Touchdown Tony: What Price Glory?

There’s really no need to feel sorry for the Tony Dorsetts of this world, but things aren’t quite as rich as they seem. Headlines suggest that Dorsett’s five-year Cowboy contract calls for $1.1-$1.2 million. A million dollars or so over five years is worth more than $200,000 a year? Right? Not really.

We checked with a well known local sports executive, who prefers to remain anonymous. Aided by his accountant, our executive gave us this “hypothetical” example of a Dorsett-like, million-dollar, super-star contract.

A five-year contract calls for a salary beginning the first year at $40,000, and increases by $20,000 each year until it reaches $120,000 in year five. Total salary over five years: $400,000.

Next, the contract adds $600,000 in deferred payments. The first payment begins 10 years after the contract is signed and payments continue at $20,000 a year for the next 30 years.

The trick here is a financial principle money wizards call “net present value.” Ordinary folks call it common sense. Because the salary payments are spread over five years the superstar forfeits the right to earn interest from the beginning on the entire $400,000. He thus loses the interest he needs to cover the declining value of his dollar (the inflation pinch). In effect, that delay makes the $400,000 he eventually will receive in salary worth only $312,120 in today’s money. Applying the same logic to the deferred payments, one finds the $600,000 spread out over 30 years worth only $104,291 in today’s money. Total value of the million dollar contract: $414,411 in today’s dollars.

Now, let’s assume that a player such as Dorsett could draw 7,900 fans for each 1977 home game, not too far-fetched if you note the season ticket boom tony has triggered. The Cowboys’ take from 7,900 extra tickets at 11 home games would be about $414,000. Invest that money at eight percent for 40 years and it will grow to nine million dollars. In today’s dollars that would be $414,411, fully repaying the Cowboys for the “million dollar” contract. Meaning that Touchdown Tony would pay for himself – in just one season. Hypothetical, of course.