Chart copied from Yahoo Sports
I just came across an interesting article over at Yahoo Sports about how the annuity’s Tiger would win from PGA Tour wins could potentially pay him out $1 billion by the time he reaches the age of 60. I really hadn’t thought about the full retirement implication’s when hearing about the FedEx Cup prize nor realizing Tiger had been receiving contributions for retirement since turning pro at 21. However, according to the math in the Yahoo Sports article, it sounds very realistic that Tiger could reach $1 billion in retirement funding by the time he hits 60.
Just keep winning
According to the article all Tiger has to do is keep winning tournaments, especially FedEx Cup championships, and based on a 9% return on his “investments” from PGA Tour contributions, he could easily reach $1,000,000,000 by the age of 60. I was sharing in the player’s frustrations about how the $10 million payout was an annuity and not a check at the end of the Tour Championship, but that $10 million annuity he could receive this year (assuming he wins) and adds compounds interest (at 9%) for 29 years, it would be valued at $123.1 million.
As mentioned above, Tiger and other tour players based on final positions in tournaments earn contributions from the PGA Tour throughout the year. For example, in 2006 the average contribution for players was about $195,000. For Tiger, it was $510,800.
Top 70 still walk away with 6 figure annuity plans
What is more shocking based on this Yahoo article is the following quote
“But then, Ogilvie and the Tour board took it to another level. Parts of the old plan remain, but now the FedEx Cup will donate $35 million into players’ accounts each year. While the $10 million for first and $3 million for second are the eye-popping numbers, everyone in the top 70 receives at least six figures.”
The money/annuity these players receive will accrue tax free, which makes this deal even sweeter, but according to article writer Dan Wetzel and now myself, the complaining and moaning from players “should not” be taking place, simply from the standpoint of how much that annuity will earn.
“However, just the $3.5 million Mickelson would save on immediate federal taxes would be worth nearly $26 million when he is 60 years old.”
“I may be dead by the time my retirement fund comes around for me to be able to utilize it”
However, with any retirement fund the individual has to wait until retirement age to even utilize it, so I don’t understand Tiger’s thinking with that. The players still receive victory money based on their placement in these 4 playoff tournaments, especially the Tour Championship.
How he gets to $1 billion
Since I got a C in finance during college, I will simply copy/paste the snippet in the article that explains how he gets to $1 billion versus trying to articulate in my own words exactly what they are trying to say:
So how does Tiger end up with a billion?
First off, based on the old plans, Woods already had an estimated $300 million in post 60-year-old payouts coming to him according to Golf Week. However, those plans have changed and now will generate less money.
On the other hand Golf Week was estimating using an eight percent annual return. Three separate financial planners we spoke with said nine percent was more than reasonable for Woods since even though the PGA funds the account, he controls it. That means he’d have constant, high-level attention paid to making it perform. He’d likely do better than even the Standard and Poor’s average of 11.3 percent.
In the end, our planners, under orders to remain conservative, stuck with nine percent and believe that the original Golf Week estimate should hold up at about $300 million.
The new plan is where the big money is, however. The FedEx Cup has confused fans and players alike. But competitively everyone agrees that since the title is based on mostly consistent, year-long dominance, for the foreseeable future, Woods should win it anytime he wants. He barely wants to this year and he’s the heavy favorite anyway.
So let’s say Woods were to play at a dominating level for the next, say, decade. He will probably go far longer, since top players routinely compete into their mid-40s and Woods is (and likely will be) in the kind of phenomenal physical condition that should defy the aging process.
But for arguments sake, we’ll have him drop off around then. Let’s even argue that he doesn’t finish in the top 70 in any year he doesn’t win (although a second place in, say, 2009 is eventually worth $31.1 million to him). In reality, Woods will be high in the money, if not the winner, for a long time to come.
So how many can he win?
“I think seven is very reasonable,” Ogilvie said. Fine, seven it is. We’ll fan it out over the next 11 Cups, which means an estimated approximate retirement worth of:
2007: $123.1 million
2008: $112.9 million
2010: $95 million
2011: $87.2 million
2013: $73.1 million
2015: $61.5 million
2017: $51.8 million
That totals up to $604.6 million when he is 60.
At this point, according to PGA Tour spokesman Bob Cook, Woods would have to start making withdrawals that would empty the account in five years. The payments are made monthly based on a yearly recalculated number. The decreasing money, however, will continue to accrue interest during the 60 months and will earn an estimated additional $114.7 million, according to Morgan Stanley’s Yellen.
That gives Woods $718.7 million in FedEx Cup money alone. Add on the $300 million in payouts from the other, original pension plans and you have $1,018,700,000. And this is a number Woods can easily shatter in any number of ways – more victories, longer career, better investment performance.
So there’s your $1 billion. All from an account Woods never had to contribute a cent too. Woods was unavailable for comment Tuesday, but he’s long maintained he pays little attention to his PGA retirement.
So there you have it. I read an article years ago explaining how Tiger would be sports first ever billion dollar athlete, and that did not take into consideration any retirement plan. Mostly tournament earnings, endorsements, etc…
So if he continues an unbelievable winning streak, reaching 18+ majors, 80+ PGA Tour victories, future endorsements and this potential retirement plan coming, he could very well be worth over $2 billion. You never know.