Every Month, The NY Mets Pay Some Random Guy $9,000 That Was Originally Supposed To Be Darryl Strawberry's Pension

By now, we pretty much all know about Bobby Bonilla's famous contract. If you somehow do not know what I'm talking about, Bobby Bonilla hasn't swung a baseball bat professionally since 2001, yet every year on July 1st, the Mets cut him a check for $1.2 million. It all traces back to a deal Bobby and the Mets signed that deferred a chunk of his earnings to the future. Bobby will receive his final payment in 2035, at which point he will be 72 years old.

But Bobby wasn't the first baseball player to sign a contract with deferred earnings. He wasn't even the first Met to do it.

Back in 1985, Darryl Strawberry signed a contract that deferred a massive chunk of his future salary. Unfortunately, today, that money does not go to Darryl. It doesn't go to his ex-wife or his children, either.

Instead, for the next seven years, through August 2033, some random guy, who has never played professional baseball in his life and has probably never met Darryl, will be receiving what was supposed to be his golden years retirement money. A little under $9,000 per month.

Darryl Strawberry in 1983 (via Getty)

A 30-Year Annuity

During his entire baseball career, Darryl Strawberry earned $30 million in total salary.

During his 1983 rookie season, Darryl earned $36,000 in total salary from the NY Mets. After you adjust for inflation, that's the same as earning around $120,000 today. The following season, he made $230,000 (roughly $750,000 in today's dollars).

In 1985, Darryl signed a new contract with the Mets that would pay him a total of $7.1 million through the year 1990. The per-season salaries for this contract were:

• 1985: $516,000
• 1986: $945,000
• 1987: $1.24 million
• 1988: $1.32 million
• 1989: $1.495 million
• 1990: $1.85 million

But there's a caveat to that last season's dollar amount.

During the 1985 contract negotiations, Darryl and the Mets agreed to defer 40% of his final year's salary. So, in 1990, he was paid $1.11 million upfront, and the remaining $740,000 was deferred. The Mets held onto that $740,000, allowing it to grow at a guaranteed 5% annual interest rate.

By the time payouts were ready to begin in late 2003, that deferred money had ballooned. The Mets agreed to pay out the balance as a 30-year annuity. Starting around early 2004, checks for $8,891.82 began rolling out, scheduled to run all the way through August 2033.

It sounded like the ultimate retirement plan. Unfortunately, that's not how it ended up playing out.

The Downfall: Taxes, Divorce, and the IRS

Despite the fact that he went on to earn an additional $20+ million over subsequent contracts with the Dodgers, Giants, and Yankees, Darryl was already making some terrible financial mistakes.

At some point around 1987, Darryl decided to stop paying all of his taxes. And not just a few hundred or even a few thousand dollars. Between 1987 and 1990, Darryl underpaid his federal income taxes by $542,572. He also racked up additional tax debts later on in 2003 and 2004.

When the Mets started cutting those $8,891 monthly checks in 2004, Darryl didn't get to enjoy them. The IRS immediately slapped a levy on the team, forcing the Mets to send the checks directly to the government to cover his massive back taxes.

Things got even messier during Darryl's 2006 divorce from his wife, Charisse. A judge ordered him to allocate part of this Mets annuity for spousal support. However, before Charisse could collect a dime, the IRS stepped in and said, Not so fast. When Charisse eventually filed for Chapter 7 bankruptcy in 2010, a federal judge ruled that the IRS's tax liens superseded both her bankruptcy claims and the divorce settlement.

The annuity legally belonged to the United States government.

The IRS Auction

The government generally doesn't like sitting around waiting for monthly annuity checks; they prefer lump sums. So, they decided to auction off the remainder of Darryl Strawberry's contract to the highest bidder.

In January 2015, the IRS held an auction in Fairview Heights, Illinois, offering "the right to receive ongoing monthly payments under the Darryl Strawberry Deferred Compensation Agreement."

At the time of the auction, there were exactly 223 monthly payments remaining. At $8,891.82 a pop, that meant the IRS was auctioning off a guaranteed gross payout of roughly $1.98 million.

The minimum bid was set at $550,000, requiring a 20% down payment via cashier's check the moment the bid was accepted.

Financially speaking, valuing an annuity requires some basic math. Because of inflation and the time value of money, $1 today is worth more than $1 tomorrow. Using a Discounted Cash Flow (DCF) equation with an 8% discount rate (roughly the historical annual return of the S&P 500), the "Net Present Value" of those remaining checks was about $675,000.

In theory, anyone who bid more than $675,000 would be stupid. They would theoretically be better off just putting that cash into an index fund for 18 years.

But when the gavel fell, an anonymous male buyer won the auction with a staggering bid of $1.3 million.

Why would someone pay $1.3 million upfront for $1.98 million paid out over 18.5 years? It sounds like a terrible investment compared to the stock market.

But context is everything. In January 2015, interest rates were hovering near zero. By paying $1.3 million for that specific stream of income, the buyer locked in a highly secure, corporate-backed guaranteed internal rate of return (IRR) of roughly 5.2%.

For a wealthy, conservative investor looking for a fixed-income alternative to bonds in a zero-interest-rate environment, a guaranteed 5.2% yield backed by Sterling Mets LP wasn't stupid at all. It was actually a highly attractive, safe harbor for their cash.

Plus, they bought themselves the greatest cocktail party story in sports history.

So, if you happen to be a Mets fan, just remember: every single month until August 2033, your team is wiring nearly $9,000 to a completely random guy.