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).
Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
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Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#12Since 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
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.
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#13Einstein 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
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.
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#14The 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-...
They also used the savings to acquire Mike Hampton (who later provided them with the compensation pick they used to draft David Wright.
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#15Worst or best? That's quite a retirement plan. Edit: title changed on me.
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.
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#16Einstein 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
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.
Spotrac has the details of the payments: https://www.spotrac.com/mlb/new-york-mets/bobby-bonilla-1188...
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#17It 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).
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.
https://www.forbes.com/sites/monteburke/2014/01/07/the-nba-f...
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#18Earlier quoted context omitted.
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.
Spotrac has the details of the payments: https://www.spotrac.com/mlb/new-york-mets/bobby-bonilla-1188...
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…
This man makes smart financial decisions.
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#19fwiw
Mets Payroll in 1999 - 71,506,427
5,900,000/71,506,427 = 8.25% of payroll
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Mets Payroll 2011 120,147,310
1,193,248/120,147,310 = 0.99% of payroll
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Mets Payroll 2018 $154.61M
1,193,248/154,610,000 = 0.77% of payroll
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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
Re: Bobby Bonilla's 25-Year Contract with The New York Mets (2011)
#20Einstein 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
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.