In my college economics class (it was just an elective, I'm not an economics major), there was a principle that I feel should be applied to pool.
This principle, with an initial investment by a group or individual, could be used to fund a tournament INDEFINITELY.
The principle is compound interest, or more specifically, Annuities.
The professor gave us an example. If Person A wanted to start a new college scholarship of $1,000 per year, how much would he have to invest upfront? What interest would the investment need to grow at? The goal is for the scholarship to be never-ending, or infinite in years.
In a simple example, Person A can invest $10,000 right now, at an annual interest rate of 10%. If he does this, he can pay out the scholarship amount of $1,000 PER year, EVERY year, FOREVER.
Here is how this works:
The person invested $10,000 up front. He got an interest rate of 10%. 10% of $10,000 is $1,000. At the end of the first year, the money in the account was $10,000 + $1,000 = $11,000. He then withdrawals $1,000 for the scholarship, and the account is back to $10,000. This cycle repeats for infinity, as long as the interest rate stays at 10%.
For an example annuity calculator, go to this site:
http://www.moneychimp.com/calculator/annuity_calculator.htm
You can play around with the numbers, to get an idea given a yearly withdrawal amount, what interest rate and what initial investemnt is needed. Set the withdrawal years to 1000, to simulate infinity.
This is how many scholarship funds are set up, as well as public works projects like roads, buildings, etc.
Where do you get 10% per year returns? That has been about the average return per year of the stock market if you trace it through its entire history.
I'm certainly no expert on this topic, maybe a finance major can chime in. I'm sure getting 10% per year is a long term average, and within certain years, it will be better or worse. But that could be accounted for by building in a factor of safety of the 3 variables: initial investment, interest earned, and withdrawal amount.
How is this relevant to pool?
Company A wants to sponsor a tournament once per year, every year, until the end of time. They want to make it a $2,000 added event. They put up today $20,000 into the stock market. In exactly 1 year, they withdrawal $2,000 to use as "added money" to their yearly tournament.
Yes, the upfront costs are a bit high in this scenario for most pool sponsors. But you have to realize the money will last indefinitely, so the tournament would occur every year.
This is not a pipe dream, this is an economic principle based on compound interest, that the whole world operates on.
The other advantage to something like this is if it were advertised by the sponsors what they are doing, the players would be positive the money was really there, not the BS we have seen from promoter after promoter in the past 20 years.
To my knowledge, no investment principles have been used in pool. Its always been a fly by night operation of funding tournaments with entry fees the day of the event, ticket seat sales the day of the event, added money by the room based on how many hot dogs he sells, etc. Its never been planned out ahead of time like this.
What are your thoughts on this?
This principle, with an initial investment by a group or individual, could be used to fund a tournament INDEFINITELY.
The principle is compound interest, or more specifically, Annuities.
The professor gave us an example. If Person A wanted to start a new college scholarship of $1,000 per year, how much would he have to invest upfront? What interest would the investment need to grow at? The goal is for the scholarship to be never-ending, or infinite in years.
In a simple example, Person A can invest $10,000 right now, at an annual interest rate of 10%. If he does this, he can pay out the scholarship amount of $1,000 PER year, EVERY year, FOREVER.
Here is how this works:
The person invested $10,000 up front. He got an interest rate of 10%. 10% of $10,000 is $1,000. At the end of the first year, the money in the account was $10,000 + $1,000 = $11,000. He then withdrawals $1,000 for the scholarship, and the account is back to $10,000. This cycle repeats for infinity, as long as the interest rate stays at 10%.
For an example annuity calculator, go to this site:
http://www.moneychimp.com/calculator/annuity_calculator.htm
You can play around with the numbers, to get an idea given a yearly withdrawal amount, what interest rate and what initial investemnt is needed. Set the withdrawal years to 1000, to simulate infinity.
This is how many scholarship funds are set up, as well as public works projects like roads, buildings, etc.
Where do you get 10% per year returns? That has been about the average return per year of the stock market if you trace it through its entire history.
I'm certainly no expert on this topic, maybe a finance major can chime in. I'm sure getting 10% per year is a long term average, and within certain years, it will be better or worse. But that could be accounted for by building in a factor of safety of the 3 variables: initial investment, interest earned, and withdrawal amount.
How is this relevant to pool?
Company A wants to sponsor a tournament once per year, every year, until the end of time. They want to make it a $2,000 added event. They put up today $20,000 into the stock market. In exactly 1 year, they withdrawal $2,000 to use as "added money" to their yearly tournament.
Yes, the upfront costs are a bit high in this scenario for most pool sponsors. But you have to realize the money will last indefinitely, so the tournament would occur every year.
This is not a pipe dream, this is an economic principle based on compound interest, that the whole world operates on.
The other advantage to something like this is if it were advertised by the sponsors what they are doing, the players would be positive the money was really there, not the BS we have seen from promoter after promoter in the past 20 years.
To my knowledge, no investment principles have been used in pool. Its always been a fly by night operation of funding tournaments with entry fees the day of the event, ticket seat sales the day of the event, added money by the room based on how many hot dogs he sells, etc. Its never been planned out ahead of time like this.
What are your thoughts on this?
My local bank is less than 1% right now. It used to be if you had a million bucks saved up, you could live off the interest indefinitely. Good luck with that now.
