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Aside from having a kick-ass name belonging in the elite collection of late-90s/early-2000s baseball players that hold a special place in my heart, Bobby Bonilla (“bo-knee-ya” for all you uneducated baseball greenhorns) was actually pretty talented as a switch-hitting utility player back in the day. It turns out that when his game started heading south, he made a nifty financial power move — a PGPM, if you will — that has him swimming in flowing cash for several years to come.
After signing a lucrative contract with the New York Mets in 1999, Bonilla drastically underperformed, leading to the Mets releasing the 6’3 Bronx native. According to ESPN, instead of directly paying Bonilla the rest of the $5.9 million his contract entitled him to, the sides came to an unusual resolution without paying a dime to him upon release: starting in 2011, the Mets will pay Bonilla $1.19 million every July 1 through the year 2035. In the off chance that you are not Will Hunting and didn’t do the mental math just now, that adds up to a total of $29.8 million — all for delaying and spacing out his payment of the original $5.9 million. That’s one hell of an interest rate.
Basically, he’s flush with cash.
As you plan ahead of your ultimate dreamy dad life in which hope to have too much money for your own good, take notes from Bonilla’s insightful negotiating skills.
According to ESPN, longtime Mets owner Fred Wilpon took control of the situation, and figured that given his promising investment relationships with not-yet-discovered scumbag Bernie Madoff, the $29.8 million would be glorified pocket change — it was more important to create salary cap space for the Mets 2000 season than to worry about the actual dollar-and-cents at hand. Wilpon was right about one thing: the Mets took advantage of the extra cap space and ended up making the World Series. Unfortunately for the supposedly business-savvy Wilpon, though, Bernie Madoff turned out to be a filthy criminal in 2008, and those investments he was counting on fell through in the worst way. Not coincidentally, the Mets haven’t made the playoffs since 2006.
Moral of the story: like Bonilla did, manipulate your stupid-rich wise-ass of a boss to give you more money than you deserve. Take the dignified, underrated high road instead of cashing in immediately. As Bonilla’s absurdly lucrative severance package proves, “Patience is a virtue.”.
[via ESPN]
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It all depends on what you think they expected rate of return on an investment of the principal amount would be.
With simple calculations, it seems the tipping point is around 7% for this case. If he could earn more than 7% on the principal 5.9 million (he clearly doesn’t need to spend it) then he would have actually been better off taking the 5.9 million upfront instead of delaying the payments.
If you look at the Russell 3000 lets say (16%+ return from 99-2011) or the Russell 2000 (96% return 99-2011) he is actually worse off than if he took the money up front.
Real moral of the story: compounding is very powerful. He is not a wizard pulling power moves.
You’re absolutely right. But this is all assuming he would invest it and not blow it all on a couple super cars. While it’s smarter to take the upfront cash, he will get the money when he is hopefully more responsible with it. It makes it idiot proof and more agents should do it. Especially for the NFL.
Yes, but he clearly could live without spending it (he did), so it’s definitely feasible.
Thank you, Rainman. Aren’t you late for Wapner?
$1 today is worth more than $1 tomorrow….basics of the time value of money.
Congratulations. You have the immense knowledge of the average high school student.
God, can you imagine what those 15 years in between were like? You can basically do anything you want, be as lazy or as ambitious as you’d like, because no matter what, you’re hitting the jackpot at the end.
I have to imagine his agent is getting a cut of that
The only problem is, Bonilla filed for bankruptcy, and isn’t getting a penny of this.
Whoa that’s a lotta dough