Markets in Everything – Relief Pitcher Earnings

by on January 23, 2008 at 7:15 am in Economics | Permalink

Randy Newsom, relief pitcher for the Cleveland Indians, is selling 4% of his future major league salary.  There are 2,500 shares in the IPO so each share gets you a claim to 0.0016% of his future salary including bonuses.  Shares sell for $20 each.

Hat tip to Mike Makowsky.   Mike, a rookie GMU PhD on the job market, is also entertaining offers for a share of his future salary.  Mike is feeling rather risk-averse so as an insider, I recommend you buy now.  Mike has a great career ahead of him and this opportunity won’t last long!

Anonymous January 23, 2008 at 7:19 am

It would be helpful if Makowsky’s link weren’t gated.

EZ January 23, 2008 at 8:55 am

Is this legally binding? If so, why is this not done more often?

meter January 23, 2008 at 9:11 am

If this catches on, how long before agents begin negotiating for ‘non-bonus payouts’ to players?

thedevilsinthedetail January 23, 2008 at 9:40 am

Makowsky sells 4 % of his future major league salary. He issues 2,500 shares. Each of the 2,500 shares will get you a claim to 0.0016 % of only 4 % of his future earnings, not 0.0016 % of his TOTAL future earnings. This means that each share will get you only 0.000064 % of his total future earnings. Is that still a recommendation?

sa January 23, 2008 at 9:44 am

Very good point by Slocum. Also by meter.

I will add that since earnings for sportspersons earnings
does not vary much after a contract has been negotiated,
thus making it analogous to a call option with a shorter
maturity than many people think.

Mo January 23, 2008 at 10:02 am

Where did you guys learn math? 0.000016 * 2,500 = 0.04. So 1 share does in fact earn you 0.0016% of his total salary and 2,500 shares is for a total of 4% of his salary.

Michael Fisk January 23, 2008 at 10:37 am

$50,000 raised by selling off 4% of future income. That means the whole system breaks even at a lifetime earnings in the league of $1.25 million, meaning that probably one year of a proper major league contract will pay the whole thing off. Granted, considering that four years out of college, he’s still in AA ball… it sounds like a rather risky proposition.

effay January 23, 2008 at 10:41 am

So if 4% of Newsom’s salary is going to be subject to personal income taxes and capital gains taxes, anyone who buys a share is only going to see about 52 cents on the dollar. Am I missing something?

Bernard Yomtov January 23, 2008 at 11:14 am

I think this is not as unusual as it sounds. I’ve read that golfers starting on the pro tour sometimes have sponsors who cover expenses in exchange for a share of winnings fro some limited time.

I know a man who was asked to invest $5000 in launching the career of a talented local country singer who hoped to make it big in Nashville. He thought it too risky.

Garth Brooks.

Steve January 23, 2008 at 12:40 pm

Mike Huben,

E-mail me. I’m all ears. I’ve wanted to sell for a long time, but I haven’t looked into the legality. Actually, I wanted to start a business where people could buy and sell claims to the benefits of others, but I’m too lazy to do anything about it.

Anyway…

Mike, let me make the first offer. You can have all my future benefits for 95% of all my past and future contributions, plus 95% of my employers’ contributions. You’ll pay me biweekly, and I’ll pay you when I start collecting.

Steve D January 23, 2008 at 1:23 pm

I’ve wondered if a way to supplement public school teachers salaries would be to give them “stock options” on the future earnings of their pupils.

stanfo January 23, 2008 at 2:15 pm

I’ve wondered the same as Steve D. The only sticking point is that these children are not old enough to sign away part of their future salary, though their parents could. This would be an important feature of a free market school system.

Slocum January 23, 2008 at 2:25 pm

A HUGE future possibility seems to be in funding college. How much would .0015% of a future lawyer’s salary be worth to you?

My uncle offered to do this 25 years ago. He suggested paying for ivy league tuition in exchange for a percentage of my future salary.

sidereal January 23, 2008 at 4:37 pm

Double-A right handed reliever? Pass. If he was a lefty, my recommendation would be STRONG BUY

Andy January 23, 2008 at 6:37 pm

I bought a share. I’m not necessarily expecting it to be a great deal, but I just think it’s a really cool idea. And hey, it’s only $24.

carpundit January 24, 2008 at 12:49 pm

Don’t neglect the value of the fun of the investment. It was worth the price of a share to be in on it, win or lose.

baom February 9, 2008 at 1:25 am

提供钢管无缝钢管数据恢复心理咨询心理辅导与心理治疗bjxlzx.cn等服务

jad games February 9, 2010 at 3:16 pm

thank you for this information

Comments on this entry are closed.

Previous post:

Next post: