Bobby Bonilla is 52 years old and hasn’t played Major League Baseball since 2001. But the Mets will pay Bonilla $US1.2 million today in the latest instalment of what many consider one of the worst deals in sports history.
Following the 1999 season, the Mets wanted to buy out the final year of Bonilla’s contract. But instead of paying him the $US5.9 million he was owed, the two sides agreed to a deferred compensation deal with the Mets paying Bonilla 25 annual payments of $US1.2 million starting on July 1, 2011.
On the surface the deal looks laughable for the Mets as the payments will total $US29.8 million. However, it is not nearly that simple and the deal was actually a good one for the Mets.
If Bonilla had accepted the $US5.9 million in 2000 and invested the entire amount at 8% interest, the original investment would have grown to $US104.1 million by 2035* (blue line in chart below). If instead, Bonilla took his annual payment and invested it with an 8% annual return, he would have $US95.2 million by 2035 (orange line in chart below).
In other words, Bonilla lost nearly $US10 million in potential earnings by taking the payments instead of the lump sum.
But more importantly for the Mets, if they invested the $US5.9 million at 8% interest in 2000, that money would have grown to more than $US14 million before they had to make a single payment to Bonilla. That money would continue to draw interest even while they are making payments.
By 2035, the Mets would still have $US8.9 million left over (red line in chart below).
Of course, this assumes that both sides would have invested the money wisely and considering the Mets’ history, that is certainly questionable. But the deal itself was smart and if the money was invested wisely, the Mets would have actually profited from Bonilla’s generosity and the contract wasn’t so dumb after all.
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