign when (or before) he becomes a free agent in 2018. And I definitely don’t know which team is likely to land the superstar. Hopefully it’s the Orioles. Tracking that story line is much better handled by the analysts here at ESR, and I am confident they will do a great job covering the news as it becomes available, and letting us all down easy if Manny signs elsewhere when he can.
But 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. Maybe he is worth it; maybe not. Maybe it’s just the economics of being famous and able to do something that hardly anyone else who has ever lived can do. And we are all happy to pay for it with our viewership and $8 beers and $50 tickets and so on. His talent is certainly incredible. He just turned 24, was born in the Miami, Florida of Dominican decent, never played college baseball, was raised by his mother and uncle and has already made $6.7 million in his playing career by the conclusion of this season.
Over the rest of his playing career though, if Manny does earn in the $400 million range, either with one gigantic contract like Giancarlo Stanton or a series of 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. Currently the value of the entire Orioles organization is $1 billion – or a little more than double that one player’s earnings. As recently as 2011 the Orioles were worth approximately $411 million according to Statista.com. The organization has had a good run over the last five years – partially thanks to Manny himself.
$400 million in earnings isn’t actually $400 million of course. Without getting into tax rates, agent fees, how the contract might be structured given contracts the Orioles have recently done with players like Chris Davis that go on for decades, let us just assume after taxes he nets half of that, or $200 million.
What would you do with $200 million? With just 10% of that money he could assure his income each year for the rest of his life after the end of his playing career would be no less than $1m/year. That’s without working and without using a dime of the other $180 million. He would do this by taking $10 million and creating an annuity for life that would pay out 10 years after he initially gets paid – so 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. And if he died? Anything out of the $10 million that hadn’t been paid out would be paid to his beneficiaries. 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 that pay federally tax-free interest. If the average rate on those bonds with the purchasing power that he would have was 4%, that would be $400,000 a year of federally tax-free interest without even touching the $10 million.
As for the $180 million here are some references. The entire revenue of the city of Annapolis here in Maryland in 2015 was approximately $59 million. So in three years he would make more than the entire city of Annapolis takes in from all its residents and visitors in a year. The average income annually in U.S. dollars for a resident of the Dominican Republic is $6,700. And lastly, in an unfortunate scenario where he died after earning it all, wasn’t married at the time, and didn’t leave any of it to charity or use any estate planning techniques his estate would only pass on $5.45 million estate tax free and pay approximately 40% on the other $195 million or over $78 million.
All that for playing a game well…all right, very well. For his sake – and that of O’s fans – here’s hoping he stays healthy. And that he earns all that money playing in black and orange. Both because he is a great player, possibly us getting back to the World Series one of these years, but also because of this: think of all the great charitable works he could single-handedly fund in Baltimore with that kind of money.
Everyone wins.
This and all articles contributed by Brian Kuhn to RussellStreetReport.com or EutawStreetReport.com as well as the content of any quoted third party professionals in these articles care purely for entertainment and illustrative purposes. They may not be construed in any way as financial, tax or legal advice to the reader or to any subject in the article. Seek legal, tax and financial guidance regarding your personal circumstances.
References:
http://espn.go.com/mlb/player/_/id/31097/manny-machado
http://www.spotrac.com/mlb/miami-marlins/giancarlo-stanton/
http://www.spotrac.com/mlb/baltimore-orioles/manny-machado/cash-earnings/
