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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