Happy Bobby Bonilla Day: Here's why the Mets pay him $1.19 million every July 1
NEW YORK -- For most of us, it is simply July 1. But New York Mets fans know it by a different name -- Bobby Bonilla Day.
Each year on the first of July, the former Met collects a paycheck of just under $1.2 million -- $1,193,248.20 to be exact -- until 2035.
Why? Because the Mets deferred the $5.9 million he was supposed to make in 2000 when he was released that January and never even played -- stretching it out 24 years with 8% interest.
That means $5.9 million will be $29.8 million.
Here are more details from ESPN:
How did the deal present itself?
At the time, Mets ownership was invested in a Bernie Madoff account that promised double-digit returns, and the Mets were poised to make a significant profit if the Madoff account delivered.
Madoff was returning 12% to 15% a year in what we now know were fictional returns, so deferring deals wasn't a problem because the payout would occur years later and the interest rate would be lower than the money they were (fictionally) getting back from Madoff.
Under new owner Steve Cohen, who mentioned the possibility of celebrating Bonilla at Citi Field annually soon after taking over the team, the Mets are embracing Bonilla's day.
Deferred money deals have been going on for a long time, but the Mets did more of them than most. The first deferred money deal we know about is Darryl Strawberry's 1985 contract, in which the Mets deferred 40% of his 1990 $1.8 million team option ($700,000) at a 5.1% interest rate. The deal, which pays out $1.64 million from 2004 to 2033, was obtained through a life insurance company.
Bonilla's agent, Dennis Gilbert, was an insurance agent at the same time he developed into a superagent (Gilbert's clients included Bonilla, Barry Bonds, Jose Canseco and Danny Tartabull), so he was more uniquely prepared to understand annuity-type payouts than other agents.
To see the deal as the Mets would have seen it, let's say the Wilpons put $5.9 million into a Madoff account in 2000 and got a conservative (by Madoff standards) 10% annual return. By 2011, when they would have to pay Bonilla for the first time, they would have already grown their pot to $16.83 million. Even with paying off Bonilla every year, they would wind up with a $49 million profit on the deal. Of course, the Madoff returns weren't real, which complicates this in hindsight.
The other way to think of it is that the Mets didn't have to pay Bonilla his $5.9 million in 2000 and could use it on other free agents. Sure enough, the Mets acquired Mike Hampton from the Astros right before they dumped Bonilla. Hampton's cost was conveniently $5.75 million, and his 15-10 record was good enough to help get the Mets to the World Series that year for the first time since 1986.
It seems like everyone thinks Bonilla got a great deal by turning $5.9 million into $29.8 million -- did he?
The deal is great from a gross money perspective. If you take out the 2000 season -- where the deferred money comes from -- Bonilla's career earnings are $46.45 million, so the $29.8 million looms large. Also understand that because he didn't have to earn the money in 2000 and collects years later instead, he isn't paying New York income tax (he lives in Florida, a state with no income tax), nor the so-called "jock taxes" for earning money on the road in states that do have income tax.
But you also have to account for what Bonilla could have done with the money if he did get that $5.9 million in 2000. We did the math by using a conservative strategy of putting that $5.9 million into the market in January 2000, when this deal was struck. We put 60 percent of the money in stocks and 40 percent in bonds and rebalanced the portfolio to those percentages at the start of each year following our gains in each area. Going back historically, we learn that Bonilla would have aggregated $16.5 million by December 2015. Through the deal the Mets gave him, he collected only $5.9 million by December 2015.
Looking at it that way, it doesn't look like Bonilla got the steal of the century. But what happens if you assume that Bonilla needs to live off that money starting in the year the deferred money pays out? You put that $5.9 million into the stock and bond market with the same percentages and you withdraw six times. (His first withdrawal would come in 2010 to prepare for 2011.) If you do that, you're left with $7.35 million to reinvest starting in 2016, having taken out $1.19 million six times. This is where you start to stall. You have to make that $7.35 million work for you to get 19 more payments, and you're staring at a market where bonds are generating only 2 percent yields and the stock market isn't so hot. It's nearly impossible to think that you can do that. So in that scenario, Bonilla is better from a financial-planning perspective having accepted the deal from the Mets.
So why do the Mets get made fun of for making this deal?
This is a complex question. It starts with the fact that Bonilla was a disappointment for the team. In his second stint with the Mets, he was on the disabled list frequently, and when he was playing, he wasn't any good.
It's also funny that, as a 59-year-old this year, he is still on the Mets' payroll.
There's also the Madoff part, which leaves the Mets open to ridicule. Of course many Mets fans who make fun of the deal don't follow it through completely. Hampton was with the Mets for one year, but when he went to the Rockies in 2001, the Mets got the 38th pick in the draft, which they used to pick ...David Wright!
What now?
The Mets will be paying Bonilla through 2035 (when he'll be 72).
Other notable examples of deferred-money contracts
--Bobby Bonilla (again): A second deferred-contract plan with the Mets and Orioles pays him $500,000 a year for 25 years. Those payments began in 2004.
--Bret Saberhagen: Will receive $250,000 a year from the Mets for 25 years (payments also began in 2004; this was the inspiration for Bonilla's deal).
--Max Scherzer: Will receive $105 million total from the Nationals that will be paid out through 2028.
--Manny Ramírez: Will collect $24.2 million total from the Red Sox through 2026.
--Ken Griffey Jr.: Will receive $3.59 million from the Reds every year through 2024 as the deferral from his nine-year, $116 million deal signed in 2000.
--Todd Helton: Will get $1.3 million from the Rockies every year through 2023 as the result of $13 million deferred when he signed a two-year extension in 2010.
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