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For those top FedEx finishers who make it to Champions Tour age, the miracle of compounding interest should ensure their golden years are lived on Easy Street. For Woods, or anyone else in his late 20s or early 30s, that’s likely more than 20 years of tax-deferred compounded growth.That $10 million annuity isn't looking so huge is it?
Dave Lightner, a partner in FSM Capital, a Cleveland-based financial planning firm that represents 60 professional golfers, predicts the numbers will be staggering.
“You could easily see guys with $250 million-$300 million in a retirement account,” he says.
The PGA Tour’s performance-based retirement plan is universally regarded as the most lucrative in sports (see story, page 48). It is not fettered by a maximum annual contribution; last year the average contribution for an exempt player exceeded $195,000, according to the Tour’s annual report to its membership. As first reported in Golfweek (March 24, 2001), a Tour member who sustains a lengthy career should be set for life thanks to his retirement account, which increases by at least $3,700 every time he makes a tournament cut.Now to the fun behind the scenes stuff...
This season, FedEx Cup bonus money has raised the stakes significantly. For instance, if Anthony Kim, the Tour’s youngest player at 22, wins the FedEx Cup and doesn’t dip into his retirement plan until he is 50, his $10 million bonus, compounding at 8 percent annually and doubling every nine years, would grow to $80 million.
Much about the PGA Tour’s retirement plan has changed with the advent of the FedEx Cup. What originally was devised as a safety net to compensate journeymen pros who never made it big has evolved into a tax shelter for the rich and richer. Though hardly anyone is complaining about competing for FedEx Cup purses (each of the four playoff tournaments is offering $7 million), several Tour members have protested that at least some of the bonus money, if not all, should be paid in cash – taxes be damned.
Those who want the money up front resent that the FedEx Cup was created to accommodate the Tour’s elite and not its rank-and-file. More significantly, the discord magnifies a growing schism between the Tour’s haves and have-mores. (Which can be defined as those who still fly commercial and those who travel in private planes.) Yet however one looks at the issue, there are more than 10 million reasons to compete in the playoffs.
Unable to influence their stars’ schedules, Tour executives eliminated the two incentive plans, and instead reallocated the $16.5 million in these two programs as FedEx Cup bonus money. Into this pot they added $18.5 million, thanks in part to the sponsorship deal with FedEx, and ditched the vesting requirements that punished players for not playing enough.But it's also important to note that is has been rumored that Tiger was against the annuity in place of cash as the FedEx Cup bonus. Was he looking at this from the fan perspective? These guys obviously weren't...
“The guys generating the show, bringing in the sponsors and TV dollars – and they’re only getting 62 percent? That wasn’t going to last,” says Tour veteran Sean Murphy, playing on the Nationwide Tour this season. “But by rolling it into the FedEx Cup, it allows these guys to keep playing their same old schedule (assuming they play well enough) and vest at 100 percent.”
For a player such as Woods, well on his way to becoming the first billionaire athlete, that’s significant.
“He’s got a chance to have 40 percent of his net worth in the retirement plan,” says Joe Ogilvie, a player director on the Tour’s policy board.
Some players contend the FedEx Cup was designed to benefit the Tour’s elite in other ways, too. What had been golf’s endless season left little downtime to conduct off-course business. There are courses to design and openings to attend, commercials to shoot, and, of course, family time. (Mickelson skipped the 2006 Tour Championship in part so he could take his children trick-or-treating on Halloween.) In exchange for playing three to four events in a row during the playoffs, and perhaps as many as six of seven events between the World Golf Championships Bridgestone Invitational and the Tour Championship, the superstars can call it a year shortly after Labor Day.
Nevertheless, in the final analysis, the FedEx Cup is a classic example of the rich getting richer. The top players benefit the most by deferring money into their retirement accounts. At that income level, say financial advisers, elite players need all the tax breaks they can get.
The decision to defer the FedEx Cup money ultimately rested in the hands of the Tour’s nine-member policy board, comprising four player directors (Stewart Cink, Joe Durant, Davis Love III and Ogilvie), four independent directors (Richard Ferris, Victor Ganzi, John McCoy and Ken Thompson) and the president of the PGA of America (then Roger Warren). According to an e-mail response from the Tour, the Tour policy board determined that a deferred compensation structure for the FedEx Cup was in the best long-term interest of the vast majority of players. That decision, in part, was based on the conservative premise that the Cup winner will have earned upwards of $5 million in prize money for the season – and likely wouldn’t be hurting for cash.
But according to several players who attended meetings to discuss the proposed FedEx Cup last year, the membership initially favored an immediate cash prize.
As talks progressed to the 16-member Player Advisory Council, an early show of hands produced a deadlock on the issue of how players should be paid. Then the Tour invited to PAC meetings several financial advisers who espoused the benefits of deferred compensation. Eventually, the PAC recommended retirement contributions to the Tour policy board. But the debate didn’t die there. The policy board, too, hashed out the pros and cons of deferred compensation at several meetings. They even considered paying half the bonus money in cash and deferring the other half to appease players who wanted at least some of the money up front. But the policy board voted unanimously in favor of 100 percent deferred compensation at a November meeting in Ponte Vedra Beach, Fla.