Every year on July 1st, baseball fans and sports media celebrate a peculiar event: Bobby Bonilla Day. On this day, the New York Mets pay a retired player, Bobby Bonilla, a sum of $1.19 million as part of a deferred contract that he signed in 2000. The contract stipulates that Bonilla will receive this annual payment from 2011 to 2035, totaling $29.8 million. But why did the Mets agree to such a deal? And what does it reveal about the economics of baseball and the power of compound interest?
To understand the context of this contract, we need to go back to the 1990s, when Bonilla was one of the best hitters in the league. He played for the Mets from 1992 to 1995, earning four All-Star selections and a World Series ring with the Florida Marlins in 1997. In 1999, he returned to the Mets as a free agent, signing a five-year, $29 million contract. However, his second stint with the Mets was disappointing, as he clashed with his teammates and manager, and his performance declined.
By the end of the 1999 season, the Mets wanted to get rid of Bonilla and free up some salary space to sign other players. Bonilla still had one year left on his contract, worth $5.9 million. Instead of paying him that amount upfront, the Mets offered him a deferred payment plan, with an 8% annual interest rate. Bonilla accepted the deal, which meant that he would receive $1.19 million every year for 25 years, starting in 2011.
At first glance, this might seem like a terrible decision by the Mets. Why would they pay Bonilla almost six times more than his original contract? The answer lies in two factors: the time value of money and Bernie Madoff.
The time value of money is the concept that money available today is worth more than money available in the future, because it can be invested and earn interest or returns over time. The Mets calculated that paying Bonilla $5.9 million in 2000 would be equivalent to paying him $29.8 million in 2035, given an 8% interest rate. In other words, they assumed that they could invest that $5.9 million and earn an 8% return every year until 2035.
This is where Bernie Madoff comes in. Madoff was a notorious fraudster who ran a massive Ponzi scheme, promising his clients high and consistent returns on their investments. One of his clients was Fred Wilpon, the owner of the Mets. Wilpon believed that Madoff was a financial genius who could deliver returns of 10% or more every year. Therefore, he thought that deferring Bonilla’s contract was a smart move, because he could use that money to invest with Madoff and make more than 8% interest.
Of course, we now know that Madoff’s scheme was a scam, and he was arrested in 2008 for swindling billions of dollars from his investors. Wilpon lost a fortune and had to sell the Mets in 2020. Meanwhile, Bonilla continues to receive his guaranteed payments every year, regardless of how the Mets perform or how the economy fares.
Bobby Bonilla Day is a reminder of how one decision can have lasting consequences for both parties involved. For Bonilla, it was a savvy negotiation that secured his financial future and made him an unlikely legend. For the Mets, it was a costly mistake that haunted them for decades and became a symbol of their mismanagement and bad luck.
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