For most people, July 1st is a pretty average day. If you're a kid, July 1st might be the first day of summer camp. If you're Liv Tyler, Missy Elliot or Dan Aykroyd, July 1st is your birthday (40th, 46th and 66th, respectively). If you live in Rwanda, July 1st marks the anniversary of the day you gained independence from Belgium. July 1st, 1979 was the day that Sony introduced the Walkman. It was also the day in 1997 that Britain handed Hong Kong back over to China.
Historically speaking, July 1st is kind of just a boring day. It certainly doesn't help that it's three days away from one of the biggest party weekends of the year, aka America's birthday. But despite being a generally bland day, there's one person who DEFINITELY gets very excited every time July 1st rolls around on his calendar. That person is 54-year-old, retired baseball player Bobby Bonilla. In fact, July 1st is so exciting for the former slugger that it's now known around the world as "Bobby Bonilla day".
That's because tomorrow is the day that the New York Mets pay Bobby, a man who left baseball 15 years ago, $1,193,248.20.
For those of you who are not familiar with this story, it's one of the best.
Bobby Bonilla played 16 seasons of major league baseball from 1986 to 2001. He played third base and right field and had a career batting average of .279 with 287 home runs and 1,173 RBIs. He was a six-time All-Star, three-time Silver Slugger Award winner and a World Series Champion in 1997.
Bobby played his final MLB game on October 7, 2001. That's 14 years and 8 months ago. So how do you explain the fact that Bobby was technically the 12th highest paid player on the Mets roster in 2016? And the highest paid player this season? It all goes back to what has been dubbed "The Greatest Contract In Sports History". Here's what's going on:
Bobby Bonilla's Magical Contract
At the peak of his career, Bobby was one of the best players in baseball. He could be expected to hit 20 home runs a year with 100 RBIs and a batting average well over .300. With those stats in mind, in 1991 the Mets signed Bobby to a five-year, $29 million contract that made him the highest paid baseball player ever, up to that point. Between 1992 and 1994, Bobby was the highest paid person in MLB and the highest paid athlete in the world, earning between $6.1 and $6.3 million per year. He out-earned the second highest paid athlete on the planet, Patrick Ewing, by $500k. He out-earned Dan Marino by $1 million. He out-earned Wayne Gretzky in his prime by $2.8 million.
Unfortunately, toward the end of his career, Bobby became somewhat of a disappointment. In 1999, with one year left on his contract with the Mets, he averaged just .160 with four home runs and 18 RBIs. That season ended with an embarrassing incident when Bobby and teammate Rickey Henderson were caught playing cards in the dugout while their team lost the final game of the NLCS to Atlanta. Needless to say, there wasn't much love between Bonilla and The Mets organization in 2000. Unfortunately, The Mets still owed him $5.9 million.
Bobby knew that these were likely the very last dollars he would ever see from a big league contract. He had a maximum of three subpar seasons left in his legs. Whatever money he had saved up plus this final payment from the Mets would potentially need to last 40+ years. And the last thing Bobby wanted to be was one of those cliche former athletes who ends up broke within a few years of retirement.
Similar to professional athletes, a very high percentage of lottery winners go flat broke within a few years of receiving a huge lump sum of money. Lottery winners face many of the same issues as athletes. With zero experience, most overspend and get caught up in bad investment schemes.
When you win the lottery, you are typically given two options: You can accept a smaller lump sum immediately, or you can be paid the full amount in monthly increments over many years. If you talk to any investment advisor or financial professional, all of them will recommend taking the lump sum because even though you are accepting a lower amount, the time value of money makes it far more valuable than getting paid spread out over a period of years. A $60 million lump sum, should in theory grow to be far more than the $100 million that would be eventually paid out over 30 years. $60 million today can be invested in stocks, CDs, bonds, treasury certificates, real estate, etc.… Regardless of what every financial advisor in the world recommends, the reality is that the vast majority of professional athletes and prospective lottery winners would be way better off spreading their money out instead of taking a lump sum.
So, when it came time to negotiate with The Mets, Bobby Bonilla was smart enough to secure one of the most forward thinking contracts in sports history. He knew The Mets wanted him gone, but technically, they owed him $5.9 million. He also knew he had a young son and daughter who would be looking to go to college, and as a 36-year-old, he likely had many years worth of life to live. So at this point, Bobby and his agents offered a unique compromise: The Mets would release Bobby to play for another team and they would delay the $5.9 million payment for 11 years, with interest. In essence, The Mets agreed to pay Bobby a total of $29.8 million (instead of $5.9 million) in 25 annual installments of $1.192 million, starting in the year 2011. When he received his first $1.192 payment, Bobby was 48 years old and had not played in the big leagues for 10 years. He has basically guaranteed himself a big league salary every year for the rest of his life. Today, Bobby Bonilla makes more per year from the Mets than most of the team's active players! So why would The Mets agree to this deal?
The Bernie Madoff Connection
In 1986, Real estate developer Fred Wilpon purchased 50% of The New York Mets for an undisclosed sum. He purchased the remaining 50% for $135 million in 2002. Wilpon was also one of the biggest investors in Bernie Madoff's Ponzi scheme hedge fund. Prior to the fund's December 2008 collapse, Madoff was returning a consistent (and completely fake) double digit rate of return every year. With those returns in mind, Wilpon knew that the Mets would actually make a huge profit by deferring Bonilla's $5.9 million. Even though that meant agreeing to pay him more than five times the amount they owed ($29.8 million), Wilpon could safely estimate that the Mets would make $60-70 million from $5.9 million over those 25 years investing with Madoff.
Unfortunately, as we all know now, Bernie Madoff's investment fund was actually a gigantic Ponzi scheme that wiped out between $20 and $65 billion in wealth for thousands of investors. Wilpon, who was under the false impression that he had made $300 million investing with Madoff, had actually LOST as much as $700 million. Not only did this completely invalidate the justification for Bobby Bonilla's contract, but it almost forced Wilpon to sell the Mets to cover his debts.
Bobby Bonilla, meanwhile, is living the good life. Over the last six years, Bobby has earned $7.15 million from the Mets. Tomorrow's deposit will bring the number up to $8.34 million. They will continue making these deposits until 2035 when Bobby is 72 years old.
Bonilla is a living lesson for why we might all be better off turning down lump sums and instead opting for deferred payments. I hope we all have to make that choice some day!