Happy fiscal year! The New York Mets already have over a million dollars in the hole. Most companies begin their fiscal year on the first day of July; it’s a chance for businesses to start again. For the New York Mets, it’s the same old problem. July 1st is Bobby Bonilla Day.
As you’ve probably seen all over the news and on the web and right here on CelebrityNetWorth, Mets will make a direct deposit $ 1,193,248.20 in Bonilla’s bank account. They will continue to make this deposit every July 1 until 2035. The 25-year payment plan was created in 1999 after the team bought the one-year Bonilla contract and $ 5.9 million left. . As a result, in 2016 Bonilla did more than the superstar Mets player Matt Harvey.
While most deplore the Mets for making a horrible business decision, it’s fair to say that both sides left money on the table. Here’s how:
Finance people always talk about the time value of money. Is it better to take the money now or wait and receive the money? If you think you can invest wisely, it is usually best to take the money when you can and let compound interest do its job.
The Mets clearly made a mistake. Instead of paying Bonilla $ 5.9 million to leave, the team will pay Bonilla $ 29.8 million until 2035. At first glance, it sounds like a $ 24 million mistake. But suppose the Mets took that $ 5.9 million, invested it, and received a 10% rate of return.
- In 2017, this $ 5.9 million would have been worth $ 27.1 million. It’s almost enough to pay Bonilla’s rent.
- In 2020, this total was close to $ 40 million. The Mets win.
- In 2035, when this Bonilla saga ends, the total is $ 180 million. The Mets earn even more.
None of this takes inflation into account, and a major change in the markets could make all of these figures pointless. It also assumes a rate of return of 10% which would be difficult to achieve year after year.
The fact is that there was a financial reason behind the wait to pay Bonilla, especially since they were investing more than 10% a year with Bernie Madoff. Unfortunately, as we all know, Madoff was a fraud and the calculations that made the Bonilla agreement work quickly fell apart.
It should be noted that the Mets certainly did not end up gaining 10% between 2000 and today. As we saw in This article, team owner Fred Wilpon has been heavily invested with Bernie Madoff. Before Madoff’s collapse in 2008, his fund returned a consistent (and completely wrong) double-digit rate of return each year. With these returns in mind, Wilpon thought the Mets would actually make a huge profit by deferring Bonilla’s money.
Unfortunately, as we all know by now, Bernie Madoff’s investment fund was actually a gigantic Ponzi scheme. Wilpon, who had the false impression that he had invested $ 300 million with Madoff, had potentially lost as much as $ 700 million, thereby completely canceling out the earnings on Bobby’s money.
Today it looks like the Mets have lost a lot of time. And while Bobby Bonilla is probably having a huge party knowing that there is something called Bobby Bonilla Day on social media, he may also have lost!
Keep in mind that Bonilla had to $ 5.9 million. If Bobby had taken the money owed to him at the time, invested and hoped for a 10% return, he would have easily set aside more than $ 100 million by 2035, instead of the $ 29 million that ‘he will receive. Even if he invested the entire initial amount and received a 10% return, it would not be as much as taking the lump sum and investing it until 2035.
FYI: If Bobby Bonilla had taken $ 5.9 million in 2001 while Amazon was trading at $ 10 a share, and had dumped everything in that stock … today it would have $ 1.6 billion.
Are there variables? Of course. There is no guaranteed return on the market. Did Bobby actually get 10% every year for decades? Probably not. There is also the security of knowing that a payment takes place every day of the new fiscal year. It still doesn’t change the fact that basic math doesn’t look good when a 52-year-old retiree earns more than the team’s best pitcher. But there is a value over time that can often outweigh the value of a dollar. It’s something to think about every fiscal new year, and even Bobby Bonilla Day.