Basketball TVM

Former NBA star Allen Iverson signed an endorsement contract with Reebok back in 2001. One of the terms of the contract was that Iverson would receive $800,000 per year for the rest of his life, plus a trust fund of $32 million on his 55th birthday on June 7, 2030. As an article about the agreement explains, Iverson may have received the worst of the deal, but we do have several problems with the analysis in the article. First, it is unlikely that Reebok would have offered Iverson $32 million in 2001 or $32 million on 2030. Reebok funded the trust with less than $32 million in 2001 with the intent that it would be worth $32 million in 2030. The second issue is a time value of money issue. The article notes that if Iverson had invested $32 million in 2001 at 5 percent, it would be worth $87 million in 2030. Check this for yourself and see if you don't agree that the future value of $32 million for 29 years at 5 percent is about $131.7 million.