"...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."

fedexillustration.jpgGolfweek's Adam Schupak offers a detailed and timely report on the PGA Tour's deferred compensation plans as they relate to the Fed Cup the most painfully obvious flaw of the event: the $10 million annuity for first place.

Lots to clip and paste here...
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.

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.
That $10 million annuity isn't looking so huge is it?
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.

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.
Now to the fun behind the scenes stuff...
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.

“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.

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 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.

More Norman v. PGA Tour

Greg Norman has plenty to say about his request to open the PGA Tour's books in this Greg Hardwig story (thanks to reader Dan).

"To me, an open book's an open book,'' he added. "Like I said, I'm not on any witch hunt. I just feel like I have the right, and I have the right as a shareholder of a corporation.''

Playing tournament golf isn't taking up Norman's time as he recovers from his second knee surgery in four months, the last in February in Pittsburgh. He hopes to start hitting balls in June, then return for the slew of Champions Tour majors in July and August, sandwiched around the PGA Tour's International.

Norman and Finchem have feuded over the years, most notably from allegations that Finchem had Norman's idea of a world tour squashed, then stole it and turned it into the World Golf Championships.

But Norman claims this goes beyond that; he's concerned about the future of the tour and feels the players should have all of the information and are entitled to it.

"Am I hoping to find something wrong? No,'' he said. "I think it's just the right of every player to make their decisions on the information that you can read in the minutes of the meeting.

"I feel personally that some of the decisions made in there are probably made without all of the information being disclosed to all of the members. That's what I feel. If I'm wrong, I'll gladly say I'm wrong. I'm not on a witch hunt here. I'll fall on my sword as good as anybody if there's nothing in there.''

The tour has offered to have Norman come up with a list of questions or issues he's concerned about and then release excerpts from the minutes concerning those. "That's not the way to go about it,'' he said.

According to Norman, the tour is afraid he will go public with information in the minutes. "That's not my style,'' he said. "I wouldn't do that.''

Tour Pension Numbers

Andrew Both writes:

At a meeting hosted by commissioner Tim Finchem last week, players were given some examples of their projected retirement payouts.

For example, a 2006 rookie who has a Fred Couples-type career - more than 20 very successful years on tour - can expect to receive a pension of about $247 million, according to the tour's figures.

OK, you say, but not many players have as good a career as Couples. True, but consider the case of a player who has a Don Pooley-like career, 20 years on tour averaging about 75th on the money list. He can expect a payout of about $142 million, not bad for a so-called journeyman.

Of course, these figures, provided to SportsTicker by a player at the meeting, are only projections, educated guesses at best, but even if they are grossly overstated, the tour's bottom feeders will still be very well taken care of barring a major long-term economic catastrophe.

Some of the newer tour members were flabbergasted to learn these figures, and there are skeptics who doubt their accuracy.

"Where is this money coming from?" asked one insider. "You're talking billions of dollars. Are these guys smarter than every other investor in the world? If a journeyman stands to get that sort of money, how much can Tiger expect?"

It seems the key to receiving a massive pension is longevity, keeping your job for a decade or more, even if you never win. And you thought it was all about the trophies.

Sean, try to keep the posts to 500 words or less!  And thanks to reader Noonan for this story.

Nationwide Irony

nationwide logo.jpgDid anyone else notice what was printed on the page following Ryan Herrington's November 11 Golf World piece detailing Sean Murphy's questions about the the Nationwide Tour's lack of a retirement pension?

That's right, a Nationwide "Life is on your side" ad with a reminder that "Life comes at you fast." (Hint, hint, sign up for one of our retirement programs.)

The next page features a photo of this year's 20 Nationwide graduates.

Tour Pension Questions

From Wednesday's Wall Street Journal (subscription req.):
Now Sean Murphy, a 40-year-old player who is taking a break from golf while recovering from surgery, is fighting an uphill battle to change the system.

For the past 18 months, Mr. Murphy has waged an impassioned campaign to get the Tour to offer pension benefits to every player on its three main circuits: the famous PGA Tour, the second-string Nationwide Tour and the Champions Tour for seniors 50 years of age and older. He has debated the issue with Tour officials, argued his case at a players' meeting in Erie, Pa., and has been pressing his cause in Congress.

Mr. Murphy, who has played on both the PGA Tour and the Nationwide Tour, will be eligible to receive hundreds of thousands of dollars in pension money when he retires. Still, he calls the system discriminatory and says it goes against the Tour's stated mission "to substantially increase player financial benefits." He also asserts that it violates IRS rules for nonprofits by offering pensions to some independent contractors but not to others.