The good and bad of paying Bobby Bonilla for 24 years

Matthew Cerrone, Lead Writer

It seems every six months I’m asked to address the situation with Bobby Bonilla, why the Mets are still paying him, and why no one is reporting on it. The Mets are paying Bonilla around $2 million a year and this isn’t the first time I’m writing this. I blogged about it a few years ago, the year after that when it re-piqued everyone’s interest, and again last summer when payments started. That said, given all the talk of payroll these days, I see Bonilla’s name again popping up in comment sections and on Twitter.

So, for those unaware, here is an old post I made that will hopefully help clarify the situation…


This post originally appeared on MetsBlog on Jan. 11, 2011…

In a post to Newsday, Steven Marcus reminds us that the Mets will begin paying roughly $2 million to Bobby Bonilla, each of the next 24 seasons.

As he explains, “The Mets owed Bonilla $5.9 million for the final year of his contract, but deferred that amount (with an interest rate of 8 percent) until this year. The result? Bonilla is now owed $29,831,205 until the year 2035.”

bobby-bonillaWhen judging this, there will inevitably be fans and media who ignore the team’s opportunity to earn more money on that money over the last 10 years, as opposed to only seeing it as though he was just signed to a 24-year, $30 million deal to sit on his sofa.

For instance, last summer, in a post to Amazin Avenue, Dan Lewis broke down the deal, explaining:

“They freed up enough money to improve the rotation and win an NL pennant (in 2000). They lucked into David Wright as a compensatory pick. They even structured the deal in such a way to minimize the long-term effects, even if it means that a 72 year old gets a July, 2035 payday of $1.2 million. So, good job Fred, Jeff, and Steve (Phillips). Even if it makes me sick to say it: you deserve credit, not blame.”

I wouldn’t go so far as to praise any one, when the topic of Bonilla 2.0 comes up. However, I also know it’s way too easy to only read the headline and assume this payout strategy is foolish, especially when some fans and media jump at the chance to always assume ownership is foolish. In reality, the team claims to have already made money off the structure, and that can make sense considering investments and inflation and what Lewis writes about above.

I can’t know if that is true or not. I have a difficult-enough time managing my own personal debt, balancing a checkbook and I didn’t major in finance, so albeit for me to accurately judge this financial decision. And so, while it seems crazy to me that the team will pay Bonilla more than any free-agent signing this winter, at the very least, I’d like to keep an open mind and figure nothing is as simple as it seems.[/sny-editorial]

111 comments
Greg Adler
Greg Adler

one of the worst deals ever.... good for Bonilla the man is a genius for pulling that off

chasesimms
chasesimms

Bring Bobby into camp this spring.  He can't do any worse than Ike!

cactus
cactus

bahahahahahaha

You realize the only reason the Wilpons did this was because they figured they could take Bonilla's money, pay him 8% a year, and invest it in Madoff at 15% a year (looking the other way knowing the returns were other people's money)

If anyone thinks the Wilpons will make 48 million off that 5.9 million without Madoff's phony investments, YOUAH LAWST.

mustang66
mustang66

if that's true then it's fantastic news. That means the Mets have enough money to sign Stephen Drew.

Joe Wenzel
Joe Wenzel

Yup $48 million vs. $5 milllion only in the Amazin Avenue Universe is that a good deal.  (Even taking the time value of money into consideration.)

nolrog
nolrog

This article ignores the facts.  The Wilpons, used their greed to negotiate that and put that money with Madoff instead of paying it out right away like they should have, thinking that they would earn money on the deal.  Had they not been so greedy, they'd have paid it and it would have been done with.

Mike DeRosa
Mike DeRosa

I know absolutely nothing about the contract, but it seems as though the Mets should be able to tell Bobby to come and play for the next 24 years. At which point he wouldn't be able to due to age/doesn't want to be bothered and a good team of lawyers should be able to break the deal.


Or what am I missing? :\

crash
crash

Twenty years later the man continues to 'show us the Bronx.'  And they even brought him back a SECOND time.

Adam Solomon
Adam Solomon

"so albeit for me to accurately judge this financial decision"


Albeit?


You keep using that word. I do not think it means what you think it means.

hashburry
hashburry

That's what happens when you structure a deal based on ill-gotten gains.

wingo43
wingo43

"Y'all still can't wipe the smile off my face."


-Bobby Bonilla

Bryan McEntee
Bryan McEntee

I guess it boils down to this: 42 million in 2035 will be worth less than what 5.9 million was worth in 1999.  That inflation is roughly 5% a year. That every year money is worth approximately 5% less than what it was the year before. That while the debt appears to be increasing yearly, Bonilla's money is actually losing 5% due to inflation, so that the total value of the contact in 2035 dollars will be less than the value of 5.9 million in 1999 dollars.  Do I have that right?

AJ Rodriguez
AJ Rodriguez

Islanders tried to top this with DiPietro.

Chris R
Chris R

Oh who cares about this topic!!!!

BringBackDaveTelghe
BringBackDaveTelghe

Ironically, I wrote a post extolling Matt for writing on major league salaries and not having a clue on personal finances, then the same day says he can't understand how a basic annuity works.

I do have multiple finance degrees and can tell you it's not a difficult concept.

sylow59
sylow59

Why is this so difficult to understand?  Anyone have a car loan, mortgage?  SAME CONCEPT.

J.D. McNugent
J.D. McNugent

How can you make this post without even mentioning the name Madoff? It's almost guaranteed they invested the 5.9 million with Madoff and as such the "profits" they were making on this deal to 1) fatten their pockets 2) pay Bobby in the future weren't really profits and have since dried up.  This is a foolish post.  Also the cherry-picked comment from Dan's post breaks down nothing and contributes little here (Dan's article was great, huge fan).  It was used for that last sentence, also cherry-picked.  It's been 5+ years since Fred and Saul ruined the Mets and Matt is yet to add any Metsblog contributor who can write clearly and honestly on the subject. This speaks volumes about the blog. This comment should not be flagged for moderation or be removed.  

Mitch Ziffer
Mitch Ziffer

He did hit the key Home Run in game 7 of the 1997 WS that helped the Marlins best the Indians !

bigdirty
bigdirty

Why the heck are Mets fans so simple minded?? The value of $5.9 mill in the year 2000 and the time that the mets got before having to pay it was way more valuable than the $1 million a year they are paying now. 


the Mets made the playoffs in 2000 meaning they were able ot use that $5.9 million towards players in 2000. $5.9 mill was a significantly worth more in players in 2000 than it is now. In using that money towards players in 200 the mets made a run all the way to the world series. that equals mucho $$$$$$$ in that year and super profit. 


If the Mets even just put that money in a high intrest account or in stocks- the money they made is worth much more thatn the moeny that bonilla will make . Also they were able to build a new stadium and start a network since that time. 


The team is valued near or above $2 billion dollars and has appreciated in value exponentially over wha tthe Wilpons paid for it. $1.25 million is not even a blip in that over all value. 


The Mets made a genius move. Mets fans - get over your self loathing and appreciate it. 

Ravi Kirtane
Ravi Kirtane

Its called the time value of money, a finance principle that states a dollar today is worth more than a dollar tomorrow.  This is due to a few reasons, primarily opportunity cost.  A dollar today can be invested and generate a return which would be greater than the that single dollar tomorrow.  Inflation / increase in the CPI is also another factor.


Anyway, given the 8% interest rate, and the delay in the start of the payment, by 2026 or whatever, Bonilla will have received $5.9 million in 1999 dollars.  There is really no reason to criticize the team for this.

Bryan McEntee
Bryan McEntee

Only the Mets could turn a 5.9 million dollar debt into a 42 million dollar. Anyone way you look at that its bad. They could have released him and paid him just 5.9 million. Also, don't forget that Bonilla was paid all of this money for the 2000 season, a season in which he did not play one game, not one inning, not one at-bat. Its not a 24 year deal , its a one year deal paid out over 24 years. That means Bonnilla was the highest paid player in the history of baseball per season ever.

Catt-A
Catt-A

@nolrogThis. The Mets are getting no where near the return they expected on this deal. Take a look at interest rates now compared to then. Warren Buffett might be able to make a deal like this work, but not the Wilpons. Also, while it's hard to judge which money is which, the original money is probably long since spent.

Catt-A
Catt-A

@Mike DeRosaHe was cut (released) by the Mets. Once a player is cut the players obligation ends, but the team's salary obligation does not.

md92468
md92468

@Adam Solomon At least there's only one "that said" in the article...so there's some progress, albeit incremental ;)

crash
crash

@wingo43I'd be pretty damn happy too if I was pulling in $2M a year for doing nothing.

Joe Wenzel
Joe Wenzel

@Bryan McEntee  Do your due diligence inflation has been averaging around 1-2% for years now.  You probably still think over a 10 year period stocks bring in 8% or more a year.  Wake-up that hasn't been the case since 1999.

nolrog
nolrog

@Bryan McEntee We haven't seen 5% inflation in a long time (since 1990 to be exact.) The inflation is roughly 2.8% per year.

foley
foley

@Bryan McEntee 


General idea I think.  But you have to take into account that 1.2 million is being taken out each year starting now, rather than all of it being due in 2035.  So less and less money is effectively earning interest each year until then - assuming it was being invested.

Michael Frias
Michael Frias

@Chris R Sadly, a lot of people that like to (unfairly, at least in this example) bash the Wilpons for their foolish money spending.

nwmets
nwmets

@BringBackDaveTelghe I wonder if you know what the word "extolling" means -- if you do, then this post makes even less sense.

Michael Frias
Michael Frias

@J.D. McNugent Unless they are no longer affiliated with SNY, there will never be any extensive articles about the Wilpon/Madoff situation.  But there are literally dozens upon dozens of other sites and blogs that have discussed it in great detail, so it's a lot easier to just read one of those instead of everyone constantly expecting Cerrone and his fellow writers on here to just rip into the Mets.

Watson5665
Watson5665

@MythGavinWell, this guy's entire premise is ridiculous. He's suggesting that Bonilla lost money on the deal because he could have invested the money at 8% somewhere. Well he did invest it at 8% - with the Mets. From his perspective he came out EXACTLY the same. This articles math makes no sense what-so-ever. In fact with stock market irregularities in recent years and historically low interest rates, I'd say that Bonilla made a very sound decision. But that's neither here nor there. 


Nobody got ripped off one way or another. The issue is that the Mets felt the need to do this in the first place. They essentially couldn't afford to pay him $5.9 million, and so "borrowed" the money to do so. I find that fundamentally disturbing and confusing. How the heck do you operate in the biggest market in the country and run annual $100+ million dollar payrolls but have to resort to this? A fundamental requirement for any business is to be able to meet your payroll in a timely manner. This is merely robbing peter to pay paul regardless of how they want to dress it up. They took on debt to meet payroll. If they did that every year in short order they would be drowning (not that they aren't already).

Joe Wenzel
Joe Wenzel

@Ravi Kirtane    8% a year interest rate - when was the last time those returns were the norm?  2000?  Dream on.

ken1010
ken1010

They should be criticized for guaranteeing 8% on the money.  With long-term treasuries at about 4% now, and even at 5% early last decade, to give a risk-free (except for bankruptcy) rate of 8% is way overpaying. 


It was just a stupid financial move that reminds us all that the Wilpons thought that 12% risk free from Madoff was normal.  It reminds us our team is run by fools.

sylow59
sylow59

@Bryan McEntee try this:  Finance a $250K at 4% over 30 years.  The total of your payments ios $425k with payments of $1800/mo.  Now, if you were to delay the first payment at 4% for 11 years your total of payments is $650k with payments of $1800/mo.  Change that to 8% and your total repayments is $1,500,000 with payments of $4125/mo.  What the Mets did with Bonilla is the exact same concept, but with a few more moving parts (tax, ....  )

foley
foley

@Watson5665 @MythGavin 


Yeah the math is fuzzy, I agree.  Its even more ridiculously fuzzy when you look at the asterick at the bottom saying "this doesn't take into account taxes"  You HAVE to take into account taxes.  The fact that the money, and the taxes on it are deferred is what makes it a good deal for Bonilla (NOT the interest rate).  Its like investing in your 401(k).


If Bonilla had had to pay taxes on the 5.9 mil in 2000, obviously that would leave much less to be invested, and therefore much lower money paid.  However, its a 2-edged sword, since he does have to pay taxes on receipt.  If tax rates go up over time, then he may well come out with less money than having taken the lump sum and annuitizing it at the time.

foley
foley

@ken1010 


But long-term treasury interest rates were 8% in 2000 - so how were they overpaying then?  Makes no sense.  If Bonilla could take the money and invest it long-term himself at 8%, why would he accept a lower rate?


Its like saying that if someone was doing it now, they should only be offered a 1% interest rate.  Who would do that if rates are 4%?

Bryan McEntee
Bryan McEntee

@sylow59@Bryan McEnteeMets only owed Bonilla 5.9 million. The debt now totals 42 million. So they have added 36 million in debt. Sure you could invest it and make money off of it, but you could also lose it all. Its called speculation. I suppose with a guaranteed rate of return from a Ponzi scheme it does take most of the risk out of it

ken1010
ken1010

30 year treasury yields were not 8 pct in 2000, per yahoo finance. They were about 6.2 pct at the start of the year and fell from there. They hadn't touched 8 pct since 1995.

8 pct was too much to guarantee in 2000, unless you believed foolishly in Madoff.