The 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.
Fun 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
The 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.
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.
The relevant comparison is to 6.41% (nominal), not 4.8% (inflation adjusted)
Bonilla's contract was 8% nominal.
a 1.59% premium for 25 yeras AND trading market risk for Mets solvency risk is a pretty good deal, though. Mets/MLB may be headed down in the future, but the are likely to be solvent for much to all of that 25 years.
"The S&P has only returned 4.8% CAGR [1] from 2000-2018 so that was a pretty tremendous ROI for Bonilla."
Anytime I read about this contract (and it comes up every year or so, somewhere) I wonder if Bonilla sold off his interest in the contract in return for a lump payment.
That's a very common arrangement and I never hear whether or not he did that ...
So 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.
That 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…
Part 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.
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
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given time value of money....
'worst contract in sports history' seems pretty hyperbolic
At 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.
A slight pedantic response, it pays for 2 rookie contracts but it wouldn't really allow you buy the contracts of 2 rookies. Baseball rules are designed to suppress the salary of rookies below their free market rates in order to benefit both veteran players and less wealthy teams. The end result is that any decent rookie has a lot of surplus value attached to their contract and they become an asset rather than a liability. Teams generally need to give up multiple millions in value in order to "buy" a rookie from another team and gain the right to pay that player half a million dollars.
If I'm "Joe Small Market Team" and I'm running my team with a self imposed cap of X, having 1.2 million dollars off my payroll means I have the ability to call up rookies I might not have been able to if I did have that 1.2 million on my books.
Are there infinitely more factors in play (namely playing time BS in order to maintain team control prior to free agency) in these types of decisions? Of course. Do I believe that this hypothetical scenario would ever come up: No.
But, 1.2 million dollars = 2 Rookie Contracts with beer money left over. Them's facts.
Let'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)
When you look at it as a cost as a % of their salary, it's not as bad as what you look at what the Mets paid per WAR.
It's a probably a bad contract overall, and the NY sports media effect is why it gets the hyperbole boost. If nothing else, it's a really fun example of how value is determined (as it relates to baseball players).
It 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).
I 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.
Given that he had ample access to professional advisers and voluntarily entered into the agreement, I think he would have disagreed with that assessment at the time. (I think it was a fairly balanced contract, not outlandishly good nor bad for either side, with an interest rate lower than the Mets' likely marginal cost of capital and higher than Bonilla could have secured on a deferred annuity.)
My 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.
Don't forget trade exceptions, luxury taxes, unlikely incentives, waivers, stretch provisions... This would actually be entertaining to model out , at least to... the small handful of people whose interests collide in the Venn Diagram of tech and NBA salary cap nonsense.
MM so you'd get star programmers moving to Holland to work for PSV Eindhoven (To take advantage of the Bosman ruling) and Philips would be come a challenger to Google.
PSV Eindhoven started out as Phillips employees team
Most 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.
Seems 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.
They 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.
The 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.
I 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.
Sorry, there's a whole lot of context that my previous statement leaves out, as well as me framing it very poorly.
No, the real value of the contract (because of interest) is greater than the amount he was owed (adjusted for inflation). By that math, the Mets payed more than they should have and you are correct.
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?
https://www.nytimes.com/2012/02/21/sports/baseball/mets-saw-...