In 2012 the Detroit Tigers made headlines when they signed Free Agent Prince Fielder to a 9 year, $214-million contract. The contract was the largest in club history and one of the largest in baseball at the time. Two years into his contract the Tigers abruptly sent Fielder, and his $168-million contract to the Texas Rangers in exchange for Ian Kinsler and $30-million towards the contract over the course of 5 years.
Rehashing this old baseball contract and trade became newsworthy again this week when Prince Fielder suddenly announced his retirement. Due to re-occurring neck problems that have caused him to miss nearly 200 games these past three years, doctors could no longer clear Fielder to play.
Fielder’s guaranteed $96-Million remaining salary is now a hot topic as part of his retirement announcement. The Texas Rangers, Detroit Tigers, and an insurance company are responsible for paying out the remainder of his salary. In order to claim that $30-Million insurance settlement, the Texas Rangers cannot retire Fielder, instead, he will officially be declared “medically disabled” and put on the 60-day disabled list for the remainder of his contract, into 2021.
The insurance policy originally taken out by the Tigers and then passed to the Rangers (as part of the trade) covered injuries such as Fielder’s neck problems that caused his “retirement”. The policy will pay out nearly half the money he is still owed by the Rangers, with Detroit picking up the remainder. The insurance contract saved the Texas Rangers millions that can now be used to attempt to build a successful World Series contender going forward, a very smart move!
It’s easy to say the Rangers could have afforded to pay Fielder’s whole contract and still be a profitable billion-dollar enterprise. In reality the Rangers, the Tigers or any successful business must continually evaluate potential risks and implement solutions to protect themselves if faced with a financially difficult situation. All good decisions, business and personal, always take into consideration circumstances outside of one’s control.
3 Fatal Mistakes of Business Owners
In working with successful business owners we help them stay aware of and avoid the “Three Fatal Mistakes of Business Owners.” These Three Fatal Mistakes are assuming that…
- My Business will be my retirement
- My business will not fail
- I’m doing everything I should be doing
Making any one of these three assumptions could dramatically affect your ability to take your business and your personal finances to the next level.
My Business will be my Retirement
What will you be doing on August 12, 2021? No one can give a 100% accurate answer to that question! There are too many unknown factors will have to play themselves out over the next 5 years of your life to know what you will be doing on that date. Yet we assume good things will be happening, business and life goals will have been accomplished, and life will be better than it is today. What if you came down with a health issue that affected your ability to grow your business? What if your family was faced with another issue that prevented your business from becoming your retirement?
When we sit down with business owners we recommend they start looking at their business as the mechanism to “build” their financial independence not the sole source of their financial independence. You should strategically evaluate how your business can both fund your retirement and help you better fulfill your business, family & spiritual legacies. If you eventually end up selling your business, or collecting residual income in retirement, you can use that money to either further enhance your financial independence or invest it in other people (i.e. family) or organizations you care deeply about.
My Business Will Not Fail
When the Texas Rangers traded for Prince Fielder and his huge contract they made the trade thinking he would put them over the top and they could finally win the World Series. They never made the trade to lose and while they had the best intentions, they ultimately failed to accomplish their goal.
When we sit down with a client they need to be aware of uncontrollable risk factors in their business that might prevent the future growth of the business such as:
- Product or Service Obsolescence (Blockbuster, Kodak, Borders)
- Legislation Risk (Firestone, Health Insurance Companies)
- Commodity Risk (Oil Companies)
- Employee Risk (Abercrombie & Fitch)
Each of these factors and more are outside of your immediate control and therefore must be carefully planned for and protected against. Too often a business owner is too close to their own business to truly see the factors that could affect them, and as a result don’t properly plan to protect themselves.
I’m doing Everything I should be doing
If you asked Prince Fielder today if he did everything possible to get back on the field healthy, I am sure he would honestly tell you ‘yes!’ He can only answer the question that way knowing that as part of his attempt to get back on the field healthy, he consulted countless experts — doctors, specialists, trainers, nutritionists, psychologists and personal coaches to gain their insight and expertise to make sure he was doing everything he could. In the end, his injury prevents him from returning to the field, but with the help of his specialists, his injury will not prohibit him from living a long healthy life outside of baseball with his family.
Additionally, it is wise to ask yourself if you are exhausting all avenues of help and expertise for your business to achieve your business and personal financial goals. We have found that nearly EVERY client we work with has an opportunity for improvement in their business and financial plan. It’s not necessarily that what they were doing before was wrong, it’s more often a case of financial inefficiency that can be resolved by working with a highly qualified independent financial advisor who specializes in these matters. By pinpointing your financial inefficiencies today, your business stands to be more profitable and have better results when it comes to funding and assuring your personal financial independence.
Like the Texas Rangers with Fielder’s contract, it’s the decisions you make today that impact your future. Too often people sit back and believe nothing devastating will happen to them or their business. Yet, the most effective leaders in business are proactive in dealing with risk and deploying strategies to assure their business and personal success, and avoid living a life of assumptions. Have you evaluated your business and personal financial situation to identify the risks that could impede or even destroy the plans you have for your business and its ability to fund your financial independence? If you haven’t already done so, put a comprehensive plan together to reduce the risks and increase the probability of achieving your personal and business objectives. If you don’t have an advisor that has expertise and experience to help you address these issues, or need some additional guidance, send me an email as I would welcome the opportunity to help you get on your way to achieving all of your business and financial objectives.