$8892/ Month for 20 years, for only $550,000??? A 21% effective rate of return!!??
Not so fast…
There are only two certainties in life, death and taxes. And when you don’t pay your taxes, the IRS gets even, and then gets what is coming to them.
Darryl Strawberry, the famous New York Mets baseball player, forgot to pay his taxes for several years. Like many sports players, part of his compensation package was deferred. While not exactly an annuity, he did have a 30 year payment stream from the Mets that paid out long after he left the game.
Unfortunately, he didn’t keep up with his taxes, and the payment stream was seized by the IRS. It is available for sale and is such an interesting opportunity, that we are putting it out to our members and readers to see if there is interest.
I was only made aware of this yesterday, and did a little research as fast as I could.
The details are taking shape minute by minute, but here’s what I know as of Friday, January 9.
- A federal court has seized the payment stream and is offering it for auction on January 20
- the sale will be confirmed by a court order
- The available payment stream is $8891.82 per month for 226 months, starting immediately and ending December 1 of 2033
- To bid, we will need to submit certified funds of 20% of the bid amount.
- The minimum bid is $550,000, however I suspect the payment stream to sell for somewhat more than this amount.
- The buyer can be an IRA, a trust, or one or more individuals. Like other discounted cash flows, it would be considered taxable income, the exact tax treatment is between the buyer and their tax counsel.
- A beneficiary can be designated, and upon death of the buyer, the remaining payments would go to the designated beneficiary.
Now here is a larger list of things I don’t know yet.
- The purchase price. This is to be determined at a sealed bid auction on January 20.
- The rate of return on investment. This is determined by the purchase price, which is unknown.
- The strength of the court order.
- The true nature of the payor: Is at the New York Mets, or is it an underlying annuity? That is an open item. Let’s hope there is actually an annuity… not a general obligation of the Mets.
- The IRS auctioneer has stated that the IRS will not impose withholding taxes on the New York Mets, for this payment stream, however that has not yet been confirmed in writing by both parties.
- What the New York Mets will do with a new payee- they have been silent on the auction and there is no stipulation agreement that I am aware of yet.
- My guess is that they will be bidding as well, if only to clear their books of a future payment liability.
- Likewise, I am as yet unaware of any other claims to the payment stream, or challenges to the court order or the IRS seizure. Caveat emptor.
Why do I want to jump in to this?
Frankly, it would make a heckuva good press release when it’s all done.
While this is not a payment stream we will buy directly in the business trust, I would be willing to manage the transaction directly, to work through the legal and due diligence issues quickly, if I have a solid buyer(s).
I’d need to line up a solid buyer(s) this weekend, and my fee would be a nominal buyer’s premium such as you find in most auctions.
Your investment and yield, therefore, is determined by you as we hustle through discovery next week and determine what to bid.
This is a fascinating case because it’s very high profile. Owning Darryll Strawberry’s annuity is definitely unique.
But there are risks to the payment that you don’t find in normal secondary market annuity transactions. If this is a general obligation of the New York Mets, and not an annuity backed payment stream, then risks are much higher. I reserve the right to be wrong on this, and hope I am.
There are a lot of things that I don’t know yet, but it would be fun to figure out. It’s Friday afternoon, and there are really only five business days available to do all the due diligence.
If anyone wants to take a stab at it, give me a call. I’ll bring you up to speed on what I know as quick as possible.
Let’s Play Ball!
Nathaniel M. Pulsifer
Update, as of January 14th, 2015
We had a very strong response to the email a few days ago about this payment stream, and dug in over the weekend and Monday with one investor in particular who had the stomach to handle the deal.
Our counsel assisted greatly and determined that the IRS seizure of Darryl’s payment *should* create a free and clear right to receive payments upon confirmation by the court. The draft court order appears to be favorable and there were only a few loose ends to clarify in writing with the Mets counsel. This, of course, given limited time to review and get up to speed.
The various parties to the case, including bankruptcy trustee, ex wife, and Darryl, appeared to be in line and we felt reasonably confident there were no boogeymen or skeletons in the closet that would rear their head to make a claim and throw the whole mess back into litigation after the auction.
It was certainly not a deal I would have felt representing to people as ‘safe’ in any way, however.
The bad news is that with this deal, in a best case scenario, is that you’d buy exactly what they represented- an un-secured general creditor obligation of the Mets ball club.
No underlying annuity, no set-aside trust account, no guarantees…
Being in the business of guarantees, and particularly, guarantees from highly rated carriers, we at AST and our prospective investor decided to take a pass on this deal. Even though we had expressions of interest for the deal 3 or 4 times over, it just would not be worth the risk.
It was fun to look, but wondering if next month’s check would be coming in for 20 years, from a baseball team, did not sound like fun…
There’s still time to bid if you really want to take a chance… Just need a cashier’s check in Chicago on Tuesday the 20th, for $110,000, and then we can figure out how much it’s worth to you at the auction…
I’d love to be there to see what it ends up trading for.