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Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
- tomjakubowski 7y agoThe article doesn't mention that team owner Fred Wilpon thought deferring Bonilla's contract was a great idea because he could use the savings at the time to invest in Bernie Madoff's fund. https://www.nytimes.com/2012/02/21/sports/baseball/mets-saw-madoff-as-house-money-trustee-says.html https://www.nytimes.com/2012/02/21/sports/baseball/mets-saw-...
- moate 7y agoThey also used the savings to acquire Mike Hampton (who later provided them with the compensation pick they used to draft David Wright.
- deleted 7y ago[deleted]
- duxup 7y agoIt really seems like a poor choice to dramatically alter the financing of another business because some other unrelated investment is doing well. That seems like just doubling down in a bad way.
- thinkingkong 7y agoSomewhat related is the best contract in sports history: https://en.wikipedia.org/wiki/Ozzie_and_Daniel_Silna#The_deal https://en.wikipedia.org/wiki/Ozzie_and_Daniel_Silna#The_dea...
- pdwetz 7y agoSince this comes up every year, might as well point out this isn't an isolated case. Tweet thread covering various ones (as of last year): https://twitter.com/mikemayerMMO/status/1013295573779312640 https://twitter.com/mikemayerMMO/status/1013295573779312640
- the_watcher 7y agoMost deferred payments don't take a previously agreed upon amount and apply interest to them though. They're usually agreed upon at the beginning of the contract and allow the team to get a discount on the total dollar figure via the time value of money.
- mixmastamyk 7y agoWorst or best? That's quite a retirement plan. Edit: title changed on me.
- moate 7y agoSeems like it worked well for everyone. The Mets are paying out less than they would have if they'd paid the money at the time and because of the savings were able to acquire players that helped them go onto the WS. Bonilla keeps getting ~ a million dollars every year.
- the_watcher 7y agoThey turned $5.9M into almost ~$30M. How is that they are paying out less? It's possible that via time value they could make more than an 8% return, but definitely not assured.
- unreal37 7y agoThe argument is that they immediately spent the $5.9 million on another player the next season (who they would not have been able to get due to the salary cap), who led them into the World Series. They traded that player away for another player who has become a superstar. So they did in fact turn the savings into something meaningful. It worked out for both of them. There are win-win deals.
- zerocrates 7y agoThere is no salary cap in MLB. At the time even the "luxury" tax on particularly high payrolls had just been eliminated.
- the_watcher 7y agoI both agree and disagree. From a purely financial standpoint, this was almost assuredly a bad deal for the Mets over the course of the payments. That said, the whole point of owning a sports franchise is to get to and win a championship, so in that sense, yes, this was almost definitely worth it. Also, I don't know the economics for baseball in 2000, but I know that in the NBA, each home playoff game is generally considered worth several million dollars, so if Bonilla buyout for Hampton was causal to reaching the WS, they may have made the money back in 2000 alone. Plus, there's the whole "Bobby Bonilla seemed like he was a gigantic pain to the organization" aspect.
- isaacg 7y ago"Today" is in 2011
- halfdan 7y agoJuly 1st though, so basically just 11 days ago.. This post needs a [2011]
- zaroth 7y agoEinstein something, something, compound interest. Amazing what saving money at an 8% interest rate will do for your future self! The S&P has only returned 4.8% CAGR [1] from 2000-2018 so that was a pretty tremendous ROI for Bonilla. [1] - http://www.moneychimp.com/features/market_cagr.htm http://www.moneychimp.com/features/market_cagr.htm
- dmix 7y agoSo it started compounding in 2011 + the next 25yrs? Not when he signed the contract? Which means he’d need to not touch the money to get the full $29M amount 8% over 25yrs is a crazy good deal for anyone, not to mention on top of millions.
- the_watcher 7y agoSpotrac has the details of the payments: https://www.spotrac.com/mlb/new-york-mets/bobby-bonilla-11887/cash-earnings/ https://www.spotrac.com/mlb/new-york-mets/bobby-bonilla-1188...
- dmix 7y agoThat doesn’t show the interest rates. But based on that it also looks like he got 5x yrs of $500k from the Orioles also starting in 2011. I’m guessing he signed a similar deal with them since he stopped playing in 2000… This man makes smart financial decisions.
- the_watcher 7y agoPart of a subsequent deal (or related deal, don't remember the details) involved trading him to the Orioles, who became responsible for a portion of his salary, which they then deferred. It's part of the same original contract though, IIRC. And I know it doesn't show the interest rates, but it does show that the payments he will receive from the Mets total roughly $30M, which is what the article reported.
- astura 7y ago
- klinskyc 7y agoFun fact -> They offered this because they were getting such good returns (greater than 8%) through Bernie Madoff, and figured they could just pay off the contract interest through that
- astura 7y agoThe Bernie Madoff connection is, by far, the most interesting part about the Bobby Bonilla salary deferral contract. Its truly a shame TFA didn't mention it. https://www.marketwatch.com/story/the-mets-are-paying-bobby-bonilla-over-1-million-a-year-because-of-bernie-madoff-2015-07-01 https://www.marketwatch.com/story/the-mets-are-paying-bobby-...
- noitsnot 7y agoAround 1% a month was the usual return.
- the_watcher 7y agoIt was the worst negotiation in sports history, yes. But far worse contracts have been signed. A bad NBA contract (some that obviously bad at the moment of signing) can easily pay $30M in 2 years to a player who essentially doesn't play at all. Which the teams then pay to dump on other teams (the NBA salary cap creates a fascinating market).
- thinkcontext 7y agoMy favorite is the NBA agreeing to pay a percentage of TV revenue in perpetuity to the owners of the ABA team Spirits of St. Louis when the leagues merged. The NBA gave the other ABA teams that they weren't taking $3M but the Spirits held out. The NBA paid out $300M before finally buying them out for $500M in 2014. https://www.forbes.com/sites/monteburke/2014/01/07/the-nba-finally-puts-an-end-to-the-greatest-sports-deal-of-all-time/#11f50634f0ba https://www.forbes.com/sites/monteburke/2014/01/07/the-nba-f...
- sokoloff 7y agoI don't see how it was even a particularly bad contract, let alone the "worst in sports history". Borrowing money at 8% is a pretty reasonable commercial lending rate for the time (30-year fixed mortgages were only a couple points lower). So, they took out a $5.9MM loan from Bonilla to pay Bonilla, accrued interest for 11 years without making any payments, and then started paying it off on a 25 year amortization schedule, all at 8% interest. https://docs.google.com/spreadsheets/d/1wWMBl9YsLfjC3A6A_ZI6BbdUr6RpGdrHOLv9lIEM8nk/edit?usp=sharing https://docs.google.com/spreadsheets/d/1wWMBl9YsLfjC3A6A_ZI6...
- pitt1980 7y agofwiw Mets Payroll in 1999 - 71,506,427 5,900,000/71,506,427 = 8.25% of payroll --------- Mets Payroll 2011 120,147,310 1,193,248/120,147,310 = 0.99% of payroll ---------- Mets Payroll 2018 $154.61M 1,193,248/154,610,000 = 0.77% of payroll ------- also fwiw, not sure we can trace exactly how efficiently the Mets spent the $5.9 million they saved in 1999, but the Mets won 97 games that year, the next year they won 94 and made it to the World Series ---------- given time value of money.... 'worst contract in sports history' seems pretty hyperbolic
- anoonmoose 7y agoAt one point in time (2013), Bobby Bonilla and Jason Bay were the two highest paid outfielders for the Mets, and neither of them were on the team. This occurred in the middle of a six-year sub-0.500 stretch. They probably could have used the $1.2M better than that.
- matthewowen 7y agoProbably not. $1.2MM doesn't buy you much baseball player.
- moate 7y agoBuys you 2 rookie contracts fwiw.
- pitt1980 7y agobut the market for rookie contracts is closed, you either already drafted and developed two rookies worth paying 1.2 million or you didn't your 1.2 million in cash doesn't mean you can convert it into (useful) rookies
- moate 7y agoLet's say I'm a terrible baseball owner, and I'm completely out of available cash because I'm still paying a 1.2 million dollar contract. I literally cannot get a single extra dollar from anywhere. Having that contract on my books prevents me from calling up 2 rookies this season, because I'm unable to pay their salaries. Yes, I'm technically buying them from "myself" by pulling them from my team's MiLB affiliates, but we're just arguing the semantics of what "buying" means here, not what the going rate of a rookie is ($555,555 USD in 2019)
- tobsmagoats 7y agoIf I were an athlete I'd push for a contract like this, being young with a ton of money can be a recipe for disaster.
- BubRoss 7y agoIf you knew to set up a contract like this, would you really need to avoid having lots of money while young?
- nickjj 7y agoHaven't heard of this until today. Does anyone know what happens to the yearly payouts if Bobby dies between now and the last scheduled payment? Does it go to his beneficiaries until the 25 years runs its course or does the contract terminate on the year he dies?
- jmull 7y agoWow. Bobby hit his biggest home run, metaphorically, after retirement.