Originally Posted by
sunk818
For me, I think they should be valuated at whatever the consumer can redeem them for in cash. For example, 25,000 ThankYou points only gives you $175 cash. Make them 0.7 cents per points then.
The AAMiles are much harder to valuate because you don't necessarily have a clear redemption value. Still, I don't they 2.5 cents per mile is right... At most, perhaps 1 cent per mile.
Your post makes me think of
United States v. Cartwright, 411 U.S. 546 (1973). There, the Supreme Court had to determine the fair market value of mutual fund shares in the early days of that industry. Back then the mutual fund shareholder could sell shares back to the company for $x/share, and this was the only way the shareholder could sell the shares.
The government in
Cartwright sought a higher FMV for the shares so as to increase the estate tax liability. It argued that the FMV should be $y/share, which was the price at investors could buy the mutual fund shares. This "retail" price for the shares included a sales load, which could be as high as 8%.
The court rejected the government's argument and agreed with the estate representative that the price at which the shares could be redeemed is the correct FMV.
I think
Cartwright supports the argument that Citi's FMV of 2.5 cents per is not the proper FMV. Sure, it's the "retail" price at which consumers can buy miles, but
Cartwright teaches that this is not necessarily the FMV. I think a more appropriate value would focus on what holders of miles can receive when they sell or redeem miles.