Happy Bobby Bonilla Day!
If you struggle to understand how compound interest can help build your retirement savings, you'll find Bobby Bonilla Day very instructive.
Here on the OppLoans Financial Sense blog, we write a lot about how people can fix their credit scores, build their savings, and generally improve their long-term financial outlook. But sometimes it’s fun to write about—well—the opposite of that: People who luck into ridiculously sweet financial situations where all they have to do is sit back and watch the money roll in.
On that note: Happy Bobby Bonilla Day! It’s by far the world’s #1 niche sports-finance-based holiday, a time to sit back and reflect on the two most incontrovertible truths that govern this vast and mysterious universe of ours: First, that former Major League Baseball star Bobby Bonilla has it made in the shade; second, that the New York Mets are very bad at business.
What is Bobby Bonilla Day?
Bobby Bonilla Day falls on July 1st because that is the day, every year, that the New York Mets pay Bobby Bonilla $1.19 million. If that sounds like it’s a fairly run-of-the-mill arrangement, it helps to note that Bonilla has not played in the MLB since 2001 and hasn’t played for the Mets since 1999.
The first Bobby Bonilla was celebrated in 2011 and the final Bobby Bonilla day will be commemorated in 2035. In that timespan, Bonilla will collect a whopping $29.8 million from the Mets, all for doing absolutely nothing! Sounds like a pretty sweet gig right? So what happened?!
Deferred payments and compound interest.
Bobby Bonilla was a very good baseball player. He played in the Major Leagues from 1986 to 2001, collecting six All-Star appearances and three Silver Sluggers along the way. He even won a World Series ring with the 1997 Florida Marlins. But the following year, he was traded to the Los Angeles Dodgers midseason who then traded him to the New York Mets the following November.
Bonilla had already played with the Mets from 1992 to 1995, but this reunion was not exactly a happy one as Bonilla’s declining play leading to numerous clashes with Mets manager Bobby Valentine. After the 1998 season concluded, the Mets decided to wash their hands of Bonilla entirely and release him from his contract.
There was only one problem: Bonilla was still owed $5.9 million on said contract. Under these circumstances, teams who can’t find a trade partner will simply pay out the rest of the player’s contract in order to get him out of the clubhouse. If the player is eager to leave the franchise as well, their agent can also negotiate a smaller payout in order to facilitate their release.
What Bonilla’s agent did in this case, however, was slightly different. (Okay, okay, it was a lot different.) Bonilla’s agent, Dennis Gilbert, offered to have Bonilla defer payment for a full decade. In return, the Mets would let that $5.9 million accrue interest at a rate of 8% annually starting in the year 2000. It’s similar to the structure seen in many life insurance contracts—a fact likely owing to Gilbert’s previous work as an insurance agent.
After the decade had passed, Bonilla would then start collecting a portion of the money every year until 2035. If you’ve ever wondered how compounding interest works on your retirement savings, this deal is a great example: That eight percent annual interest rate on Bonilla’s salary turned $5.9 million into $29.8 million overall.
Bonilla took his first payout on July 1st, 2011. Now, every year, July 1st is celebrated as Bobby Bonilla Day by an incredibly esoteric blend of hardcore baseball nerds, finance aficionados, and aggrieved Mets fans (otherwise known as … Mets fans). For reference, the Mets are paying Bonilla over twice as much in 2019 as they are paying rookie Pete Alonso, whose 27 home runs are good for second in the National League.
How did this deal work out for the Mets?
Frankly: not well!
If attaching an 8% annual interest rate onto the remaining money in Bonilla’s contract seems like a curious decision by Mets owner Fred Wilpon, it helps to understand some of the surrounding contexts.
At the time that they agreed to defer Bonilla’s contract, the Wilpon family was invested in an absolutely superb New York investment fund that was enjoying unheard of annual returns of 12 to 15%. So even with that 8% annual interest rate tacked on, they were still coming out ahead!
Here’s the problem. That fund’s improbable-seeming success was all thanks to one man: Bernie Madoff. Oops! Those returns that the Wilpon’s had been enjoying were actually just funds from new investors being passed off as profits. When Madoff’s multibillion-dollar Ponzi scheme collapsed during the 2008 financial crisis, it took approximately $500 million of the Wilpon family’s money with it.
Here’s the kicker: This is actually the second set of deferred payments that Bonilla has with the Mets. When they traded Bonilla to the Orioles in 1995, the two teams split a $12.5 million payment between them into 25 separate installments. Bonilla received his first payment in 2004 and will receive his last payment in 2028 for a total of $15.3 million.
Be like Bobby.
If you’re debating whether or not you should start contributing to your retirement account, take the lesson of Bobby Bonilla Day to heart. Putting that money aside now and adding some compounding interest to the mix will result in a lot more money down the line. It probably won’t be worth $1.19 million a year, but it’ll still be well worth the wait.
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