Get Rich Investors
Your client, Get Rich Investors, is in the retail securities brokerage business. Get Rich has been sued by Quincy Quickbuck, who alleges that his broker at Get Rich misled him into purchasing some risky investments, producing a loss for Quickbuck of $100,000. QuickbuckÕs lawyer has just made a final, take-it-or-leave-it settlement offer of $25,000.
Having already investigated and researched the case a bit and talked with your client, you conclude that the pertinent facts are as follows: litigation costs (for each side) would be about $30,000; Quickbuck has a 10% chance of success (basically, the case is frivolous, but you never know!); if successful, the award would be $100,000; and a loss in court would have a reputational cost to Get Rich that they value at $200,000.
Your client, the Washington Unicorns, is in negotiation with Jordy Michaels for the contract that will cover the final season of his amazing basketball career. Michaels was reasonably healthy last season, but he has been recently troubled by back problems. At best, it seems, he can play another year. In the summer, before the official season begins, he will be in one of three situations (which he is in will be known to him but not to us):
1. He will be reasonably healthy and able to play unimpeded. This is 50% likely. If he is in reasonably good health, continuing to play even for free would be worthwhile for him because he loves the attention of fans and the media.
2. He will be moderately disabled, in which case it will be possible for him to play, but he would have to play in significant pain. This is 25% likely. Playing in pain is no fun, but he would be willing to do so if he gained at least $2 million thereby.
3. He will be permanently disabled and unable to play. This is 25% likely.
From the Unicorns perspective, having Michaels play one more year is worth $20 million in additional ticket and advertising profits.
Your client is considering two contract offers:
FOR SURE: pay Michaels $6 million, whether or not he plays.
CONTINGENT: pay Michaels $10 million, but only if he plays.
Advise the Unicorns on which contract they should offer Michaels.