The Washington Nationals have reached an historic deal with ace Max Scherzer that will pay him a total of $210 million for seven seasons of service, but will pay the money out at $15 million a year for 14 years. Reportedly, the contract has been drafted so as to take advantage of Washington D.C. tax law to save Scherzer as much as $20 million in taxes, and the deal saves the Nationals about $25 million compared to paying the same amount over seven years.
I’m generally not a huge fan of Scherzer’s agent Scott Boras, but I think he hit a home run with this contract. He got what looks like a maximum package for Scherzer, and Scherzer gets the kind of security he had obviously hoped for.
No matter how much money a ballplayer makes, quite a few of them still find ways to piss through it, thanks to mega-homes (and property taxes) for themselves and their family members, children born to multiple mothers and the resulting child support obligations, divorces, automobile collections, hangers-on, etc.
In fact, more than a few professional athletes who had successful and lucrative careers end up nearly broke and struggling in the years between their early 40’s and age 50 when they can start to draw on their player pensions. The more money you make, the more money you tend to spend, and it’s quite a come-down to go from making $10 or 20 million a year to less than $100,000 in as little as a year or two.
Scherzer has now assured himself that he will be making $15 million per through age 45. That’s the kind of security even most professional athletes can only dream about.
Needless to say, relatively few players have the foresight to make these kinds of deferrals during their professional careers. In 2000, Bobby Bonilla and his agent worked out a deal with the Mets to defer $5.9 million owed to Bonilla, to be paid as $1.19 million a year for 25 years commencing in 2011.
Bonilla’s career ended in 2001, and I don’t know if he had any financial problems in the decade before the deferred payments kicked in. However, he’ll be getting more than $1 million per through age 72, by which point he will already have had to start receiving his Social Security and players’ pension payments starting at age 70. One can only hope that Bonilla lives a long life to take full advantage of the way he has set up his golden years.
The players with the foresight to defer income to later years when their careers are over are most likely the players who least need to do so, since they likely have the foresight to make substantial and prudent investments during their playing careers. Even so, the tax benefits of spreading out free agent contracts over a lifetime are only too obvious.