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You may not know this if you do not follow baseball closely, but July 1st is unofficially known as “Bobby Bonilla Day”.
Who on earth is Bobby Bonilla?
Well, Bobby Bonilla played 16 seasons in the big leagues. He had an excellent career. He was named an all-star 6 times, won a championship, and was even the highest paid player in Major League Baseball for 3 seasons from 1992-1994. Talk about impressive.
However, he has become lesser known for his career accomplishments and better known for his paycheck. He has received $1,193,248.20 every July 1st since 2011 by the New York Mets. And, he will continue to receive that until 2035, when he’s 72 years old.
How does a major league player get paid until he’s 72?
After the 1999 baseball season (yes almost 20 years ago), the Mets released Bobby Bonilla. However, they still owed him $5.9 million on his outstanding contract. Bonilla’s agent, Dennis Gilbert, who was also an insurance agent who knew the ins and outs of annuities, offered the Mets a deal. Instead of Bonilla receiving the his $5.9 million, Bonilla agreed to defer his payment until 2011, when he would receive 25 payments of $1.19 million, ending in 2035, for a total payment of $29.8 million.
Fred Wilpon and a Ponzi Scheme
The Mets owner, Fred Wilpon, thought this was a wonderful deal as he was making 12-15% on his money through the wealth management firm that he invested in, Bernard L. Madoff Investment Securities LLC.
Yes, Bernie Madoff. The same guy who is in jail for perpetrating a ponzi scheme on his investors.
While you may think that Fred Wilpon must have lost a ton of money investing with Bernie Madoff, you would be wrong. Wilpon and his family made more than $300 million with Madoff.
It’s rare that someone would benefit so much off of a Ponzi scheme when they aren’t the one actually running it. However, attorney Irving Picard did sue Wilpon on behalf of the victims of Madoff’s investment scandal. The settlement was for $162 million.
In the end, Wilpon still made $138 million. That doesn’t seem fair, but hey, what do I know?
Quick side note: Did you know that Bernie Madoff didn’t get caught for his Ponzi scheme until December of 2008, when one of his sons turned him for fraud? In fact, in 1999, financial analyst Harry Markopolos tried to replicate Madoff’s return and couldn’t. He reported this potential fraud to the SEC in 2000, 2001, and 2005. However, the government ignored him.
I don’t know how many complaints they receive a day, but that seems like an obvious failure to do their due diligence if somebody alerted them on 3 separate occasions.
Anyway, if you’re interested in reading more about this fascinating story, check out No One Would Listen: A True Financial Thriller.
Now back to Bobby Bonilla.
Sportswriters love to tease the New York Mets for having Bobby Bonilla still on the payroll. They find it comical that the Mets have to pay Bonilla $1.19 million, every year until 2035. These writers love to gloat that Bobby Bonilla will be paid $29.8 million over the life of this annuity, when the Mets could have gotten off the hook for only $5.9 million back in 1999.
However, as astute financial readers, you know that these baseball writers are not thinking about everything that they need to.
As we know all know, future dollars do not hold the same worth as current dollars. There is a reason that the Mets owner wanted to hold on to the $5.9 million dollars at the time. He probably assumed that he could grow that amount to exceed the $29.8 million that he would owe Bobby Bonilla in the future.
Here’s a quick chart to show you how much that $5.9 million could be worth in 2035, if Bobby Bonilla had received it and invested it in the stock market with an 8% rate of return.
$5.9 Million Salary Invested
Yes, you are seeing that right.
That $5.9 million invested would be worth over $101 million in 2035. Essentially, Bobby Bonilla could have passed up $72 million dollars by taking an annuity instead of taking a lump sum.
Instead of these sports writers poking fun at the New York Mets, they should be praising them. That was quite an astute financial move on their part nearly two decades ago.