The past two decades haven’t been easy for Met’s fans, even with the World Series appearance in 2015. And every year on July 1st, those groans seem to get just a little bit louder.
July 1st is known as Bobby Bonilla Day to Mets fans, as it marks another payment of $1,193,248.20 to the former third basement/right fielder Bobby Bonilla, who last played in a Mets uniform back in 1999. Those annual payments will continue through 2035 after Bonilla took a buyout offering him $1.19 million per year for 25 years starting in 2011, rather than a single $5.9 million buyout in 2000.
Anyone with basic math skills can see how 25 annual payments of $1.19 million adds up to $29.75 million over time, a lot more than the single $5.9 million remaining on his contract in after the 1999 season. Yet another Mets blunder right? … Maybe not. When taking into consideration how an immediate $5.9 million buyout would effect the Mets short term financials versus a delayed fixed number of payments, the Mets might not be so stupid after all.
Bonilla was a headache in the locker room for manager Bobby Valentine, not to mention severely underperforming at the plate, batting .160 with just 4 home runs in 1999. Rather than keep him under contract for yet another season, the Mets decided to buy him out of the $5.9 million remaining on his contract.
If Bonilla accepted the one time $5.9 million buyout in 2000 and invested that money with an annual return of 8%, he’d have over $87 million. ((5,900,000 * (1.08^35/.08)= 87,233,531).
Meanwhile, when the Mets agreed to Bonilla’s deal, they had 10 years before they had to pay him. If they took the $5.9 million he was owed and invested that money with an annual return of 8%, it would have grown to over $12.7 million, or the equivalent of 10.7 years worth of payments from what couldn’t initially even cover 5 years of those $1.19 million payments. By 2010 the Mets would have that $12.7 million, and begin paying Bonilla the annual payment while still letting the remaining balance accrue interest, over the 25 years from 2011 to 2035, the value of the remaining balance will grow due to interest while annually decreasing due to each annual payment. By 2035, the Mets will have paid Bonilla in full and finish with $0.05 in their bank account.
Beyond the math, Bonilla’s willingness to delay payment helped the Mets during their immediate need for talent. They used the money they initially saved from Bonilla’s buyout on free agent Mike Hampton (he earned $5.75 million in 2000). Hampton helped lead the Mets to the 2000 World Series and also received NLCS MVP during those playoffs. The next year, Hampton turned down the Mets’ one year qualifying offer and signed a massive deal as a free agent with the Rockies. This gave the Mets a compensatory first round pick, which later became Mets legend David Wright.
So take every July 1st with a grain of salt Mets fans. Everyone on Twitter might make fun of you and your team, but if you paid attention in your college economics class, the time value of money is a crucial concept, and money on hand is worth more the sooner it is moved. The Mets saved money in the present in 2000, and wisely expensed it out. The last 20 years have been filled with significant macroeconomic swings as well. Besides…no Bobby Bonilla, no David Wright. Now you can sleep easily knowing it wasn’t such a bad deal, and certainly not the “worst deal ever.”
Here’s our work:
|Year||Met’s Starting Balance||Interest Earned||Payment to Bobby Bonilla||Met’s End Balance|