“and school” – what does this really mean? I am asking questions on (1) amounts, (2) inflation and (3) taxes.
When a player moving directly from high school to college receives a scholarship (either athletic or academic or based upon need), the amount of the scholarship is untaxed – therefore the entire face amount of the scholarship goes to reduce the family’s college contribution dollar for dollar.
On the other hand, I am confused about the “and school” portion of a professional offer and have several questions.
First, is the amount of the “and school” portion a “maximum amount” per year. In other words, does the high school player need to know which type of college he wants to attend in the future and negotiate for that amount (i.e., state school v. expensive private school)?
Second, in reality, since you are bound to the initial pro contract for a number of years, a player’s earliest opportunity to enter full time college (assuming that the player’s pro baseball career does not flourish for any number of reasons) will be 5 years into the future. During that period, the cost of attendance will have increased (probably in the neighborhood of 20 – 25%). Is this increase in the COA automatically covered by the “and school” portion of the contract standard, negotiated with the club, or not covered?
Third, in the move directly from high school to college scenario, the scholarship portion (whether academic, academic or financially based) is not taxable. It is my understanding that the “and school” portion of a pro contract is taxable (because it is wages). With a high cost college, the amount of taxable income needed to pay for college would push the player into a marginal federal tax rate of over 20%.
So, to pay for a 50k COA, the “w-2” would need to be almost 65k+/- (7.5% for FICA/Medicare, 25% marginal rate (roughly 10k in federal and 1k in state income taxes)). If the “and school” portion does not cover those taxes (meaning the club pays 50k total), the player would need to come up with 15k+/- to attend that school. Four years of that expense would basically eat away over 100k of any initial signing bonus (because the initial signing bonus is taxable).
Here is the third question: Does the “and school” portion of the contract cover those taxes and leave a “net” amount which completely covers the COA? (Note: in a high cost school, assuming 25% inflation over 5 years, and assuming the drafting club pays taxes, the “and school” portion of the contract means a potential payment by the club to the college of up to 360k+/-. Yes, I realize that very little “and school” dollars are actually paid out; but that is an individual decision and I am not concerned about that aspect right now.)
Fourth, there is interaction between the “incentive bonus plan” and the “college scholarship plan.” Basically a payment from one reduces the amounts payable from the other. The end result could mean that the former player (now finished with his pro career), has tapped into the college money and is now lacking the $$ to pay for his college. Are the interaction/amounts of the two plans negotiable?