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Should you sign a professional contract or head to campus?
This is the decision every high school or college player with eligibility will make this upcoming June. This looming decision will have a dramatic impact on the trajectory of your baseball career and life. How prepared and confident are you that you would make the right decision?
Many factors should be considered when deciding to sign a professional contract; however, for the majority of players, it’s a question of money.
The question the industry is asking is, “What’s Your Number?”
The reality is: everyone has a different “number,” and there is a lot of work that should go into it.
This will be the most significant financial decision of your life. How much you sign for, the taxes you pay, and what you do with that money will have enormous consequences.
So how much is enough?
In episode two, we breakdown the process of what it takes to determine your number. We believe if you follow the process we layout, you can have a lot of confidence going into draft day. Regardless of where you end up being selected, you will have a definitive path to make the decision that is right for you.
More from the MLB Draft Podcast:
- Episode 1: The Draft Opportunity
- Episode 3: Selecting the Right Sports Agent
- Episode 4: Selecting the Right Financial Team
- Episode 5: Tyler Beede on Navigating the Draft and Your Baseball Career
- Episode 6: Eric Chenowith on Do I Need Disability Insurance?
- Episode 7: How is Your Signing Bonus Taxed?
Erik Averill (00:01):
Welcome to the MLB Draft Podcast. I’m your host, Erik Averill, Certified Financial Planner, Certified Private Wealth Advisor, former pro athlete and the cofounder of AWM. I’m joined by my cohost, former major league baseball pitcher and Certified Financial Planner, Travis Chick. Our goal on the MLB Draft Podcast is to provide you with the roadmap to successfully navigate the MLB draft and becoming a professional athlete. You’re going to hear from Scouting directors, GMs, agents, former and current players, elite performance coaches, and of course leading financial experts. What is traditionally seemed like a black box, we are going to bring to light the critical details you need to know to help you make the decisions that are in your best interest. So with that, let’s jump right in.
Erik Averill (00:56):
Welcome back to the podcast, Travis.
Travis Chick (00:57):
Yeah, thanks for having me back. I must’ve done good on the first one, right?
Erik Averill (01:01):
We decided we’d have you back. We can’t yank you in the first season. That’d be a quick hook.
Travis Chick (01:07):
Yeah. I don’t want to be that quick of a release, so that’s good.
Erik Averill (01:10):
Yeah. Yeah. No man, you’re a mainstay in the bullpen. You’re a closer. So I think we’ll be all right.
Travis Chick (01:17):
There you go.
Erik Averill (01:19):
Let’s pick up the conversation we had from the last episode where we ended talking about distilling this down to a financial decision. That for draft families they can actually have a lot of confidence going into draft day, regardless of where they actually ended up being selected. What we’re saying is, you can have in your mind a pretty hard stop on whether you’re going to end up going to school or signing. And that comes down to what’s your number. And so I would love to hear maybe what are some of the conversations you’ve had with families when they’re thinking about what’s their number. What are the comments that you’ve heard, whether good or bad.
Travis Chick (02:03):
It’s really funny, the majority of families that I think that actually kind of work through this process, their numbers just a big nice round number, whether it’s one million, two million or three million or maybe lower, maybe higher. But it’s a pretty round number and it’s not really based specifically on any sort of valuation that’s calculated on what is that degree that from Vanderbilt actually look like and what’s the present value of that degree and things like that. So that’s probably the thing that I hear of more than anything is hey, I want to sign for a million bucks. But they don’t really do the calculation on how that million bucks is actually going to impact their lives.
Erik Averill (02:44):
Yeah, there’s no question about it. I think back to my personal situation out of high school. I was fortunate enough to be raised from a middle-class, wealth family in Orange County and everybody slapped a million dollar number on me. And when I think back of why was that the number? It was more of like, well, a million dollars kind of seems like enough money to set you up. And it wasn’t that pure customized, personalized number for my specific family. And I think even today, you’ll get a different answer depending on who you ask, based off of their kind of conflict and not conflict in a bad way. But if you asked your-
Travis Chick (03:23):
No, it’s their unique personal situation.
Erik Averill (03:24):
You asked the college coach, they’re going to have a little bit higher number then the local scout does.
Travis Chick (03:30):
Erik Averill (03:30):
And that’s not to be taken as one’s right or wrong. I think it’s understanding what are the inputs that are going into this decision. And here is where we would really say the rubber meets the road. That this is a financial decision. And of course, yes, your agent is going to be able to help you a ton in this perspective. But I encourage you after you listen to this podcast, call them up and say, hey, can you run a net present value calculation for me? And they’re going to say to you, hey, I’m not the financial expert. I don’t want to touch that calculation.
Travis Chick (04:06):
Erik Averill (04:06):
And so I think it’s more of not diminishing the value of the agent, we talked last episode about. I think they are far worth their weight if you have the right one. But this is really a situation where you as a family need to take the time to go, I’m about to say yes or no to a decision that will change the trajectory of my life and it better be something that I’ve actually put a lot of work into. Not just because somebody told me two million dollars wasn’t enough money.
Travis Chick (04:35):
Right. No, absolutely. And a lot goes into determining that value. And probably first and foremost is where have you signed to go to school? What kind of degree are you planning on attaining once you’re at school? What’s your salary potential from that potential job? All of that should be factored into the decision in forgoing your immediate college and starting your professional career. And I think too, the other thing that kind of goes into that is Erik, if you would have signed for a million bucks, you’re probably going to end up with only about 600,000. So obviously taxes really come into play there. That’s probably not necessarily factored in. A million dollars sounds really good, but it sounds a lot better when it’s in your pocket. So those are all things that we kind of think through. But what do you think, I mean, what’s the number one thing that you think of when you think what kind of valuing a player should come to?
Erik Averill (05:39):
So you hit on a lot of them and I mean, let’s just walk through an example. And I think this is not only whether or not you’re going to sign a professional career. This is a big mistake that we’re seeing in the general public. It’s no question that we are drowning in student loans, as a society today. And there’s this frustration that these students are ending up on campus, whether athlete or not athlete. And then they’re graduating with, for some people, six figures of student debt. And we’re even watching this with some of our draft guys. We had a top 15 pick over all that I left that vague enough so you can figure out who the client was. But they’re at a big time school, they’re a top 15 overall pick and they had over 20 grand in student loans we had to pay off.
Erik Averill (06:27):
And this was a high profile guy out of high school. And so I think part of it is, you have to not only choose which university you’re going to go to, but what are you going to study and what is the value of that degree coming out in the opportunities for a job set. And so Vanderbilt’s an easy one to talk about because Tim Corban has built an absolute machine out there from, yes, a baseball standpoint. But just the academic institution obviously is hands down an elite financial institution. However, the earning capacity, if I come out of Vanderbilt as a pre-law and then go to law school, the earning capacity for that individual versus someone who is a BIS Business and Information Systems graduate, who plays minor league baseball but really had no intention, the value of that Vanderbilt education is vastly different.
Erik Averill (07:24):
So first and foremost, what is the net present value of your college degree? And what I mean by that is, you’ve got to think about, if I graduate from Vanderbilt and I go into the workforce at 22 years old, if I add up all of my years of earnings and then I’ve got to bring that all the way back using a fancy term called a discount rate, have to bring it back to what does that mean in today’s dollars? That’s the first calculation. Then you’ve got to factor in the detail is, is it going to cost you money to get that education or are you 100 percent scholarship? Most players we know this in baseball, are not 100% scholarship. So there’s actually a cost for most of these guys to go to college. And so you can do this calculation, figure out, all right, this is what this Vanderbilt degree is worth.
Erik Averill (08:12):
Now you’re not done. Because reality is, is if you sign a professional contract, you’re most likely going to have included the MLB college scholarship plan and MLB, they do pay 100% of your tuition. Now there’s the fancy thing like you talked about, that’s taxed. So we’ve got to calculate the after tax. And so I’m not trying to confuse people on this podcast and make their eyes glaze over, but it’s really-
Travis Chick (08:37):
So the point is, there’s a lot that goes into it, right?
Erik Averill (08:39):
Travis Chick (08:41):
Just to simplify it.
Erik Averill (08:42):
Yeah, there is. And to your point, so let’s say we even come down to that number. That Vanderbilt education, after you did all that calculations is $2.1 million in today’s dollars.
Travis Chick (08:55):
Erik Averill (08:55):
Well, what does that mean in a signing bonus? Now you’re even getting more complex because, well that completely matters on taxes. Do you live in Florida? Do you live in California? Are you drafted by a team that has Spring training in Florida? Or are you drafted by a team that has Spring training in [inaudible 00:09:10] and they’re going to sign you to the New York Penn league. And we’re going to get far more into the weeds on how your signing bonus is taxed. But once again, the overwhelming conversation here is, this is a financial calculation that every family can do. And when they work with people like us, it might seem overwhelming to you as the listener, but for us this is something we do day in and day out. So that’s a very long winded way of answering your question.
Travis Chick (09:39):
Yeah, no, I think that’s great. And I think it’s important for the families to hear. And like you said, it’s definitely something that can seem overwhelming. And probably too, one of the things that occurred to me thinking through that was, it’s probably a little humbling to think, man, I’m worth 2.1 million based just alone on my opportunity to go to college. And so, one of the things that we talked about in the last podcast was, how to value an agents being able to hold your value. And I think what this does is having this amount of information, it really allows a player to just go out and play.
Travis Chick (10:16):
Because at the end of the day, knowing that if my worst case scenario was that I go to college and that’s worth 2.1 million or whatever that number is, that’s still a pretty good deal. And the only way that a player to me, can go out and actually increase their draft value, is to go out and prove what they’re worth on the field. And I think that this is so important to just be able to have all of this information available in the hands provides players leverage. And it provides them freedom too.
Erik Averill (10:46):
Yeah, I think it’s the freedom and the clarity. At the end of the day, a lot of what we hear from families is, why they actually don’t go through this process is, we don’t want to count our chickens before they hatch. I don’t want Johnny to be distracted from having to perform on the field. And what we would say is, this actually removes a lot of that stress and this isn’t something that takes a ton of attention and detail away from what you need to be doing. I feel like this actually lessens a lot of the noise around that you can feel good of going, hey, I understand how teams are valuing my son, and that’s where your agent’s going to come in. The best agents in the business have access to analytical tools and they understand how scouting directors are viewing your son.
Erik Averill (11:35):
And so if your agency cannot answer, hey, these are the inputs that are going into teams algorithms. Of course they’re not going to know the exact secret sauce, but they should be able to say, hey, objectively your son, these are the analytics. Here’s your exit velocity, here’s your war, X, Y, Z. And then if you match that up to, well, this is for our family, we value education at this amount. Now you have a lot of clarity just to go out and play. And the best thing you can do to increase your opportunity, is to get better at your skillset, which is baseball. Now you can stop worrying about what articles are saying or what your ranking is on perfect game or X, Y, Z, and you can go out and get to work and just get better. And so I absolutely agree.
Travis Chick (12:22):
I was just going to add one thing real quick to that too. Obviously we’re both parents and so we can kind of empathize with the parent wanting to protect and help them grow and things like that. But what also you and I can empathize with is the professional athlete. And one of the things that occurs to me, and I still follow this today is, I want to be the most prepared person on the field or in my job or whatever that is. And so I think most of the players that are in this draft class or in the last year draft class, they’re the ones that want the information and want to be prepared. And so having this information available to them, it just allows them to really start preparing for that financial decision that they’re going to make in June, which is at this point, seven months away.
Erik Averill (13:06):
And I think what you just said, we talked to our best clients that are having the most success winning all these awards and mid season all stars of, they’re prepared. They are not overwhelmed by this information age of this paralysis by analysis is, they figure out, okay, one bite at a time, how do I process this? But this is actually a huge value add and a benefit to me. And I think it’s the same approach when you head into the draft as a family, we would just encourage you is, be prepared. The worst advice we hear and it happens every single year, and if you call us we’ll tell you who, because we’re not bashful. But unfortunately you’re going to have agents that tell you, hey, don’t worry about talking to financial people before the draft. That’s a very naive statement because they’ve reduced financial advice to investments. And yes, you don’t have any money today so we don’t need to talk about investments.
Erik Averill (14:01):
But it’s this preparation that helps you understand you’re making the biggest financial decision of your life. And so if you’ve got an advisor, an agent telling you to not worry about the financial side until after the draft, you should probably look for new representation. And I know that’s a bold statement, but this is a huge decision that’s going to impact you. And so being prepared is not going to be counting your chickens before they hatch. It’s going to be putting you and your family in the best position to actually enjoy your senior year. And so one last thing, Travis, that I do want to hit on is, can you talk about the fact that it isn’t just about the money when you sign a professional contract, the reality is is you’re going to be entering in the minor league baseball. Can you talk about some of the intangibles that are important?
Travis Chick (14:46):
Yeah, I mean I think most really good Scouts are the ones that can identify those intangibles are. As a player mentally ready to overcome being away from home for seven, eight, nine months at a time as a player mentally able to overcome being humbled probably for the first time. The majority of these guys are going to be the best player that they’ve ever played with or against it. It’s probably not as much of that now that you have some of these really, really high end events, like the perfect game stuff and all that, but the majority of the draft picks are the best players on their team. They’re the ones winning the all star games and now all of a sudden you’re going to flood the market with a bunch of really, really good, probably comparably good players.
Travis Chick (15:30):
And so how can they handle failure? And that’s one of the things that Scouts probably struggle with the most because it’s one of the things that they see the least. So there’s a ton of adversity. The other part that I probably struggled with most, at least early on in my career was just the travel alone. Riding on a bus four or five hours a night and having to get up the next day and play. And so I enjoyed every single minute of that because I just love to see the different cities and things like that. But I also had plenty of teammates that really struggled with it. And it’s an adjustment. You can get homesick pretty easily.
Erik Averill (16:10):
Hey, thanks so much for listening to today’s show. We hope that you enjoyed it. Our goal here with the MLB Draft Podcast is to make this the go-to resource for all families and athletes looking to take their career to the next level. And so this show really is all about you. And we would love to hear from you. Are there any questions you have, topics that you would love for us to cover? Please do reach out. You can shoot us an email at Erik@athletewealth.com or Travis@athletewealth.com. Of course, you can find us on social. We’re on all the major platforms @athletewealth. and if you’d like to set up a phone call with us, you can reach us by going online to athletewealth.com and you’ll see right at the top of the page, there’s a button where you can schedule a call directly with us. And so we would love to hear from you. And until next time, stay focused, stay hungry and be a pro.