Next year former outfielder Bobby Bonilla goes back on the payroll at the ripe old age of 48.Now, if you're wondering, what that $1.193 M could pay for the Mets in 2011, Cot's Baseball Contracts is the place to go. But even if you just take the Major League Minimum of $400,000, Bonilla's salary could pay for almost three players to play--or, for 2011, Ike Davis, Jon Niese and Jenrry Mejia.
In 1999, Bonilla returned to the Mets for a second stint at Shea following his borderline disastrous free-agent signing in 1992. Bonilla wasn't any better the second time around, so the Mets waived him in 2000. The problem was that the team still owed Bonilla $5.9 million in guaranteed salary.
Bonilla's agents worked out a deal with the Mets where he would defer the salary if the team would pay him $1,193,248.20 every July 1 from 2011 to 2035. Not a bad deal for someone who was so bad the team basically paid him to go away.
How bad was Bonilla in 1999 that the Mets decided to waive him and incur this future albatross? Well in 60 games, he hit .160/.277/.303 and a cool .260 wOBA (which, according to FanGraphs was 9.9 runs below average). According to Baseball Projection, that was good enough for -1.5 wins, the worst mark of Bonilla's career. He also supposedly was playing cards with Rickey Henderson during the 1999 NLCS--while the game was going on. And the Mets will be paying him until he's 72! Maybe if the Mets are looking for some offense this off-season, they can ask Bobby Bo to actually come back and earn some of that money.
But, as NESN points out, the Mets fans aren't the only ones in this boat: "Manny Ramirez will be owed $30 million by the Red Sox. That amount will be paid out in 16 payments of $1.94 million, made annually from 2011-2026. At least the Red Sox have a pair of World Series titles to show for it. The Mets? They would probably just prefer to have their money back."
I would assume they would. So while Mets fans enjoy their current 1st place spot right now, they have the date of July 1 to always look forward to as a reminder of how much Steve Phillips screwed up their franchise.
Picture from Mystique and Aura
Posts
I'm a lawyer not a mathematician, so maybe someone could explain this to me.
ReplyDeleteBonilla was owed $5.9 million. I understand that Bonilla offered a deferred payment plan in order to get more money from the Mets. And I understand that the Mets would want this because it lessens the initial punch by spreading it out over many years.
Granted that the Mets would have to pay more money over the long run, in order for Bonilla to accept this deal, did they have to rape their own ass quite so brutally?
By my calculations, $1.193 million every July 1 for 24 years amounts to $28.632 million. Or roughly 485% more than his initial contract called for.
Good Lord.
By contrast, the Red Sox will eventually pay Manny $31.04 million, instead of $30 million up front. Much, much more reasonable. So how did Bonilla's agents talk the Mets into this ridiculous arrangement??
To make answer story short, The Present Value of Money (http://www.investopedia.com/articles/03/082703.asp) and Steve Phillips was more interested in chasing tail than saving the Mets money.
ReplyDeleteI just realized that sentence wasn't English. Steve Phillips didn't do the best job as GM but there is a reason you don't pay an equal $1 today for $1 in 10 years
ReplyDeleteI understand the concept of the time value of money. (I did minor in economics!) But even accounting for the fact that it's better to keep your money now and pay it out later, was it really worth spending $28.632 from 2011 to 2035 rather than spend $5.9 million in 2000?
ReplyDeleteBasically all I'm saying -- and I cannot think of a good argument in opposition -- is that the Mets could have negotiated a much better deal with Bonilla.
That's why I contrasted the Manny situation. Manny will only get an additional $1.04 million by deferring the money to which he's entitled. I see how it's worth it for Boston to spend $31.04 million over a 15 year period, as compared to spending $30 million right now. They only need to fork up an additional $1.04 million, which is clearly worth it given the time value of their dollars.
BUT, would you think it's smart to pay Manny $144 million over the same time period???
Because that's what the Mets did. They gave Bonilla almost 5 times what he was entitled to. Too much.
Jay,
ReplyDeleteIf they deferred the money they used a discount rate, plus an additional cash incentive for him to take the deal. Unless the Mets misinterpreted the pace of inflation, etc. this shouldnt be all that shocking. It is the same thing as getting 100M now on lotto when the jackpot was actually like 220 million payable over 30 yrs.
It just looks bad. It's really bad press. The truth is that if you took that $5.9 M and invested it over 35 years you'd get back a lot more than $5.9 M. (or, conversely, if you took $1 35 years ago and figured out the value of it now, I guarantee you, it would be pretty damn close because of inflation)
ReplyDeleteUnless you invested it with Bernie Madoff.
Actually...just quickly plugged it in. What cost $5.9 M in 1974 would cost $25.38 M in 2009.
ReplyDeleteSo the numbers aren't so far off.
And the key is not to meet inflation, but to beat it if you're going to get your money in the future. So the Mets deal, while it looks ridiculous, isn't all that bad mathwise.
It just looks absolutely ridiculous
Ari,
ReplyDeleteThat is not the same thing at all.
If Bonilla's deal was like the lottery, then he could choose between $5.9 million payable over 24 years or he could take a smaller lump sum immediately upon getting cut from the Mets.
In reality, he chose between an immediate $5.9 million buyout from the Mets or a HIGHER amount payable over 24 years in the future.
Imagine the lottery system under Bonilla's deal. You hit a $100 million jackpot. You think they'd let you choose between $100 million on the spot or $485 million over 24 years in the future?
Nope, never.
I think we're all particularly disgusted by this story because the guy is Bobby Bonilla.
ReplyDeleteIf you told me it was Robin Ventura or Edgardo Alfonzo or some other likable Met, I probably wouldn't have thought twice about it.
actually - wrong Jay. Most experts recommend you take your money up front, because inflation is uncertain in the future.
ReplyDeleteIf Bonilla was to take the deferment they probably offered him some additional cash to make it more attractive. Not to mention his financial advisor probably told him to do it. Instead of being a broke-ass retired ballplayer who blew it all on cars and planes and dom perignon he now has a substantial cash stream coming in well into his retirement
Jay, if you win a $100 M jackpot, you don't get $100 M as the lump sum. That's the money over the course of the annuity payments. If you take the lump sum, you usually get half.
ReplyDeleteAri, I didn't say whether it was wise or unwise to take your money up front. All I said is the Bonilla contract situation is *different than the lottery system* you used in a previous analogy.
ReplyDeleteIn baseball, you either take your contract money up front or you take deferred salary later.
In the lottery, you either defer your total winnings or you take a smaller lump sum up front.
They are two different structures. You can debate all you want about how smart Bonilla's agent was to defer the payments. I'm just saying that it's not like the lottery system.
I know -- that's why I said in the lottery you either get A.) the total amount of winnings deferred in the future, or B.) a smaller lump sum up front.
ReplyDeleteBonilla, on the other hand, couldn't take a smaller lump sum up front. He either got the full amount up front, or more money deferred into the future.
So how are those two situations exactly the same??
They are exactly the same. It allows the lotto to advertise a higher jackpot. Essentially the lotto jackpot isnt 220 million, it is 110 million if you want it now. But would they sell as many tickets if they told people it was only 110? Absolutely not. It is a marketing tactic.
ReplyDeleteSo Ari, you're suggesting that Bonilla's $5.9 million was his lump sum, and he instead opted to take the jackpot of $28.632 million deferred over 24 years?
ReplyDeleteHere's where I am confused. The lotto advertises the full jackpot. They are required to offer the deferred payments totaling the full amount. The Mets can offer whatever deferred payment terms they want.
The Mets could have said to Bonilla, "You can either take the $5.9 million 'lump sum' or you can take $9 million deferred from 2011-2035." Or maybe the Mets could have offered $12 million deferred. Or $15 million, or $20 million. But they decided to offer $28.632 million. Unlike the lotto, they were able to control that figure, and they went really high.
The Red Sox, by contrast, offered Manny $31.05 million deferred or $30 million up front. I don't know if the Mets offered even more cash up front to incentivize him. It's possible the Red Sox didn't offer any cash incentives. Nothing in these articles mentions anything like that.
Doesn't this just seem like the Red Sox made out a LOT better than the Mets?
I am totally lost by your argument, Jay. If the Mets said to him, take the $5.9 M lump sum or $X, he would just take $5.9 M until he reached an X that was suitable to him. He's already signed a contract. The Mets can't withhold that money from him regardless. In some ways, Bonilla did them a favor. So he's going to want to be paid for it.
ReplyDeleteThe Manny Ramirez money was part of his contract.
The Red Sox definitely made out better...but it's a totally different situation.
Pretty much. Bonilla got nothing for 10 years, so you expect substantially higher numbers than Manny. And you are correct, the mets could set the future payments structure. It is higher than reasonably expected because that is how they convinced him to take that deal - probably by throwing in an extra percent or two. If I was to take a stab at it. My guess was that the Wilpons, with their money returning 15% a year no matter what happened with Madoff figured they could beat the market and beat Bonilla. Even if they structured the deal on a 12% discount rate, they were bringing in 15%+ annually on their cash, so it made financial sense for them to pay more than the market discount rate to get him to accept.
ReplyDeleteSo the Bonilla situation is different from the Manny situation because Bonilla's buyout was negotiated after the Mets decided to cut him and were then forced to pay the $5.9 M. Okay.
ReplyDeleteBut at some point before Manny signed his massive $168 M deal, Manny had to negotiate the deferred portion of his salary. Presumably the two sides went back and forth on how to structure the deferral. And Boston ended up paying $31.05 M deferred on the $30 M.
Andrew, I understand that the Mets were forced to pay Bonilla $5.9 M so Bonilla had the superior bargaining position. But didn't the Red Sox agree to pay Manny the $168M total? So couldn't Manny have pushed for better terms on the deferred portion of his salary as a condition to signing the overall deal? He could've walked away until the Red Sox met his "$X" as you put it.
Here's what I'm envisioning. Manny sits down and says "I'll play 8 years for $168 M but you have to defer the last $30 M from 2011-2026 at $3.5 M per year....otherwise I'm not signing with Boston."
So why did Bonilla fight for such a better payment structure than Manny? The only thing I can think of is that it was a 1-team market and, as the only team at the table, the Red Sox had more power over Manny than the Mets had over Bonilla.
lump sum annuity
ReplyDeleteWe can say Structured settlements are the alternative payment system to a lump sum cash settlement and are set up to provide payments to anybody over time period. In structured settlement victim will receive compensation over an extended period of time instead of a large single payment. Structured settlements are basically tax free...Other benefits structured settlements, basically for seniors and their adult children, is that there is added security in receiving smaller amounts of cash over time.
Lump Sum Annuity
ReplyDeleteNice Article, i wants to include some more to this.......
Some of these plans are also growth investment plans with assured Lump Sum Annuity in addition to some health coverage plans, etc. Some investment plans include payment of Lump Sum Annuity to the spouse or any other nominee either at the same rate or at a revised rate.
Well working after retirements is an another option if one really wants to earn money or to increase savings.but it also has some pros and cons.working after retirements totally depends upon individual choice or his/her financial status/position.