You have become the agent for a star athlete and are discussing a contract with two teams.

The teams have offered two options:

Team 1: nominal contract amount of $115 million, payable $13 million in 2021, $15 million in 2022, $17 million in 2023, $20 million in 2024, $23 million in 2025, and $27 million in 2026

Team 2: nominal contract amount of $110 million, payable $22 million at the end of 2021, 2022, 2023, 2024, and 2025.

You have done an analysis of interest rates in the market and found that a discount rate of 6% is appropriate. Assume that it is now December 31, 2020.

A. Which deal will you and your client choose? Explain your reasoning and show your calculations.

B. Assuming the discount rate is the same, and the total nominal contract amounts do not change, how might you negotiate to restructure the payments so that you would pick the other option (the one you did not pick in Question 2A)? When you restructure the payments, the following conditions must be met:

• You cannot extend the contact beyond 2026

The payment in any year cannot exceed 25% of the nominal value