Teams are signing players like Shohei Ohtani to long-term contracts nearing the $1B mark. But what’s the impact of these mind-boggling deals? And how does it tie into investing strategies? Stay tuned to uncover the surprising correlation between sports contracts and market dynamics and why it matters.
In this episode:
- Explore the latest trends in player contracts and get a financial advisor’s perspective on the evolving landscape of athlete compensation.
- Understand how athletes make career decisions beyond money and discover the factors that drive their choices.
- Analyze the performance of tech giants in the market and uncover valuable insights for potential investment opportunities.
- Gain valuable insights into market dynamics and investment considerations to make informed decisions.
Career Decisions Beyond Money
Compensation is not the sole determining factor in an athlete’s career decisions. Crucial elements like team dynamics, coaching staff, and overall environment significantly influence an athlete’s job satisfaction and ultimate decision to stay or leave a team. By recognizing the multifaceted aspects that athletes consider, fans can understand the complexities behind the headlines, while aspiring investors can glean insights into holistic decision-making in high-stakes environments.
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*Morton Brown is neither a law firm nor a certified public accounting firm. No presentation, post, or portion of any podcast content should be construed as legal or accounting advice.
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Transcript
Welcome to coachable wealth, where we blend the worlds of sports and finance to bring you strategies as you navigate your wealth building journey. John, Cody and Sean are here to help you elevate your financial advisor relationship to meet your long term goals. Now, let's get to it. I'm getting my last couple of weeks of snowboarding in because I think spring is soon to be around the corner. And let's watch the Flyers penguins.
Always a good rivalry and flyers came up just short by one goal. Also, we're about a week out from the new Formula one season, which feels like it just ended, but excited about that. Do you follow Formula one pretty close? Yeah. I started watching the Netflix documentary maybe a few years ago and something I never knew about and just got super interested in it.
And early morning Sunday races usually up after a know just sitting there drinking some protein and know watching the race. Who was the driver that made a huge move? Is he changing Hamilton? Yeah, from Mercedes to Ferrari. Lewis Hamilton won six or seven championships with Mercedes up until about two years ago when Max Verstappen from Red Bull started winning.
And it doesn't look like anybody's going to catch Red Bull anytime soon. They just had their testing.
The headline of some of the articles I read were no one even closes the gap a little bit to Red Bull. So it looks like it's going to be dominant year for them again. Wow. It's funny, Sean said about Formula one when I was just getting ready for work this morning, I saw the preview commercial on ESPN for, I guess next weekend's race. I forget where it is rain, but I saw that next week it's over in the Middle east.
Okay. I know Sean doesn't want winter to come to it, but I think we're kind of on the last couple days, it sounds like of winter and potential snow, but I did watch some spring training on Sunday, the Yankees versus the Phillies, and it was great to watch some baseball finally and hopefully the warm weather is right around the corner. Yeah, I didn't watch it, but I got some updates and saw that the Phillies threw a decent amount of NOLA started for them, but then they played their other pitches that are actually going to most likely make the team and be a big part of the bullpen going forward. So it was good to see them have a good first outing in spring training. You guys think the Phillies are Brian for another deep playoff run?
With how hard it is to be good for people don't think three years in sports, that's a long time. So it's hard to sustain that. Yeah. Do you guys think there's another run coming? I hope so.
I mean, they definitely have the team to do so. They didn't really lose anybody hugely valuable over the last year. If anything, they should get a little better because some of the younger guys on their team should continue to hopefully progress and get better as the years go. Agree. I mean, it's been years, I feel like since the Phillies had some young guys that actually, you're older, some more experience.
Hopefully Rojas kind of continues his upward trajectory, and I know he's been good in the outfield, but hopefully gets that batting average up in the postseason. Hopefully they make. I mean, I don't think it can get worse than what it was in the postseason. I know he's been working hard in the offseason, so hopefully he does a lot better. And then Bones, obviously, I mean, he's been in the majors for a couple of years now, but hopefully he continues to get better.
And same with Marsh. Yeah. Yep. And a full year of a healthy Harper, who's more comfortable at first base, should help him out tremendously, too. And hopefully JT sticks it in for a whole year without kind of speaking of baseball and coming towards the season.
How about some of the contracts that were handed out over the offseason to Otani then? I'm not even going to try to pronounce the name of the pitcher that came from Japan, but some of these contracts are just getting insane in baseball. I mean, Otani, what is it, ten years, 700 million? And the japanese pitcher, I guess the interesting thing there is the Phillies actually outbidded a few teams, but he decided to go another route. He didn't want to go for the highest bidder.
He actually kind of picked a team where he really wanted to go to. Yeah, I think it's interesting looking at some of these huge contracts, whether it's in baseball, basketball or football, and then a couple of years later, see if it actually panned out or if they did overpay. So Otani getting 700 million over ten years. So 70 million a year the pitcher from Japan is actually making. So he got a twelve year, $325,000,000 contract.
Bryce Harper's was 13 years, 330. So the japanese pitcher who's never played in the MLB is making more than Bryce Harper, which is crazy just thinking about it. And I know there's rumors that Harper is looking for more money now just because he thinks he's undervalued. I mean, if you break it down, he's really only making 25 million a year, which is not towards the top in baseball. And I think you're going to see that continued growth where you might have a big contract here in 2024, but by 2030 that's just going to be a mid tier contract with the trajectory of sports and the revenue that it produces.
So I think the MLB is different where it's all guaranteed. Donnie could never play another pitch and he'd get his 700 million. When you figure baseball has such a higher longevity than other sports that it's all guaranteed, I do think that's kind of crazy. And I know NFL is slowly moving towards there. A lot of the larger contracts here recently have been a lot more guaranteed money, maybe less years.
I think Mahomes is still the largest contract ever in NFL, but if you look so it's what, ten years? 450,000,000. So now going into 2024, making $45 million, he's the 8th highest paid quarterback. I think there's a lot from an athlete standpoint, though, at a certain point, whether it's 45 million a year or 65 million a year, that everything's taken care of and it's are you in a good situation? Are you able to win?
Are you in the city you want to be? Are you with the coach, with the offensive coordinator, have the teammates around you? At a certain point, I think the money just becomes a very municipal part of it and the surroundings and other parts are more important. If you ever had a conversation with that pitcher from Japan, he'd probably say something similar. That at a certain point there's some other things that factor into it.
Yeah, definitely. And I know that's how it is when we talk to our clients that are potentially looking to change jobs or potentially maybe retiring earlier than they initially thought. They thought they're going to work to full retirement age at 66 and a half or 67. But now they're in a completely different standpoint where interest rates are right now. They have saved up a lot more than what they thought, and maybe they are retiring early because they can, they have the money, they don't have to continue working longer or for a professional player.
They don't have to go somewhere just to make more money. They can take the contract that they have. That's a great point. And I was just kind of looking at some of the more specific, I guess, details around some of the contracts here. I mean, I know the Manny Machado and Bryce Harper.
That's kind of what Cody was talking about. And Manny actually just restructured his contract a little bit to get more to the current day value. Bryce Harper, he kind of got a little, I guess screwed in his contract because he opted for the no trade clause, meaning he can't restructure. He's locked into that for I believe what, 330,000,000 for 13 years. Cody saying it's about 25 a year.
So Manny Machada was open to kind of keeping that trade clause out there. Bryce harbor was not. So Manny got that new contract, Bryce didn't. So I guess they're going to talk about restructuring a little bit. And I think the other big, didn't the NFL too just increase their salary cap by 30 or 40 million?
Yeah, I think it was the largest increase ever for the NFL. So Sean's point too, I think the future of these contracts is just going to continue to increase and probably with the guaranteed dollars. Yeah, it's obviously great for them. And I know here recently you've seen a lot of younger players, especially in baseball, signing be a ten year contract where they've only played a half a season in the MLB, locking in a very low annual percentage. But if they're like, I know, $70 million, I will be perfectly fine for the rest of my life.
I don't have to risk the upside if they do have an injury. So talking with your team, your advisors, your agents is obviously very important when you're looking over these contracts. I think one thing people have to realize too is that so much of that contract, when people compare, well this player on the Phillies is getting this, but this player on the Angels is getting this, it's location. And would you rather have a $325,000,000 contract in Pennsylvania or $400 million in California where you're going to be taxed almost double what you're going to get taxed in Pennsylvania? So I think that has a lot to do with it too.
So when you see the overall thing, what do you actually get to keep at the end of the day between your, your.
That was the interesting part about Otani's contract is I think a lot of it is deferred, that he gets paid whenever he's done or he's retired. So a lot of people are speculating that maybe he's going to move to Florida or potentially back overseas where the potential taxes are so much lower for him. Yeah, I think the calculation behind that was even though it's $700 today in present dollars, it's deferred I think for what, ten years or something like that, it was going to be well above a billion dollars. When you start indexing it out for the future. Yeah, it's going to be crazy.
I don't know who helped him to write that contract, but it was almost genius how they kind of structured it. Yeah. And it also helps out kind of the Dodgers in the near term because there is not a salary cap, but MLB can spend whatever they want. But if they go over a certain threshold, then they have to pay a tax on top of their current payroll. So him doing this also lets them spend more money, which is why they were able to go give another 325,000,000 to the japanese pitcher.
So they spent well over a billion dollars this offseason. I know this is trying to think back to the contracts here, like Lamar Jackson, and think of Jalen Hurts, too. I mean, Jalen signed a new contract last year. Lamar Jackson kind of held had. I don't think he even had an agent there for a think he.
Yeah, I don't think he did at all. Yeah, but look at the mean, like, I mean, look at the season he had, the value he kind of created for, uh, just kind of playing the long game a little bit. I mean, Jalen Hurts, got the big contract, didn't have the best of the mean. We'll see kind of how that's valued in a couple years to see if he can bounce back next year, in the next couple of years. But, yeah, it's interesting to see kind of these current contracts and you look out into the future to see kind of how they materialize.
Speaking of that, I think one very good correlation that's been top of mind here over the last couple of years, especially, I would say, in 2023 and the first couple of months of this year is Navidea and how much Navidea has grown over the last couple of years. So in the start of 2023, Navidea's market cap. So how much their company was worth for their public stocks was around $300 billion. While as of close on Friday, it's at like $1.9 trillion. So they went from 300 billion to 1.9 trillion in a little over a year.
But if you look at their price per earnings, which is a valuation that you can look at for the company, they're, I guess, cheaper now than they were just 14 months ago. I saw last week when that earnings came out, I think it was right around market close. And then in that 60 minutes window, I think their market cap after hours went up like 130,000,000,000 just in that 1 hour post earnings announcement. Yeah, I know, in one of our podcasts we did the other week that meta had the largest market cap increase in one day. But Nvidia last week kind of, kind of blew that out of the water.
After their earnings call, I think they increased from like 1.6 trillion to 1.9 trillion in a single day. You guys feel that tech is going to lead the way in 2024 again? I think it'll be interesting. So if you look at some of the other large tech stocks, like Apple is still close to 10% below their all time highs. But Nvidia, on the other hand, is continuing to make all time highs, it seems like every single week.
And then there's other, like, Google is pretty much flat since the summer of last year. Same with, let's see, some of the other large cap companies like Microsoft, has gone up a little bit, but not near the growth of Nvidia. So it'll be interesting to see how some of the other large cap tech stocks continue doing going forward. Yeah, and it sounds like Nvidia, they're probably going to keep on this upward trajectory here. I don't know if it's going to be as good as what they announced this last quarter, but you would think one of their biggest catalysts, can they keep up with the demand?
I mean, everyone kind of needs that chip for all the technology enhancements. So it seems like that might be the biggest catalyst. Can they keep up with the demand that is out there? I think that's pretty much what their CEO said on the earnings call is they literally cannot keep up with the demand as now to kind of what you're saying there, Cody. I would think too.
I mean, Nvidia is the big gorilla in the room right now, but it's also going to open the door for some other smaller chip manufacturers to also start producing and be successful. And I think to Sean's point, that probably going to lead the tech rally throughout the year. With AI coming aboard here and becoming more of a topic of conversation, it just seems like everyone needs again, that chip demand to kind of fuel their growth here into the future. Actually, since we're on this podcast and the market open now, Navidea is over $2 trillion of market cap. Are they the largest now?
Are they still lagging behind? No. So Microsoft is the largest, a little over 3 trillion. Then Apple is at 2.8 trillion, and then Navidea is at a little over 2 trillion now. But Apple was the first company to hit 3 trillion, which was in the summer of last year.
But now it's down to 2.8. It sounds like Apple is lagging a little bit behind the Microsoft and Navideas just for kind of some innovation right now. But I mean, I wouldn't be surprised if they have a tailwind here at some point to pick up their speed some growth into 2024 here, just based on their last earnings call, Apple's revenue year over year was only up 2%, where Navidea's was up 265%, which is why, if you look at the valuation side of it, Nvidia's stock is actually cheaper now than where it was last year, even though it's up 400%. That's interesting what you said there, Cody, because a lot of people, everyone reads these articles about the magnificent seven. It's all over CNBC and Jim Kramer talks about it every day.
And inside of those seven, stocks certainly led the way. But inside of those seven, if you take out Navidea, it was just sort of an above average year for the most part. Nvidia has really been the driving growth in that. It'll be interesting to see if other companies can hold up their end of the bargain there, too. Yeah.
If you just look at year to date numbers, which are a little over two months into the year, Apple is actually negative almost 7% on the year. Google is flat on the year. Microsoft is only up 8%. But Navidea is up almost 70% over the last couple of months. So as you were saying, Sean, if you didn't hold Navidea, pretty much the rest of the large cap tech stocks are flat or up a little bit on the year, which is right in line with the S and P 500, some of the index funds.
I mean, large cap growth, obviously the magnificent seven, they're so heavily weighted to those stocks. What conversations are you guys having with clients? Just around diversification or rotating out of large cap growth into maybe value or just some different sectors, emerging markets, stuff like that. It's not a bunch of rebalancing out of it. I would say more.
The conversations are clients calling in saying they want to get into Nvidia, Apple or Google. And that's where we have to have the conversations that you are in them. And those are the largest stocks that you hold because your largest weighting is the S and P 500. But we also want to point out that there's other areas inside the stock market, especially not the US or even inside the US. Like small cap value is actually undervalued compared to their long term history, where some of these other areas inside the US like large cap growth, for an example.
If you look at long term history, you can make the argument that they're overvalued, but there's a bunch of areas outside of that where you can pick up some growth going forward. And potentially, if we do have a slowdown, they may not get hit as hard as some of these large cap growth stocks. I agree with that. I'd also say I hear some conversations of I feel really good in that sector. What should I be doing outside of that?
Because I think everybody at this point has the large cap and the tech stock in their portfolio. They like it. Most people are wise enough to say, well, I'm not going 100% all in on that. What should I do outside of that? And I think that's where you can get the bump in emerging markets, the international market, and also too, I think, collect some high yields on the bonds till the Fed decides they're going to lower interest rates one day, which is totally another podcast conversation that you could have for hours on what the Fed's going to do because it doesn't seem like they even know what decision they're going to make.
But yeah, I would say certainly people are invested in that sector, like Cody said. But I've been hearing a lot of what should I be doing to complement that. Yeah, that's a good point. Regarding the high yields or the interest rates you can get now compared to pretty much the last 1015 years, the money market yields are great right now, but as Sean was saying, eventually the Fed is going to cut interest rates. So now it's about locking in some of that duration on the bonds and locking in that yield on fixed income and going into bonds and not just sitting in the money market.
Because when the Fed does cut interest rates, the money market yield is going to be the first thing that drops, where when they do cut, most likely you're going to have a bump up in principal inside the fixed income side. So you're going to get the yield that you locked in, plus potentially some price appreciation on the fixed income side, which again, as Sean was saying, is kind of a whole other podcast. We could talk for a long time about it, so we don't want to get into the details now, but there's definitely a lot of opportunities outside of the large cap saying, you know, completely rebalance it. It's definitely still going to be most likely the highest weighting inside of your portfolio, but you have to make sure you understand the other areas inside your portfolio, too. Agreed.
For people out there who may be listening to this, who do have a high amount of cash in a money market or high interest savings? Do you guys follow any golden rule of, well, how much is too much in my money market? Yeah, I think anything above six months of expenses. So say for an example, if you have a larger project coming up, so say in the next year you want to build a pool and that's going to be 50 to 100,000 depending on how big of a pool and the landscape you do around it. Or if you want to buy a new car, I think you should keep that amount in the money market plus, know, an emergency fund of six months of expenses.
Anything on top of that, you should be looking at diversifying into your portfolio, even if it is on the more conservative side because eventually the Fed is going to cut interest rates this year. As Sean was saying, that it's completely all over the pitch right now. At the beginning of the year, everybody thought they were going to cut in March. That is pretty much completely off the table now and people are looking towards May and June. But I would say anything that you're not going to spend over the next six to twelve months, you should be looking at getting invested.
I was just thinking back to the Navidea stock and just the long term growth that it's had over the last decade or so. I mean, there's a lot of individuals out there that hold individual Nvidia stock or even probably meta or Amazon, Apple that have low cost basis. And obviously if they were to sell that, they're going to potentially realize a huge capital gain. Have you guys seen any of that going on or any recommendations kind of how to handle that? Not specifically in Nvidia, but I have some other clients that hold some other large cap growth stocks that have huge gains inside of their brokerage account where if they did sell it, then they would have a large capital gain.
So you just have to make sure you have those conversations that, okay, maybe that means we're going to lower the allocation to the SP 500, we're going to build in some higher allocations around that because we don't want to raise a huge amount of capital gains there, but then also just making sure that that position isn't jumping up to like 20, 30% of their portfolio. Another conversation around that is gifting gifted into a donor advised fund and you can get some kind of reprieve from potentially realizing a large capital gain, but that could be a nice gifting conversation around that too. Yeah, that's a very good point. I think you're going to see a lot of folks hold those types of tech stocks without touching them until they become part of the next generation and they go step up in. Yep.
Unless, going back to what John was saying, if they have a charitable tent and they want to gift some from their brokerage account, gifting those stocks that have a huge appreciation in price is definitely a good way to do that. Yeah, and that's something too. That we certainly help our clients with is if you have appreciated stock and you don't really want to take the taxes on it, you're not sure what to do. John, you're big in helping plan the wealth transfer and as well as doing the charitable gifting. Yeah, it's definitely important to talk to your advisor, or if you're not talking to an advisor, making sure you're having those conversations regarding your stocks.
And if you don't want to raise the huge tax line, it'll make sure you have the conversations of, okay, well, what are good ways that I can rebalance out of this without raising a ton of taxes? Kind of what we talked about earlier with Otani. Obviously, he has this huge contract, like $700 million in the future that's going to be probably north of 1 billion. But then just beyond signing that contract, he probably has a whole team of his agent, an attorney, potentially a CPA. I mean, just looking at the tax ramifications of that kind of where he's living at, I think it kind of goes for all professional athletes and also families.
I mean, if you're a high income earner, even though you're not making $700 million, you still might be at 500,000 making annual salary. There's still huge tax implications in that. And then even if you live in California, making that 500,000, California's income tax is still extremely high. So I think kind of to both your point, just to make sure you're talking to the appropriate professionals, just to make sure you're mitigating those risks, being proactive, that proactive communication, getting ahead of what could go wrong. And don't prematurely do something on your own without talking to your professional team.
We hope you enjoyed this episode of Coachable wealth, brought to you by Morton Brown Family wealth, an SEC registered investment advisor. This podcast is designed for educational and informational purposes and not intended as investment advice. More information can be found at www.mortonbrownfw.com.