You’ve all probably heard that Wimbledon paid $2 million per year for the past 34 years for pandemic insurance and now will receive $141 million.
Sounds smart. Maybe it is.
But these are the wrong numbers to determine that.
The right numbers are the rate of return and opportunity cost.
The rate of return on a $2 million annual investment for 34 years with a $141 million payout is about 3.9% per year.
Had they invested that $2 million a year in an S&P 500 mutual fund, they would have had $246 million, so their opportunity cost of that insurance has been about $100 million in today’s dollars. The opportunity cost may even be higher if the markets happen to rebound once things get going again.
Or, that means the folks who gave them the insurance are about $100 million ahead. Not bad for them.
Granted, Wimbledon also wouldn’t have had the coverage had the pandemic happened sooner, but they would have had some nest egg to help them through.