Kessel to get 8yr/$64M deal

[CamFan81]

Wonder how he will do vs us now that he's not afraid of playing vs Chara anymore...Will be interesting to watch.

can you imagine if he slashed chara the way he did scott

 

[Bruinswillwin77]

can you imagine if he slashed chara the way he did scott

Lucic gets suspended?

 

[WestCoastBruinsFan]

The only thing better than the Leafs losing Kessel to UFA status is the team overpaying to keep him. It seems like most Leaf fans are happy. Good for them. I am just glad we build a team with a team concept.

 

[member 96824]

Kessel starts at 10, works his way down to 6.

One thing I'll never understand...why do players allow agents to do that to them? Inflation goes up, and their pay goes down? Meanwhile, the agent laughs all the way to the bank because he got his bonus % of the 10 up front?

Why does this never ever click in the players head? "Gee, price of gas tripled, maybe I should look to increase my money as time goes on, not decrease it"

 

[patty59]

Kessel starts at 10, works his way down to 6.

One thing I'll never understand...why do players allow agents to do that to them? Inflation goes up, and their pay goes down? Meanwhile, the agent laughs all the way to the bank because he got his bonus % of the 10 up front?

Why does this never ever click in the players head? "Gee, price of gas tripled, maybe I should look to increase my money as time goes on, not decrease it"

It's 64M dollar contract. Not sure price of gas or inflation really matters.

But I'd rather have more money up front, the money you'd save on interest if you bought a house or something, that goes a long way. Plus you could make that money work harder for you now rather than later, as you said 10M now will be worth more than 10M in 8 years.

It's probably different when you are thinking about regular salaries, but when you're into the millions, I think it's best ot get as much up front.

 

[Neely2005]

Bruins 2011.

Krejci was the leading playoff scorer - Twice. (In points)

 

[member 96824]

It's 64M dollar contract. Not sure price of gas or inflation really matters.

But I'd rather have more money up front, the money you'd save on interest if you bought a house or something, that goes a long way. Plus you could make that money work harder for you now rather than later, as you said 10M now will be worth more than 10M in 8 years.

It's probably different when you are thinking about regular salaries, but when you're into the millions, I think it's best ot get as much up front.

Absolutely, very good point with the money saved on buying a house or something along those lines...unfortunately...alot of athletes don't do the smartest things with their money, I've spoken to other advisors who have had athletes, many say never again.

If he took all the extra over 6 that he makes and put it in 5% tax free bonds(usually that's where athletes and others who have a huge tax load go), he's making an extra 800k a year by years 6-8, which definitely makes up a little bit of the gap, but not the whole thing.

Sidenote: I wish I could pull in 800k a year tax free

 

[RussellmaniaKW]

Krejci was the leading playoff scorer - Twice. (In points)

Yeah if you just look at Krejci's playoff production (which is fair IMO since we're talking about playoff success here) he's near the top of the league as far as centers go in terms of helping lead their team to the finals.

 

[hoss75]

It's 64M dollar contract. Not sure price of gas or inflation really matters.

But I'd rather have more money up front, the money you'd save on interest if you bought a house or something, that goes a long way. Plus you could make that money work harder for you now rather than later, as you said 10M now will be worth more than 10M in 8 years.

It's probably different when you are thinking about regular salaries, but when you're into the millions, I think it's best ot get as much up front.

It's always best to have the money up front for the when in a contract situation...
A.. It's in your pocket when stuff goes wrong... things fall apart.. people get hurt... governments shut down.
B.. You'll make more money in the end if you wisely invest.

For the same reasons, if you're on the other end of the contract, it's best to not have a front loaded contract.
The only time it's bad is when tax laws are changing to benefit tax payers in the future.. or if someone is just bad at handling money.

 

[Scotto74]

Kessel starts at 10, works his way down to 6.

One thing I'll never understand...why do players allow agents to do that to them? Inflation goes up, and their pay goes down? Meanwhile, the agent laughs all the way to the bank because he got his bonus % of the 10 up front?

Why does this never ever click in the players head? "Gee, price of gas tripled, maybe I should look to increase my money as time goes on, not decrease it"

because 10 mil in your pocket today is worth more then 10 mil in your pocket 8 years from now. Time value of money.


always take the most money now not later.

add to that he can now invest the 10million now and earn off of it.

10 million today is worth 10 million. 10 millino 8 years from now might be worth 6 million today.

quick example. say you get 10 million today and or 5 years from now and say inflation is 2% per year.

year one today 10million is worth 10million
year 2 10m is worth 9.8m
year 3 10m is worth 9.604m
year 4 10m is worth 9.412m
Year 5 10m is worth 9.039m


by getting more in the front you are getting maximum value of the cash.

 

[Scotto74]

my above example only takes inflation into account. you also have to add in the interest that he would earn on the 10m he gets now over the 8 year contract.

this example I found does a better job explaining.

Understanding The Time Value Of Money
August 05 2012| Filed Under » Beginning Investor
Congratulations!!! You have won a cash prize! You have two payment options: A - Receive $10,000 now OR B - Receive $10,000 in three years. Which option would you choose?


WATCH: The Time Value Of Money

http://www.investopedia.com/articles/03/082703.asp

What Is Time Value?
If you're like most people, you would choose to receive the $10,000 now. After all, three years is a long time to wait. Why would any rational person defer payment into the future when he or she could have the same amount of money now? For most of us, taking the money in the present is just plain instinctive. So at the most basic level, the time value of money demonstrates that, all things being equal, it is better to have money now rather than later.
But why is this? A $100 bill has the same value as a $100 bill one year from now, doesn't it? Actually, although the bill is the same, you can do much more with the money if you have it now because over time you can earn more interest on your money.

Back to our example: by receiving $10,000 today, you are poised to increase the future value of your money by investing and gaining interest over a period of time. For Option B, you don't have time on your side, and the payment received in three years would be your future value.


year 1 ---------------------------------------------------------Year 8
10million now ======================================10m + interest in year 8
10m - interest now ==================================10m in year 8

 

[Ron Quixote]

Oh, look! HFBoards Finance 101.

Sweet.

 

[member 96824]

I'm aware of the time value of money, that's my career haha.

But this isn't a lump sum example, this is a decreasing income situation...which is in where lies the issue. If he had the choice of getting a 64 million dollar check tomorrow, or spreading it over 8 years...yes lump sum today.

Time value of money makes sense for him taking less up front, more in the end, because as his pay goes up, his buying power is also increasing, since inflation is typically around 3% on average. In the way he's structured, his pay decreases as his buying power is also decreasing...he's given himself a 40% decrease of pay, couple that with inflation every year and you're looking at cutting your buying power around half.

He'd have to make a ton off of the extra invested cash to make up for that.

 

[patty59]

I'm aware of the time value of money, that's my career haha.

But this isn't a lump sum example, this is a decreasing income situation...which is in where lies the issue. If he had the choice of getting a 64 million dollar check tomorrow, or spreading it over 8 years...yes lump sum today.

Time value of money makes sense for him taking less up front, more in the end, because as his pay goes up, his buying power is also increasing, since inflation is typically around 3% on average. In the way he's structured, his pay decreases as his buying power is also decreasing...he's given himself a 40% decrease of pay, couple that with inflation every year and you're looking at cutting your buying power around half.

He'd have to make a ton off of the extra invested cash to make up for that.

All very true, but look at it this way. Right now he can buy 10M things off the dollar menu at McDonalds, in 8 years from now he might only be able to buy 9M things off the dollar menu, with inflation and whatnot.

 

[Bruinswillwin77]

All very true, but look at it this way. Right now he can buy 10M things off the dollar menu at McDonalds, in 8 years from now he might only be able to buy 9M things off the dollar menu, with inflation and whatnot.

I see what you did there! !

 

[member 96824]

All very true, but look at it this way. Right now he can buy 10M things off the dollar menu at McDonalds, in 8 years from now he might only be able to buy 9M things off the dollar menu, with inflation and whatnot.

"WHAT DO YOU MEAN I HAVE TO HOLD THE SHAKE?!?"

 

[Bruins4Lifer]

I'm aware of the time value of money, that's my career haha.

But this isn't a lump sum example, this is a decreasing income situation...which is in where lies the issue. If he had the choice of getting a 64 million dollar check tomorrow, or spreading it over 8 years...yes lump sum today.

Time value of money makes sense for him taking less up front, more in the end, because as his pay goes up, his buying power is also increasing, since inflation is typically around 3% on average. In the way he's structured, his pay decreases as his buying power is also decreasing...he's given himself a 40% decrease of pay, couple that with inflation every year and you're looking at cutting your buying power around half.

He'd have to make a ton off of the extra invested cash to make up for that.

No it doesn't. No matter how you look at it, it's always better to get the most up front you can. The sooner you get your money the better. A front loaded contract will have more buying power than a back loaded contract. Always.

 

[LouJersey]

Oh, look! HFBoards Finance 101.

Sweet.

 

[LouJersey]

Some teams are built like the Bruins...

Some are built like the Pens and Hawks...

Is what it is...

 

[member 96824]

No it doesn't. No matter how you look at it, it's always better to get the most up front you can. The sooner you get your money the better. A front loaded contract will have more buying power than a back loaded contract. Always.

Where are you making up the 40% income drop off+inflation to keep buying power up?

Market's on average do 9%. You'd have to have nearly 40 million by year 8 getting 9% invested to make up the gap between the 10 and 6, not counting inflation or taxes.

It always makes sense if they're saying "we can give you a lump sum up front or payments of $1000 a year for the rest of your life" like the lottery does...it doesn't make sense when you're guaranteed a 40% increase by the end of your contract.

 

[Bruins4Lifer]

Where are you making up the 40% income drop off+inflation to keep buying power up?

Market's on average do 9%. You'd have to have nearly 40 million by year 8 getting 9% invested to make up the gap between the 10 and 6, not counting inflation or taxes.

It always makes sense if they're saying "we can give you a lump sum up front or payments of $1000 a year for the rest of your life" like the lottery does...it doesn't make sense when you're guaranteed a 40% increase by the end of your contract.

From the extra money you're getting up front. Where is it going in your calculations?

 

[member 96824]

From the extra money you're getting up front. Where is it going in your calculations?

As I said earlier, if you take everything off the top of the 6, and put it in 5% tax free bonds...then by year 8, you've got 16 million that is putting 800k in your pocket.

Meaning you're still down 3.2 mil on cash, plus whatever inflation is doing to your buying power at that time.

If you're going to the market instead of tax free bonds, you're still stuck with the task of trying to make 16 million of the extra cash turn into 40ish million to generate the gap in income. If you've got a trick to do that, myself and my clients would love to know

 

[Scotto74]

No it doesn't. No matter how you look at it, it's always better to get the most up front you can. The sooner you get your money the better. A front loaded contract will have more buying power than a back loaded contract. Always.

I got side tracked at work so you got to it first. You are correct money is always worth more up front. period.

take this easy example of 10 years at 10 million going down a mil every year

year 1 - 10 million you will earn 10 years interest off of this
year 2 - 9 million you will earn years interest
y3 - 8 earn 8 years
y4 - 7 earn 7 years
etc.


now go opposit getting 1 million in the first year going up to 10

year 1 - 1 million at 10 years interest
year 2 - 2 million at 9 years interst
etc.


easy to see you will earn way way more interest in take the 10 million in year one not the 1 million.


this does not even account for inflation which makes you want more upfront as well.


always take the cash up front as much and as early as you can.

 

[Scotto74]

As I said earlier, if you take everything off the top of the 6, and put it in 5% tax free bonds...then by year 8, you've got 16 million that is putting 800k in your pocket.

Meaning you're still down 3.2 mil on cash, plus whatever inflation is doing to your buying power at that time.

If you're going to the market instead of tax free bonds, you're still stuck with the task of trying to make 16 million of the extra cash turn into 40ish million to generate the gap in income. If you've got a trick to do that, myself and my clients would love to know

I offer you 55 million over the next ten years. you have two options.

option 1

10 million year one going down 1 million a year until year 10

option 2
1 million year one going up to 10 million in year 10 by one million a year.


both options get you a base of 55 million for the contract amount. You really think you can end up with more money after 10 years taking option 2?

You have clients you invest for? really.

 

[Bruins4Lifer]

As I said earlier, if you take everything off the top of the 6, and put it in 5% tax free bonds...then by year 8, you've got 16 million that is putting 800k in your pocket.

Meaning you're still down 3.2 mil on cash, plus whatever inflation is doing to your buying power at that time.

If you're going to the market instead of tax free bonds, you're still stuck with the task of trying to make 16 million of the extra cash turn into 40ish million to generate the gap in income. If you've got a trick to do that, myself and my clients would love to know

You're really in finance? Just take Scotto's example above and do a cash flow analysis on it me at what point going with a increasing annuity (from $1M to $10M) over a decreasing annuity (from $10M to $1M) ever gives you a higher NPV.