Tuesday, January 24, 2012

Derrick Rose: Fun With Monopoly Money

Taxes

Though taxes are a burden for us (shrinking) middle class workers (about 33-41%), 80% of our government's revenue comes from personal income taxes and payroll taxes. But what is the difference between these two? Assuming that Derrick's tax rate stays at 15% -- though Warren Buffet thinks this should be higher --

Salary + Shoe Deals = Swimming In Cash

Rose signed a 5-year extension with the Bulls at the beginning of this season that will pay him approximately $94 million. This is roughly $18.8M per season.

But as we all know, Derrick Rose has endorsements and if what Marc Stein is reporting to be true, Derrick Rose will have a "lifetime deal" from Adidas that will pay him $250M over the next 10 years.

Fun With Numbers

Let's keep things simple and just assume averages in these calculations. And for more simplicities sake, I'll just use his salary and lifetime deal numbers.

Taxes and Inflation

Rose's salary, adjusting for the 15% tax rate will equal around $16M per year. This brings us to about $80M for his salary from the Bulls. But we're missing something here and that something is inflation (we'll say it will be 2%) his $80M salary "shrinks" even further to about $72.5M. This brings his salary to about $14.5M per year.

We can do the same with the Adidas deal: That $250M "shrinks" to about $174M (when adjusting for taxes and inflation) and brings us to about $17.4M annually. And this is just one endorsement deal, he has several.

Putting The Money To Work

Making about $32M per year is, well, speechless -- I wish I was a little bit taller, I wish I was a baller. DRose and his generational wealth will eventually have to be invested. And for someone of his capital, hedge funds will probably offer the better strategies. But hedge funds don't always beat the market, and that's not the goal of investing, anyway; the goal is to not lose money. To me, if Rose owned an index fund (S&P 500) and commodities (oil, gold, silver, and water), he'd be hedged enough. He could also take some play money and invest in real estate (now's a great time to buy) and businesses. Heck, DRose could buy Englewood and call it "Rosewood" (patent pending).

Regardless of his investment approach, Rose's investment advisers will have to know the importance of valuation. And shoe deals. Gotta love the shoe deals.

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