Question

I have to prepare two separate counteroffers for a team and they have to be structured differently, can't be the same. I have to figure out how to make sure it's good for the player. Having a signing bonus up front would be good in one of them but not sure how to structure that. There has to be enough deferred compensation over the 4 years so that the team can financially afford it

It has to meet the following four guidelines.

4 year term

Contract total PV (present value) must have a $15.5M-$16M range. (Used a 5.5% discount rate i=.05)

The player must earn AT LEAST ($600,000) In each of the playing years

Build in a deferred compensation pattern.

Answer 1

Plan 1]

Signing bonus = $13,500,000

Yearly payment = $600,000

The PV of the yearly payments is calculated using PV function in Excel :

rate = 5.5% (discount rate)

nper = 4 (4 year contract with 1 annual payment each year)

pmt = -600000 (yearly payment. This is entered with a negative sign because it is a payment)

PV is calculated to be $2,103,090

Total PV = PV of the yearly payments + signing bonus

Total PV = $2,103,090 + $13,500,000 = $15,603,090

Plan 2]

Signing bonus = $10,000,000

Yearly payment = $1,700,000

The PV of the yearly payments is calculated using PV function in Excel :

rate = 5.5% (discount rate)

nper = 4 (4 year contract with 1 annual payment each year)

pmt = -1700000 (yearly payment. This is entered with a negative sign because it is a payment)

PV is calculated to be $5,958,755

Total PV = PV of the yearly payments + signing bonus

Total PV = $5,958,755 + $10,000,000 = $15,958,755