Bobby Bonilla hasn’t swung a baseball bat professionally for over a decade, but every year on July 1, the Mets $ 1.2 million. How is it possible? In his 14 MLB seasons, Bonilla has been a six-star, three-time silver hitter and member of the 1997 World Series champion, Marlins of Florida. At its peak, we could expect it to reach 20 circuits per year with 100 RBIs and a batting average well above 0.300. In 1991, Bobby signed a $ 29 million, five-year contract with the Mets that made him the highest-paid baseball player ever. Unfortunately, towards the end of his career, Bobby became a little disappointed. In 1999, with one year remaining on his contract, he averaged only .160 with four circuits and 18 RBIs. So why on earth did the Mets management agree to give him an incredibly lucrative new contract that still earns him millions every year today? The answer involves brilliant financial planning, an overly aggressive Mets organization and, believe it or not, Bernie Madoff.
Bobby Bonilla bounced back a bit at the twilight of his career. A year after winning a world series with the Marlins, he was shipped to the Dodgers for a season. He was then brought back to the Mets where he spent this horrible 1999 season arguing mainly with manager Bobby Valentine. This season ended in an embarrassing incident when Bobby and teammate Rickey Henderson were caught playing cards in the shelter as their team lost the last NLCS game to Atlanta. Needless to say, there was not much love between Bonilla and the Mets organization in 2000. Unfortunately, the Mets still owed her $ 5.9 million.
Bobby knew it was probably the very last few dollars he would see from a major league contract. He had a maximum of three seasons lower than his legs. Whatever money he had saved, plus this final payment of the Mets, it could potentially last more than 40 years. Adding to the 36-year-old hitter’s anxiety, the fact that many of his fellow athletes had fallen into disrepair a few years after their retirement. Bankrupt athletes is a sadly common story. A recent Sports Illustrated report found that 70% of NFL players, 60% of NBA players and the vast majority of MLB players are bankruptcy within 2 to 4 years of retirement. Most of these athletes do not have a higher level of education and have no skills that can be easily transferred to the real world. Athletes are notoriously bad at managing their own money. They make terrible investment decisions and spend a lot even when there is no more money. Curt Schilling lost every penny $ 50 million he played baseball on a bankrupt video game company. Allen Iverson squandered a $ 150 million fortune on games of chance, houses, jewelry, child support and an entourage of 50 people. Mike Tyson exploded $ 300 million fortune. Evander Holyfield blew through a $ 250 million fortune. The list is endless.
Similar to professional athletes, a high percentage of lottery winners fell flat within a few years after receiving a huge sum of money. Lottery winners face the same problems as athletes. With zero experience, most spend more and get caught up in bad investment projects. When you win the lottery, you usually have two choices: you can immediately accept a smaller lump sum, or you can get paid the full amount in monthly increments over several years. If you’re talking to an investment advisor or a financial professional, 100% will recommend taking the lump sum. Even if you accept a lower amount, the time value of money makes it much more valuable than being paid over several years. A lump sum of $ 60 million should, in theory, greatly exceed the $ 100 million that would eventually be paid over 30 years. Today, $ 60 million can be invested in stocks, CDs, bonds, treasury certificates, real estate, etc. spread out their money instead of taking a lump sum.
When negotiating with the Mets, Bobby Bonilla was smart enough to get one of the most cutting-edge contracts in the history of the sport. He knew the Mets wanted him to leave, but technically owed him $ 5.9 million. He also knew that he had a young son and a daughter who were looking to go to university and, at 36, he probably had many years to live. So at this point, Bobby and his agents came up with a unique compromise: the Mets would release Bobby to play for another team and delay payment of $ 5.9 million for 11 years, with interest. In essence, the Mets agreed to pay Bobby a total of $ 29.8 million (instead of $ 5.9 million) in 25 annual installments of $ 1.192 million, as of 2011. When he received his first payment of $ 1,192, Bobby was 48 years old and had not played in the big leagues for 10 years. He basically guaranteed himself a big league salary every year for the rest of his life. Today, Bobby Bonilla earns more per year with the Mets than most active players on the team! So why would the Mets accept this deal?
The Bernie Madoff Connection
In 1986, Real estate developer Fred Wilpon purchased 50% of the New York Mets for an undisclosed amount. He bought the remaining 50% for $ 135 million in 2002. Wilpon was also one of the biggest investors in Bernie Madoff’s Ponzi scheme hedge fund. Before the fund collapsed in December 2008, Madoff returned a consistent (and completely wrong) double-digit rate of return each year. With these returns in mind, Wilpon knew that the Mets would actually make a huge profit by deferring the $ 5.9 million from Bonilla. Even if that meant agreeing to pay him more than five times the amount they owed ($ 29.8 million), Wilpon could safely estimate that the Mets would earn $ 60-70 million out of $ 5.9 million in during these 25 years of investment with Madoff.
Unfortunately, as we all know by now, Bernie Madoff’s investment fund was actually a gigantic Ponzi scheme that wiped out between $ 20 billion and $ 65 billion in wealth for thousands of investors. Wilpon, who had the false impression that he had invested $ 300 million with Madoff, had potentially lost as much as $ 700 million. Not only did this completely invalidate the justification for Bobby Bonilla’s contract, but it almost forced Wilpon to sell The Mets to cover his debts. In 2011, Wilpon almost sold 50% of the Mets to a billionaire hedge fund manager named David Einhorn, but was eventually saved by loans from Major League Baseball and Bank of America. Meanwhile, Bobby Bonilla lives the good life. On July 1, 2013, he received his third direct deposit from The Mets for $ 1,193,248.20. Barely five months earlier, Bobby had celebrated his 50th birthday. Today, Bobby is 55 years old and is a living lesson on why we all better refuse lump sums and opt for deferred payments instead. I hope we will all have to make this choice one day!