The recent news of Jose Bautista's non-negotiable offer to
the Toronto Blue Jays has gained a lot of attention, as the
rumoured five year deal valued at $150,000,000 USD is not something
that goes unnoticed. As financial professionals we can't help
but think, what does a deal that size really mean for Jose? What
can he afford? What can he not afford? Will he have enough to live
comfortably once he retires in five years?
We couldn't resist; we needed to know more.
In breaking down Jose's deal, we know that assuming it is a
5 year contract; he could earn $30,000,000 USD per year starting in
2017 and ending in 2021. Jose's $30,000,000 USD annual
income quickly becomes an estimated $40,626,000 CDN based upon
exchange rates from xe.com.
Assuming Jose is a Canadian taxpayer, he will pay approximate
annual taxes of $21,895,634 CDN netting $18,730,366 CDN at an
effective tax rate of 53.44%. That tax rate alone may drive Jose to
the Texas Rangers where as a US taxpayer he would only be paying
tax of $15,878,420 CDN and netting $24,747,580 CDN, but let's
not tell Jose that.
Fast forward to 2021, at which point we assume Jose is now
happily retired with a couple of World Series rings and living in
Toronto with $90,568,000 CDN (after factoring some spend while
playing ball) in his bank account. Now in retirement he decides,
like many retirees, to be conservative with his retirement funds
and invests in Canada Savings Bonds earning an expected 2.40%
annually over time. With Jose deciding to settle in Toronto for his
retirement, he decides to make some lifestyle purchases
including a house in the Toronto Bridal Path area for
$21,600,000 CDN, similar to the house Conrad Black has recently put
up for sale, a cottage in Muskoka, Ontario for $10,000,000 CDN and
a winter vacation property in the Dominican for $2,000,000
CDN. Maintaining these homes, travelling and other related costs of
living will cost him an estimated $1,000,000 CDN per year but the
buying power of that amount is eroded every year by the wealth
destroyer of inflation which we assume is 2.5% per year.
So what Jose will have when he passes at 82 years old, which our
actuarial group suggests is about the expected age of expiration of
a male who maintains a healthy lifestyle and diet such as that
offered by Toronto's Freshii, is an approximate cash deficit of
$445,379 CDN. Accordingly, Jose will leave his family with a nice
house in Toronto, a cool cottage in Muskoka and a winter vacation
house in the Dominican, just no cash.
Prior to our analysis, we certainly thought Joey Bats ask from
the Toronto Blue Jays would have been a financial grand slam for
him but after analyzing further, it appears Jose will need to earn
as much, if not more than David Price to keep a 23,000
square-foot-roof over his family when he makes that permanent exit
from the outfield.
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