N/S Steve Young Still GettIng Paid Millions Per Year from USFL Contract He Signed in 1984
this isn't really pertinent to anything going on in the NFL right now-- i simply found it interestng, and thought that you might, too.
Quote:
Young signed a record 10-year, $40 million contract with the Los Angeles Express of the now-defunct United States Football League in 1984. He agreed to take his payment in the form of an annuity to help the fledgling team; he would receive 40 million dollars paid out over 40 years.
As it turned out, Young did well to take his contract in the form of an annuity. In his second season with the Express, owner William Oldenburg went bankrupt, and was forced to turn the team over to the league after being unable to find a buyer. The season rapidly became a fiasco. Before one game, the team bus driver refused to drive the Express to the Coliseum after his paycheck bounced. Young contributed a lot of money, as did some of his teammates, and the driver got them to their game. Young then lined up in the tailback position and took snaps from the shotgun formation because the Express were left with no healthy running backs.
The league ceased operations in 1986 after losing most of its claims in an antitrust suit against the NFL. As of 2010, Young continues to receive his annuity. Payments started at $200,000 per year in 1990 and will continue to increase annually. In 2027, the final year of the contract, Young will receive $3.173 million.
According to a 1984 SI article, Young's annuity was guaranteed "in case the team or the league folds." It also said the payments actually escalate, so Young won't actually receive $1 million until 3 or 4 years from now. The payment for the last year of the contract was reported to be $2.4 million. Thats what the article said; I don't know if it was renegotiated after the USFL folded to the $1 million even per year.
I remember the story John Madden told. When Young was a 49er backup, John Madden found uncashed paychecks in his locker. Young hadn't cashed them because he felt he hadn't earned them. That contract helps explain how he could afford not to.
I wonder how many other young players would benefit from a similar deal. Instead of receiving a huge signing bonus upfront, get a guaranteed annuity so they can received a comfortable amount of money every year for well after their playing careers end.
The only flaw in it is that 2 million paid to him today is worth a lot less that 2 million paid to him in 1984 or even 1994, in terms of purchasing power.
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I wonder how the " annuity" was gaurented? If the owner didnt have the money then, how could he put that much money aside for future payments? Wouldnt the bankruptsy wipe out the owners commitment?
The only flaw in it is that 2 million paid to him today is worth a lot less that 2 million paid to him in 1984 or even 1994, in terms of purchasing power.
I don't know if I'd call it a flaw - if it's a true annuity, the payments should have a component that accounts for the 'time value of money'. (Basically the reverse of taking a 'lump sum' award if you win the powerball. This annuity should ultimatley pay more than the contract amount to account for the time element).
The better question would be to review the assumptions (i.e. market interest rate) on which the annuity is calculated and compare them to the real economic data to see whether he would have theoretically been better to take the money then.
Of course, the reality is that the annuity likely saved him from being involved in the bankruptcy as a creditor . . . presuming that the annuity was with a financial institution rather than directly from the owner. I suspect that it was (with an institution) - it would have been foolish for Young to just take an annuity-style arrangement directly from the owner.
SAN JUAN, P.R.—One year from today, the Mets will add to their payroll a 47-year-old, past-his-prime power hitter who has a reputation as a malcontent—a player who has been retired from professional baseball for nine years and won't play another game again.
Nevertheless, starting on July 1, 2011, Bobby Bonilla will remain on the franchise's payroll for 25 years, collecting an annual salary of $1,193,248.20. Those are the terms the Mets agreed to Jan. 3, 2000, when they bought out the final year of Mr. Bonilla's contract.
I wonder how the " annuity" was gaurented? If the owner didnt have the money then, how could he put that much money aside for future payments? Wouldnt the bankruptsy wipe out the owners commitment?
I don't know the actual facts but I suspect that the owner "purchased" the annuity from a financial institution with Young as the beneficiary. So the owner agrees to pay Young $40M over 10 years. Sort of like taking a lump sum in the powerball, the owner (instead of paying $4M per year for 10 years) takes a certain, smaller amount and buys the annuity - and because the annuity had a 40-year payment schedule, the lump sum (purchase price) is even less because the principal has such a long period of time in which to earn interest. This frees up the owner's immediate capital for other uses.
The financial institution that writes the annuity gets the money from the owner and can then invest it. The insitution then hopes to get more interest from it's investment than the interest that it is paying to the annuity.
Steve Young then gets the pre-established payments pursuant to the annuity schedule for 40 years. And in this context, with a new league and all that was involved, he gets the security of knowing he's going to get paid.
It's all just moving money around based on the time value of money and what the expected interest returns are. It happens all the time in finance.
And I think the article said this was two years before the bankruptcy. So the purchase of the annuity should not be subject to the bankruptcy's reach (the period is typically only 90 days prior to filing).
But really, I think the bottom line with this is that Steve Young is a very intelligent guy.
I don't know the actual facts but I suspect that the owner "purchased" the annuity from a financial institution with Young as the beneficiary. So the owner agrees to pay Young $40 over 10 years. Sort of like taking a lump sum in the powerball, the owner (instead of paying $4 per year for 10 years) takes a certain, smaller amount and buys the annuity - and because the annuity had a 40-year payment schedule, the lump sum (purchase price) is even less because the principal has such a long period of time in which to earn interest. This frees up the owner's immediate capital for other uses.
The financial institution that writes the annuity gets the money from the owner and can then invest it. The insitution then hopes to get more interest from it's investment than the interest that it is paying to the annuity.
Steve Young then gets the pre-established payments pursuant to the annuity schedule for 40 years. And in this context, with a new league and all that was involved, he gets the security of knowing he's going to get paid.
It's all just moving money around based on the time value of money and what the expected interest returns are. It happens all the time in finance.
And I think the article said this was two years before the bankruptcy. So the purchase of the annuity should not be subject to the bankruptcy's reach (the period is typically only 90 days prior to filing).
Steve Young has a law degree. That was a smart move. The annuity has grown tax free and he only has to pay taxes on what is paid out. It is also insulated from the ups and downs of the market.
Well if I'm not mistaken, hes got a degree in law so I'd imagine he is smart lol
He earned that while playing!
Pretty amazing:
Quote:
[After the USFL] Young was the first player selection in the [NFL] supplemental draft in 1984, and he signed with the Tampa Bay Buccaneers the next year. He played with the Buccaneers for two years before he was traded to the San Francisco 49ers in April of 1987.
Young joined the 49ers as Hall of Famer Joe Montana's backup. Though he still shone as a backup, Young had some time on his hands during his first several years on the team.
"I had to back him [Montana] up for four years, and I was going crazy because I wasn't playing. I really wasn't happy with that, so I was bored to tears," says Young.
So what did he do about it?
"I thought, 'What can I do while I bide my time here?' I said, 'Well, I always said I was going into law, so let's get it out of the way.'"
The ever-ambitious Young started at the BYU J. Reuben Clark Law School in 1988. There, in between his football-career demands, Young was able to enrich his academic side.
"The biggest issue was me playing professional football and showing up trying to be a regular law student. That was interesting," he says.
Because of his hectic football seasons, Young worked out a unique schedule with the law school that basically meant he attended school for six winter semesters.
"I'd finish the Super Bowl, and literally the next day, I'd be in class a month late. Then I'd have to sprint to catch up. I think the professors kind of relished punishing me for that," says Young.
"In 1994, I finished the Super Bowl and went straight to law school the next day. It had to be a little strange for people in class too," he continues.
Despite his demanding schedule, Young managed to get through his classes even if it wasn't a typical law school experience.
"They were really aggressive in law school to make sure that we had a well-rounded law education. I think they really worked to make sure that we were ready to represent the school," he says. "For a religious school, comparatively, I think it was a pretty diverse faculty."
By the time Young graduated from law school in 1994, he had won the NFL MVP Award twice and had been to the Super Bowl three times. Needless to say, he could afford to keep his day job.
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