Special report: Set for life

(Editor’s Note: The following story originally appeared in the March 24, 2001 issue of Golfweek magazine (above). It has been posted on to provide context to an August 25, 2007 Special Report that examines how PGA Tour players might benefit long-term from the inaugural FedEx Cup’s $35 million bonus pool. Although some facts and figures in the story below are outdated, the gist of the report – that even a PGA Tour journeyman can become wealthy thanks to the Tour’s performance-based retirement plan – remains pertinent today.)


For a PGA Tour journeyman, making the cut means much more than competing on the weekend. It also means adding to his Tour-funded individual retirement account that could be worth tens of millions of dollars. And for the Tour’s young elite players, their nest eggs could grow to more than $100 million.

Tour players are enviable beneficiaries of a performance-based pension plan the Tour quietly has enhanced to the point that it is – without question – the best retirement package in sports. According to Tour projections obtained by Golfweek, a 26-year-old player who begins on Tour in 2001 and sustains a lengthy career could stockpile an individual retirement account of $42 million, if not more. And he could accomplish that without ever winning a tournament.

The future is even brighter for marquee players. For example, the Tour forecasts Tiger Woods would receive $300 million in retirement payouts over 20 years should he become fully vested in all three levels of the pension program. Woods’ $1.21 million in retirement contributions earned from his record 2000 season figure to be worth at least $12.9 million after he turns 60. (See page 21.)

“It’s frightening,” said 12-time winner David Duval, 29, whose retirement account is projected at more than $100 million.

“It’s frightening, with a capital F,” eight-time Tour winner Brad Faxon, 39, said of the potential fortunes. “Guys coming out now really have no idea.”

One common criticism, though, is that the projections the Tour provides players are often unrealistically high. Tour veteran Brandel Chamblee said Tour projections are “grandiose because they’re based on everything running perfect.”

Nevertheless, this portrait of one of the Tour’s great untold stories is drawn from at least 40 interviews with players, Tour officials, financial analysts and agents; Tour documents that detail the three-part retirement plan; and deferred compensation summaries of several active Tour players. Based on Tour pension forecasts obtained by Golfweek, a 26-year-old player who begins a 17-year career this year and averages 130th on the money list would earn $34.1 million in deferred compensation; by averaging 75th, he’d earn $42.6 million; and by averaging 30th, the number climbs to $78.6 million. And that’s in addition to prize money.

The projections assume a 5 percent annual increase in plan funding by the Tour, an 8 percent average annual return on investments and is based on benefits not being paid out until a player reaches age 60.

Former Tour commissioner Deane Beman’s vision to provide financial shelter for a rainy day has evolved to the point that players could have enough wherewithal to weather a monsoon.

“A few years ago a player could come out and play his entire career, his life, and still struggle financially,” said Tim Finchem, who succeeded Beman. “There is no reason why world-class athletes in our sport shouldn’t be compensated in the range of world-class athletes in other sports, and certainly the retirement plan helps us move in that direction.”

But longtime agent David Winkle, who manages several players for Hambric Sports Management, voiced skepticism about the Tour’s projections, referring to players’ payout summaries as “smoke-and-mirror” sheets.

Forecasts generally assume solid play into one’s 40s during a good economy. In his annual letter to members detailing their retirement summaries, Finchem suggested that players contact the Tour if they want revised illustrations based on more modest expectations.

One factor that skews the numbers upward is the assumption that benefits won’t be paid out until age 60. To start collecting then and realize the advantage of longer tax-deferred, compounded earnings, a player must continue playing at least 15 events per year on the PGA Tour or Senior PGA Tour until age 60. Only a small percentage of players achieve that kind of longevity.

“It’s by far the best pension plan in sports, but the assumptions used in the projections are ridiculously overaggressive,” said Dave Lightner of IMG’s McCormack Advisors International, whose clients include Duval, Jesper Parnevik, Vijay Singh and nearly 20 other Tour players. “I try to counsel these guys . . . that for you to count on that (amount) to be there, that’s ludicrous.

“The number on Duval is so silly, you look at it and shake your head. It’s almost a breach of duty to give these projections,” Lightner said. “It’s really skewed because it’s assumed they will finish where they did (in their best years) and play the same amount. I think players realize how good of a plan it is, but they also look at the numbers and think it’s propaganda.”

The Tour, however, said it is not misleading anyone.

“What we’ve done for these players is come up with averages for active touring pros,” said Ron Price, Tour senior vice president of finance, acknowledging the estimates don’t take into account pros who quickly fade in their 40s. “We’re not sending this information out to create pie-in-the-sky images for our members. What we are actually doing is giving them some projections to get them thinking about retirement and give them a tool to come back to us and adjust these numbers accordingly.”

However, analysts consider Tour projections of three veteran players’ plan summaries obtained by Golfweek as too lofty. The projected payouts for the three men – all in their late 30s – fall in the $20 million to $33 million range. The pro with the lowest total never has finished in the top 40 on the money list. The two other players are multiple winners who have finished in the top 80 on the money list more than 70 percent of their careers and have combined to make more than 500 cuts. (The three players requested that their identities not be revealed in this story.)

Tour projections for the three were based on their funds growing at 8 percent a year; an average of 5 percent annual growth in Tour contributions to the overall pension fund; full vesting; payouts beginning at age 60; making 19 cuts a year through age 44 and 12 cuts annually from 45-49; and their average incentive plan contributions (from finishes in each of the Tour’s three season segments) of the last two or three years. Each of the three players’ totals drop several million dollars when lower assumptions are used. They would decrease further, to the $7.7 million- to-$15 million-range, if payouts begin at age 50. That’s less than half of the original projections. (See plan summaries, facing page.)

Upon receiving his statement, one of the three players called the Tour and said, “This is crazy.” He said it’s impractical for the Tour to assume players will make 19 cuts a year until 45 and a dozen per year thereafter.

Danny Edwards, a longtime Tour member and president of the Tour Players Association, also expressed skepticism at the Tour’s numbers.

“I called the Tour and asked ‘How many players at 48 make 12 cuts?’ ’’ he said. “The answer they gave me was there weren’t any

(though Hale Irwin made 19 cuts the year he turned 49). I said, ‘Why don’t you guys get your heads out of the clouds.’ When it comes to projecting things, they sure know how to paint a rosy picture.”

Cuts made are the lifeblood of the original retirement plan, launched in 1983 by then-commissioner Beman with the guidance of Victor Ganzi, then a partner in the law firm of Rogers & Wells. Back when tournament purses were about $250,000 compared with today’s $3 million to $6 million bonanzas, and when the Senior PGA Tour hadn’t hit its prosperous stride, the so-called cuts plan was introduced largely to take care of journeymen late in life. (A similar plan, but with considerably less funding, was implemented on the Senior PGA Tour in 1985.)

Internal Revenue Service rules dictated that the Tour, to preserve its tax-exempt status, make its deferred compensation retirement plan performance-based for its members, who are considered independent contractors, Ganzi said. It is nonqualified, or unprotected, making the plan’s more than $200 million in assets vulnerable if, as Faxon said, “the sky falls” or a mega-lawsuit shakes the Tour’s foundation.

“The players are very concerned about it (nonqualified status). The TPA raised those questions,” said Leonard Decof, the lead attorney for Karsten Manufacturing Co. a decade ago in the square-groove lawsuit that could have threatened the Tour’s retirement plan had a settlement not been reached. Decof has served as counsel for the TPA.

But Mike Starks, former Tour finance executive and vice president of strategic planning, downplayed any threat to the fund’s security.

“I wouldn’t lose any sleep over asset protection if I were a player,” Starks said. “I can’t imagine a lawsuit being so bad, where after going through insurance money and liquidating TPC courses, that you’d get down to plan assets.”

Faxon was more adamant about the merits and praised the pension plan in a speech he gave this winter at Harvard Business School. “If anybody wants to complain about this plan, they don’t know what they’re talking about,” he said in an interview. “It’s by far the best of any sport.”

A nonqualified plan, which is not uncommon in the corporate world, doesn’t restrict the amount of contributions. Fortunately for the Tour, this arrangement was grandfathered when 1986 tax-reform laws placed restrictions on amounts that can be deferred.

Ganzi, who joined the Tour’s Policy Board in 1994, had helped the LPGA form a similar but less funded retirement plan in 1982. Under a PGA Tour rule change that went into effect in 2000, players now are fully vested after playing at least 15 tournaments for five years. Before, they needed to make 150 career cuts. Under another new rule, commencement of benefits will begin after age 50 and no later than 60. After 50, distributions will start the year after a player competes in fewer than 15 events on the PGA Tour or Senior PGA Tour. Payouts are over 20 or 25 years, depending on when they begin.

“Of course it makes me feel good to see how this has gone,” Beman said. “If we had not been able to put together the TPC clubs and our marketing programs, we would not have been able to produce the additional income to fund it. You would not have the numbers we have today, and you would not be writing this story. The hard part was putting together the funding to make it all possible.”

In 2000, each 36-hole cut made was worth $3,253 to a player’s plan, and after 15 cuts the value doubled to $6,506. In 2001, the leader in cuts credit is expected to receive almost $150,000. The arrangement favors a young, successful, frequent starter such as Justin Leonard, 28, who made an average of 23.8 cuts in 1995-2000. For years, Jay Haas was considered the plan’s poster boy because he made an average of 20.4 cuts in 1983-99.

“I've seen the projections of what I’ll do, and it’s pretty impressive,” said Leonard, who coyly estimated his overall Tour retirement projection at “probably” between $60 million and $100 million. “But I’m not concerned about it now. Hopefully I’ll do a good enough job that (retirement money) will be for the rest of the family (heirs). I hope I don’t have to spend any of it.”

Former PGA Championship winner Mark Brooks, though, seemed less certain about future fortunes.

“It looks good on the surface based on projections, especially for the young guys,” said Brooks, Tour member since 1984. “But the jury is still out. Nobody’s been paid on any stuff yet.”

Using increased revenues from its recent boom times, the Tour created two additional, performance-based plans in 1998-99: The highly lucrative incentive (or segments) plan, designed to encourage top pros to enter more tournaments, and the bonus plan, which rewards players based on their rankings on the year-end Official Money List. (See graphic, facing page.)

The incentive plan offers a potential windfall. The top 70 players in each of the three $2 million season segments earn contributions, ranging from $360,000 for first place to $4,000 for 70th. Last year Woods won all three segments, potentially worth $1.08 million.

It follows, then, that Davis Love III added two starts in 2000 to enhance his incentive-plan account. Moreover, Chamblee said he expects to make about $20,000 in pension credit just by playing an extra tournament this year.

The Tour’s $200 million-plus in retirement plan assets will grow by $27 million this year: $12 million for the cuts plan, $9 million for bonus and $6 million for incentive. The Tour projects funding of $27 million to $30 million in 2002. That represents an increase of more than 1,000 percent from the $2.4 million contributed in 1990.

For that the players can thank the Tour’s management of the TPC network and other assets, and, of course, their colleague Woods. His popularity helped the Tour land a four-year, $600 million TV contract that commenced in 1999 and enabled the association to make such a quantum leap in pension contributions. The past few years, the Policy Board has reallocated money from revenues to increase retirement plan funding.

The Charles Schwab brokerage firm, a Tour sponsor, oversees the individual accounts. Players have several investment options, from risky to safe, and can manage their accounts online or through a Schwab adviser.

If the plan continues to grow as it has, players will have a great deal of money to manage.

Said Price, “If you come out and make a career on the PGA Tour, there is no doubt you’ll have a financially secure future.”

Golfweek’s special report: The FedEx Cup is worthmillions to the top Tour players, but they won’t see the money foryears. Which isn’t so bad, considering how much it figures to grow inthe meantime.

• Performance-based plan has its risks (magazine exclusive)
• How the plan came together

Golfweek first revealed details of the PGA Tour’s lucrative retirement plan in March 2001. Read them here:

• Set for life
• The $5 billion man
• The dream team

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