Bobby Bonilla of the New York Mets observes before a baseball game against the Arizona Diamondbacks on May 15, 1999 at Shea Stadium in New York.
Mitchell Layton / Getty Images
Bobby Bonilla, who retired as a baseball player in 2001, has not played for the New York Mets since 1999.
However, Bonilla is among the top-ranked players on the Mets’ roster this year.
The team paid the 57-year-old $ 1,193,248.20 on Wednesday, as he has done every year for the past decade and will continue to do so until 2035.
His payday, July 1, is widely known as “Bobby Bonilla Day”.
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That good fortune is courtesy of a contract Bonilla signed with the franchise in the early 2000s, considered to be one of the most legendary deals in sports history.
For the Mets, it’s known as one of the worst, and one involving Bernie Madoff’s famous Ponzi scheme that exploded during the 2008 financial crisis.
“I think he got the best deal around the world,” said Jeffrey Levine, director of advanced planning for Buckingham Wealth Partners, about Bonilla. “He absolutely took the Mets to the woodshed.”
In 2000, the Mets agreed to purchase the remaining $ 5.9 million Bonilla contract.
Instead of paying that cash up front, the team agreed to give Bonilla $ 1.19 million per year for 25 years. Payments were deferred from 2011. Your annual payment includes a guaranteed interest rate of 8%.
Bonilla’s career did not end with the Mets. After being released in 2000, he played ball for the St. Louis Cardinals in 2001. Bonilla was among the highest-paid players in the big leagues when he initially signed with the Mets in the early 1990s.
Bonilla’s deal is extremely lucrative for two reasons, according to Levine, who is a certified financial planner and CPA.
For one thing, the Mets are paying Bonilla nearly $ 29.8 million, which is the sum of all his annual payments.
That’s more than double the $ 12.7 million value Bonilla’s contract would have had at the time he began receiving his payment in 2011, according to Levine’s calculations.
“If you could get a guaranteed return of 8% of your money, would you? The answer should be yes.”
– Jeffrey Levine, director of advanced planning for Buckingham Wealth Partners
Also, a guaranteed interest rate of 8% is especially generous.
It is the equivalent of an 8% return on an investment each year, and without the volatility or risk present in the stock market.
Since the Federal Reserve cut interest rates to near zero during the Great Recession, savers cannot get a comparable return on traditionally safe investments like cash or bonds.
“If you could get a guaranteed return of 8% of your money, would you? The answer should be yes. It is extremely difficult,” said Levine.
That return is similar to Social Security, considered by financial advisers and money managers as one of the best deals in the city. The system pays retirees an additional 8% each year they wait to claim benefits, up to age 70.
But Bonilla’s treatment is even better, Levine said, since his heirs would also continue to receive his payment each year if he passed away.
By context, if the Mets paid a lower interest rate (3%, for example), the team would have paid Bonilla around $ 455,000 each year (instead of $ 1.2 million), for a total value of approximately $ 11.4 million (instead of $ 29.8 million), Levine said.
Of course, the Mets didn’t necessarily completely lose the deal. On the one hand, they were able to free cash by deferring payment, according to some observers.
But the team fell victim to a somewhat risky form of investment arbitration involving Bernie Madoff.
Mets owners believed they could easily finance an 8% interest rate, as they were supposed to get a higher return on investment than they had made with Madoff.
Unfortunately, that turned out to be a house of cards. Madoff executed the largest Ponzi scheme in history and is currently serving a 150-year sentence.
Money lessons
The Bonilla deal has some money lessons for the average person.
For one, it shows the importance of having a long-term view of the savings and investment portfolio, Levine said.
The Bonilla deal shows how Americans can benefit in the long term by moderating short-term momentum such as leaving the stock market if there is a sudden drop.
Also, it shows the need to be cautious about debt.
Loans and credit card debt can help people buy things they might not otherwise be able to pay. A mortgage, for example, allows people to buy a home.
But the Mets deal, which is equivalent to taking a 35-year mortgage with an 8% interest rate, demonstrates how bill payments can quickly start to accumulate when debt has a higher interest rate, Levine said.
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