Happy Bobby Bonilla Day!
Today marks the 10th annual celebration of Bobby Bonilla Day, a holiday celebrated and hated by New York Mets fans like me across the country. It is today, July 1st, that the Mets will make their annual payment of $1,193,248.20 to a player that hasn’t played for them in over 20 years.
They will continue to do this for another 15 years until Bobby Bonilla is 72 years old.
Bonilla will make more this year than the Mets star first baseman Pete Alonso, who hit 53 home runs for them last year.
He’ll make more than twice as much as their starting shortstop, Amed Rosario.
In fact, Bonilla ranks as the 17th highest paid player on the Mets 40 man roster… one which he hasn’t appeared on since 1999.
The story of how the Mets got to owing Bonilla millions of dollars involves some of the best and worst financial planning decisions ever made but it has lessons for all of us.
Three years later, however, Bonilla was back on the free agent market and the Mets were willing to take another chance on him. In November 1998, they signed him to another large contract with the hope that the 1999 season would prove more fruitful. Long story short, the season proved to be a middling one for Bonilla and culminated with him playing cards in the clubhouse during the Mets final playoff loss to the Braves. That proved to be the straw that broke the camel’s back and Bonilla was released, yet again, by the Mets.
The problem for the Mets however, was that they still owed Bonilla the rest of the money on his contract… $5.9 million to be exact. Bonilla’s agent offered the Mets a deal that would provide them salary cap space and badly needed cash flow relief: Bonilla would defer his payout for 10 years and then begin receiving annual payments for the next 25 years.
The only sticking point? Bonilla’s agent wanted 8% interest on the money.
The Mets ownership thought it through and agreed to the terms for one simple reason: they earned more in “guaranteed” investments than the 8% they would be paying Bonilla. Hence, they had a free option to defer the money and actually earn money on what otherwise would have been Bonilla’s money. Sound too good to be true?
It was.
You see, the wrinkle in the story doesn’t come from the fact that Bonilla’s agent made a great deal (he did) but rather from the fact that the Mets had all of their working cash invested with a small firm based in New York called Bernard Madoff Investment Securities.
Yes, Bernie Madoff’s fund was the Mets’ “guaranteed” investment that would pay them 10% annually for the life of Bonilla’s contract… well in excess of the 8% demanded by the agreement.
Fred Wilpon has owned the Mets for over 30 years. He is an incredibly successful and sophisticated investor, having built a real estate empire through his firm Sterling Equities. He is bright, savvy, and philanthropic. He also got caught up in one of the biggest Ponzi schemes ever and it cost him hundreds of millions of dollars.
It’s been pretty well established at this point that Wilpon knew nothing of his friend Madoff’s illicit activities but his eyes were still blind to some very basic facts. For example, Wilpon’s statements from Madoff showed an amount of trading activity that would have exceeded the entire value of securities traded on those days. A first year auditor would have been able to figure this out using his statement and some common sense. The reason that no one did is because Madoff made it seem so easy. The accounts were never up too much or down too much. He churned out 10% returns year after year and no one asked too many questions. With the benefit of hindsight, Madoff’s option trading strategy would have smoothed volatility but never would have produced those kind of results.
It really was too good to be true.
If my kids only learn one thing from me about finance, I hope it’s the “Rule of 72”. If you take 72 and divide it by your annual return, it will tell you how many years it takes for your money to double. For Bobby Bonilla, that’s 9 years. So, Bonilla’s $5.9 million contract payment actually ends up swelling to $29.8 million over the life of the agreement.
Bobby Bonilla is living proof of the eighth wonder of the world: compound interest.
From the Mets perspective, Bonilla’s deal looks like one of the worst in the history of sports but, like most things, the truth is probably a little more complicated than that. Here’s why:
The Mets’ largest motivation for deferring Bonilla’s contract came down to the fact that they wanted to sign two players: Derek Bell and Mike Hampton. In order to be able to afford those contracts, they ultimately agreed to the Bonilla deal. The following year, Hampton would play a key role in the Mets winning the National League pennant and appearing in the 2000 World Series. That year was the famous “Subway Series”, which featured the first (and only) World Series matchup between the Mets and Yankees. The fanfare around the series was huge and a big cash generator for the Mets organization.
After that season, Mike Hampton and the Mets decided to part ways and he was traded to the Colorado Rockies. As part of that deal, the Mets received a draft pick which they ultimately used on the player that became the most notable (and marketable) part of their roster for the next 15 years: David Wright. Wright helped the Mets to the 2015 World Series, which led to another big cash influx for the team, and was the heart and soul of the Mets team for well over a decade.
So was the Bonilla deal as bad as it seems? Probably.
Would they have made the World Series twice had they not done it? Probably not.
The money generated from those World Series appearances was well in excess of the almost $30 million that they blew on the Bonilla deal but it’s hard to remember that every year when the payment comes due.
The crazy post-mortem to this story is that the Mets weren’t the only team to guarantee this kind of money to a player well beyond his playing years (although they were the only ones to do it and invest with Madoff). The Baltimore Orioles made a similar deal with an aging star just a couple of years after the Mets. They agreed to pay him $500,000 per year for 25 years after a 10 year deferral, terms that are essentially identical to the Mets deal.
Who is that aging superstar that the Orioles are still supporting?
They will continue to do this for another 15 years until Bobby Bonilla is 72 years old.
Bonilla will make more this year than the Mets star first baseman Pete Alonso, who hit 53 home runs for them last year.
He’ll make more than twice as much as their starting shortstop, Amed Rosario.
In fact, Bonilla ranks as the 17th highest paid player on the Mets 40 man roster… one which he hasn’t appeared on since 1999.
The story of how the Mets got to owing Bonilla millions of dollars involves some of the best and worst financial planning decisions ever made but it has lessons for all of us.
Three years later, however, Bonilla was back on the free agent market and the Mets were willing to take another chance on him. In November 1998, they signed him to another large contract with the hope that the 1999 season would prove more fruitful. Long story short, the season proved to be a middling one for Bonilla and culminated with him playing cards in the clubhouse during the Mets final playoff loss to the Braves. That proved to be the straw that broke the camel’s back and Bonilla was released, yet again, by the Mets.
The problem for the Mets however, was that they still owed Bonilla the rest of the money on his contract… $5.9 million to be exact. Bonilla’s agent offered the Mets a deal that would provide them salary cap space and badly needed cash flow relief: Bonilla would defer his payout for 10 years and then begin receiving annual payments for the next 25 years.
The only sticking point? Bonilla’s agent wanted 8% interest on the money.
The Mets ownership thought it through and agreed to the terms for one simple reason: they earned more in “guaranteed” investments than the 8% they would be paying Bonilla. Hence, they had a free option to defer the money and actually earn money on what otherwise would have been Bonilla’s money. Sound too good to be true?
It was.
You see, the wrinkle in the story doesn’t come from the fact that Bonilla’s agent made a great deal (he did) but rather from the fact that the Mets had all of their working cash invested with a small firm based in New York called Bernard Madoff Investment Securities.
Yes, Bernie Madoff’s fund was the Mets’ “guaranteed” investment that would pay them 10% annually for the life of Bonilla’s contract… well in excess of the 8% demanded by the agreement.
If it sounds too good to be true, it probably is.
Fred Wilpon has owned the Mets for over 30 years. He is an incredibly successful and sophisticated investor, having built a real estate empire through his firm Sterling Equities. He is bright, savvy, and philanthropic. He also got caught up in one of the biggest Ponzi schemes ever and it cost him hundreds of millions of dollars.
It’s been pretty well established at this point that Wilpon knew nothing of his friend Madoff’s illicit activities but his eyes were still blind to some very basic facts. For example, Wilpon’s statements from Madoff showed an amount of trading activity that would have exceeded the entire value of securities traded on those days. A first year auditor would have been able to figure this out using his statement and some common sense. The reason that no one did is because Madoff made it seem so easy. The accounts were never up too much or down too much. He churned out 10% returns year after year and no one asked too many questions. With the benefit of hindsight, Madoff’s option trading strategy would have smoothed volatility but never would have produced those kind of results.
It really was too good to be true.
The “Rule of 72” works wonders.
If my kids only learn one thing from me about finance, I hope it’s the “Rule of 72”. If you take 72 and divide it by your annual return, it will tell you how many years it takes for your money to double. For Bobby Bonilla, that’s 9 years. So, Bonilla’s $5.9 million contract payment actually ends up swelling to $29.8 million over the life of the agreement.
Bobby Bonilla is living proof of the eighth wonder of the world: compound interest.
Sometimes success is messy and hard to measure.
From the Mets perspective, Bonilla’s deal looks like one of the worst in the history of sports but, like most things, the truth is probably a little more complicated than that. Here’s why:
The Mets’ largest motivation for deferring Bonilla’s contract came down to the fact that they wanted to sign two players: Derek Bell and Mike Hampton. In order to be able to afford those contracts, they ultimately agreed to the Bonilla deal. The following year, Hampton would play a key role in the Mets winning the National League pennant and appearing in the 2000 World Series. That year was the famous “Subway Series”, which featured the first (and only) World Series matchup between the Mets and Yankees. The fanfare around the series was huge and a big cash generator for the Mets organization.
After that season, Mike Hampton and the Mets decided to part ways and he was traded to the Colorado Rockies. As part of that deal, the Mets received a draft pick which they ultimately used on the player that became the most notable (and marketable) part of their roster for the next 15 years: David Wright. Wright helped the Mets to the 2015 World Series, which led to another big cash influx for the team, and was the heart and soul of the Mets team for well over a decade.
So was the Bonilla deal as bad as it seems? Probably.
Would they have made the World Series twice had they not done it? Probably not.
The money generated from those World Series appearances was well in excess of the almost $30 million that they blew on the Bonilla deal but it’s hard to remember that every year when the payment comes due.
The crazy post-mortem to this story is that the Mets weren’t the only team to guarantee this kind of money to a player well beyond his playing years (although they were the only ones to do it and invest with Madoff). The Baltimore Orioles made a similar deal with an aging star just a couple of years after the Mets. They agreed to pay him $500,000 per year for 25 years after a 10 year deferral, terms that are essentially identical to the Mets deal.
Who is that aging superstar that the Orioles are still supporting?
Bobby Bonilla.
