Marketing Cash Or Deferred Comp

I had a nice chat with Joe Ogilvie today who takes exception to the criticism of the FedEx Cup's deferred compensation purse structure. I countered that the average fan can follow it more easily with cash on the line, which he understood. But then Joe did some calculating and started dropping figures that sounded something like this from Richard Sandomir's piece in the NY Times while arguing that the deferred compensation will most certainly get the attention of players. From Sandomir's story:

If Woods wins and cashes in at 45, and the $10 million gets an annual return of 8 percent, he would get a $29.4 million parting gift. Mickelson, seven years older, would come away with $18.5 million.

If Vijay Singh, who is No. 6 on the FedEx Cup points list, wins the playoff, then sharply reduces his schedule or retires, he could get his $10 million quickly. He turns 45 in February, one day before Stricker turns 41.

Let’s say a youngster like Hunter Mahan, 25, wins it all. If he collects his deferred prize at 45, and he has received an average return of 8 percent over 20 years, he’ll have $46.6 million in his account. Now let’s let compound interest run wild. If Mahan plays until age 55 and his $10 million earns a smashing 12 percent annual return, he’d have $299.6 million. Such a prospect makes the Champions Tour look like essential estate planning.

So has the Tour made a mistake not better marketing the potential prize take or is simply an impossible concept to market because there are so many variables involved?

While it seems nice that they are "maximizing" the potential take for players due to the wonders of compounding interest, would the FedEx Cup be more fan friendly as a cash bonus pool? And therefore, a more productive exercise for the Tour's sponsors...oh and charity of course.

Comments

[GeorgeM]

Annuity or ca$h?

Why force the decision?
Why not follow Mickelson's suggestion and have the cash piled up off the 18th green?

But, offer the player the choice of all now or all later.

[86general]

I'm still confused...this article suggests that $10M will be deposited in the annuity on day #1, and it will earn interest. I thought the term "ten million dollar annuity" usually meant that, at maturity, the annuity had a value of ten million.

So which is it, ten million to the winner today, set aside to earn interest, or some other sum set aside today, projected to have a value of ten million at some set time in the future?

[jneu]

If it is $10 mill deposited today (as suggested by Sandomir's column, and confirmed by Nutty Professor's post here yesterday answering my question -- thanks, NP), why did they bother to make it deferred? The PR confusion can't be worth the perceived benefit to the player. Besides, I rather doubt too many recipients of the bonuses will be hurting in their retirement years (even if they follow the traditional Champions Tour pattern of trading in their wives for younger models).

I have to believe this is yet another part of the system that will be changed next year; it makes little sense to make such a large payment into the deferred pool, unless you're hyping an even larger figure a la lottery proclamations. By all means, make deferral an encouraged option for the player -- and it's nobody's business if they accept -- but don't make it a precondition. All it does is add further phoniness to the hype, without any gain to anybody.

[Nutty Professor]

I'm with GeorgeM: I'd like to see the players get the choice. Pile up the cash on the 18th green for good TV - if the player puts it into his retirement account later that evening after the cameras are shut off, so be it.

[Ronald Montesano]

How can you market something that is not in the here and now? Trophies and prize money are about instant gratification. It's impossible to take the excitement and enthusiasm we feel for a player and his performance, and postpone the rapture until retirement.