Happy Bobby Bonilla Day! Why Mets pay him $1.19M every July 1

Yappi

Go Buckeyes
The calendar has shifted to July, and that can mean only one thing: It's time for Mets fans everywhere to wish each other a Happy Bobby Bonilla Day! Why? On Monday, 56-year-old Bobby Bonilla will collect a check for $1,193,248.20 from the New York Mets, as he has and will every July 1 from 2011 through 2035.

What happened?

In 2000, the Mets agreed to buy out the remaining $5.9 million on Bonilla's contract.
Read more:
https://www.espn.com/mlb/story/_/id/27078321/happy-bobby-bonilla-day-why-mets-pay-119m-every-july-1
 

BlackHawk

Well-known member
Crazy indeed.

Which would you want? A lump sum of $5.9 million or 25 annual payments of $1.2 million?

Are there any actuaries on yappi?
 

eastside_purple

Well-known member
That's roughly 6.8% interest.

25 year average return in the market is 12%.

Take the lump sum.
That’s only if he doesn’t invest his annual payment every year and puts it under a mattress. In reality, he’d be investing a large percentage, if not all of his annual payment (after taxes). I’d guess he’d come out ahead of a lump payment by year 8 or 9, assuming the same rate of interest. The annual installment is a no brained and a great hedge against underperformance in the market.
 

thavoice

Well-known member
That’s only if he doesn’t invest his annual payment every year and puts it under a mattress. In reality, he’d be investing a large percentage, if not all of his annual payment (after taxes). I’d guess he’d come out ahead of a lump payment by year 8 or 9, assuming the same rate of interest. The annual installment is a no brained and a great hedge against underperformance in the market.
I almost posted this yesterday, but there I always one that comes out and says he should have taken the money back then.

He made the right move to do how he did it.
 

wolves82

Well-known member
That’s only if he doesn’t invest his annual payment every year and puts it under a mattress. In reality, he’d be investing a large percentage, if not all of his annual payment (after taxes). I’d guess he’d come out ahead of a lump payment by year 8 or 9, assuming the same rate of interest. The annual installment is a no brained and a great hedge against underperformance in the market.
I actually sat for the first two Actuarial exams many years ago. Passed the first, failed the second miserably, and switched to software for a career. :)

EP has the correct analysis.

year 1 - $5.9 M invested (25 years compounded)

-- vs. --

year 1 - $1.2 M invested (25 years compounded)
-- plus --
year 2 - another $1.2 M invested (24 years compounded)
-- plus 23 more years --


Clearly taking 25 annual payments is the far smarter approach.
 

eastside_purple

Well-known member
I actually sat for the first two Actuarial exams many years ago. Passed the first, failed the second miserably, and switched to software for a career. :)

EP has the correct analysis.

year 1 - $5.9 M invested (25 years compounded)

-- vs. --

year 1 - $1.2 M invested (25 years compounded)
-- plus --
year 2 - another $1.2 M invested (24 years compounded)
-- plus 23 more years --


Clearly taking 25 annual payments is the far smarter approach.
In my estimation, by year 25, assuming a similar rate of return, you’d be looking at double the value if you took the installments over the lump sum.

Btw, there’s no doubt Bonilla had a financial planner crunch these numbers. There is absolutely zero chance they would let him choose the incorrect option as I’m sure it maximizes the amount they are able to leach off the deal.
 

thavoice

Well-known member
One thing you cannot discount is if he did take that lump sum what was the chances he takes all of that and saves it?
 

14Red

New member
Actually, even though we punk the Mets every year this comes up, it's actually a very smart ploy. They are probably actually saving money doing it this way. They bank the money each year, and just pay him the interest. It's not like the Mets don't have the money, and it's a nice "allowance" for him each year.

I believe Allen Iverson's agent set something up for him kind of like this where a good chunk of his money was deferred until he was like 48 or 50 years old. Point being many of these young pro athletes blow their money and then have nothing when they retire.
 

eastside_purple

Well-known member
Actually, even though we punk the Mets every year this comes up, it's actually a very smart ploy. They are probably actually saving money doing it this way. They bank the money each year, and just pay him the interest. It's not like the Mets don't have the money, and it's a nice "allowance" for him each year.

I believe Allen Iverson's agent set something up for him kind of like this where a good chunk of his money was deferred until he was like 48 or 50 years old. Point being many of these young pro athletes blow their money and then have nothing when they retire.
Lol
 

Indiandad

Well-known member
That’s only if he doesn’t invest his annual payment every year and puts it under a mattress. In reality, he’d be investing a large percentage, if not all of his annual payment (after taxes). I’d guess he’d come out ahead of a lump payment by year 8 or 9, assuming the same rate of interest. The annual installment is a no brained and a great hedge against underperformance in the market.
Decent chance he didn't invest it or put it under his mattress. It is after all his salary for work performed. Good chance he spends it on a nice lifestyle.

We don't know for sure. Do we?
 

Indiandad

Well-known member
I actually sat for the first two Actuarial exams many years ago. Passed the first, failed the second miserably, and switched to software for a career. :)

EP has the correct analysis.

year 1 - $5.9 M invested (25 years compounded)

-- vs. --

year 1 - $1.2 M invested (25 years compounded)
-- plus --
year 2 - another $1.2 M invested (24 years compounded)
-- plus 23 more years --


Clearly taking 25 annual payments is the far smarter approach.
Only if he is investing everything as he gets it.

How many people would be disciplined enough to never spend any of that money?

What's the point of saving it all if you're never going to enjoy it?
 

eastside_purple

Well-known member
Decent chance he didn't invest it or put it under his mattress. It is after all his salary for work performed. Good chance he spends it on a nice lifestyle.

We don't know for sure. Do we?
Well, he deferred it, that should tell you something. Anyway, regardless if he was spending or saving, it doesn’t negate your dumb post before. :laugh:
 

Arrogate

Well-known member
Actually, even though we punk the Mets every year this comes up, it's actually a very smart ploy. They are probably actually saving money doing it this way. They bank the money each year, and just pay him the interest. It's not like the Mets don't have the money, and it's a nice "allowance" for him each year.

I believe Allen Iverson's agent set something up for him kind of like this where a good chunk of his money was deferred until he was like 48 or 50 years old. Point being many of these young pro athletes blow their money and then have nothing when they retire.
Iverson's agent had a Reebok deal deferred for him. I think he gets paid 800k each year for life and like +30 million when reaches 55. May want to double check that but I remember it was set up something like that.


Mets are actually cash poor. Owners lost their fortune in the Madoff scandal.
 

eastside_purple

Well-known member
FYI, according to Bonilla’s agent, Bonilla was a conservative guy and viewed it as a means to take care of his family. It’s safe to say he already built a pretty comfortable life with the other $50M he made over the course of his 15 yr career.

“Bobby needed to understand how it worked, too, and Bobby is very conservative guy. He wanted to make sure he had money for the future. He was concerned about taking care of his family. But when you look at it now, 8% is not a very conservative number, especially guaranteed.”
https://www.usatoday.com/story/sports/mlb/columnist/bob-nightengale/2018/07/01/bobby-bonilla-day-mets-deferred-payments-2035/749342002/
 

eastside_purple

Well-known member
Actually, I’ll amend my comment as the payments didn’t start until 2011 and I didn’t account for the time he could have been investing prior to that first payment. As it works out, it would be about even by 2035 taking the lump sum vs the installments starting 2011. So I apologize for my comments toward indiandad.

I will say if Bonilla’s goal was to save for retirement and possibly take care of his family taking the installments was a great protection in the event of a steep market correction. The value of dollar cost averaging takes a lot of market risk out of play.
 

wolves82

Well-known member
Actually, even though we punk the Mets every year this comes up, it's actually a very smart ploy. They are probably actually saving money doing it this way. They bank the money each year, and just pay him the interest. It's not like the Mets don't have the money, and it's a nice "allowance" for him each year.

I believe Allen Iverson's agent set something up for him kind of like this where a good chunk of his money was deferred until he was like 48 or 50 years old. Point being many of these young pro athletes blow their money and then have nothing when they retire.
It can't be "very smart" for both Bonilla and the Mets. We have shown, with actual numbers, how it was indeed very smart for Bonilla. It was not very smart for the Mets. Clearly they were cash poor at the time, and chose to defer the payments, hoping that they would have more money down the road. But they are spending way more out of pocket in the long run.

Obviously you should hire a financial planner to help you with your retirement planning decisions.
 
.
Top