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Thursday, July 01, 2010

Sielski: Mets Still Owe Bobby Bonilla 25 Annual Payments of $1.9 Million

I’ll show you the Brink’s right here, motherf——-!

One year from today, the Mets will add to their payroll a 47-year-old, past-his-prime power hitter who has a reputation as a malcontent—a player who has been retired from professional baseball for nine years and won’t play another game again.

Nevertheless, starting on July 1, 2011, Bobby Bonilla will remain on the franchise’s payroll for 25 years, collecting an annual salary of $1,193,248.20. Those are the terms the Mets agreed to Jan. 3, 2000, when they bought out the final year of Mr. Bonilla’s contract.

“That beautiful thing,” he said here Monday.

...But the team has reached the postseason only once since, and it can be argued that the short-term gain of the arrangement with Mr. Bonilla wasn’t worth the long-term cost. Because the Mets are repaying him with interest, Mr. Bonilla will earn $29,831,205 between 2011 and 2035—more than he earned in his first contract with the Mets.

“Bobby’s a very smart person,” Mr. Gilbert said, “and he understands the value of income.”

...He spent time Monday mingling with players and coaches. Mets rightfielder Jeff Francoeur, the team’s representative to the players association, chatted with Mr. Bonilla in the Mets’ clubhouse. Mr. Francoeur said he was unaware of the conditions of Mr. Bonilla’s buyout and had never heard of such a contract.

“But it’s awesome,” he said. “You pull something off like that, and later on you don’t have to worry about [stuff].”

Repoz Posted: July 01, 2010 at 12:20 PM | 43 comment(s) Login to Bookmark
  Tags: business, history, mets, pirates

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   1. Zach Posted: July 01, 2010 at 01:04 PM (#3575848)
The interest rate on the deal was eight percent. Bobby should play the bond market.
   2. snapper (history's 42nd greatest monster) Posted: July 01, 2010 at 01:10 PM (#3575851)
The interest rate on the deal was eight percent

This is the only problem with the deal. The Mets grossly mis-estimated the long-term interest rate environment.
   3. Captain Joe Bivens, Pointless and Wonderful Posted: July 01, 2010 at 01:13 PM (#3575855)
I think I could take the lump sum payment and not have to worry about (stuff).
   4. bobm Posted: July 01, 2010 at 01:38 PM (#3575874)
This story has been done to death.

The interest rate on the deal was eight percent

This is the only problem with the deal. The Mets grossly mis-estimated the long-term interest rate environment.


Well, they were making 12% on their Madoff investments.
   5. JL Posted: July 01, 2010 at 01:40 PM (#3575877)
I think I could take the lump sum payment and not have to worry about (stuff).

I guess it depends. For a guy like Bonilla, who had already received a large amount of money at that time, this is comparable to getting a 25 year annuity. It is a nice hedge against other investments he might have been making at that time.
   6. Best Dressed Chicken in Town Posted: July 01, 2010 at 01:46 PM (#3575883)
“Bobby’s a very smart person,” Mr. Gilbert said, “and he understands the value of income.”

Income, eh? That is smart!
   7. Home Run Teal & Black Black Black Gone! Posted: July 01, 2010 at 02:07 PM (#3575898)
Maybe the union should force a percentage of all contracts to be paid out like this, as a hedge against "broke former athlete" syndrome.
   8. Dale Sams Posted: July 01, 2010 at 02:22 PM (#3575916)
I think I could take the lump sum payment and not have to worry about (stuff).


My cat just took a (stuff) on the floor. That (stuff) smells like (stuff).
   9. RoyalsRetro (AG#1F) Posted: July 01, 2010 at 02:25 PM (#3575922)
There was an article a few weeks ago about how the Diamondbacks were still paying players they signed in the 90s - guys like Todd Stottlemyre, Andy Benes, etc.

And I think the Rangers bankrupcty hearing showed they were still paying players from long ago.

I think the Royals are still paying George Brett's "lifetime contract."


Income, eh? That is smart!


Homer: Explain how.

Homer's Brain: Income can be paid in money. Money can be used in exchange for goods and services.

Homer: Woo-hoo!
   10. Van Lingle Mungo Jerry Posted: July 01, 2010 at 02:25 PM (#3575926)
“You pull something off like that, and later on you don’t have to worry about [stuff].”


The economy? The duality of man? The loneliness of the long distance runner? Delta's ability to compete against Southwest for the new landing slots at Greensboro and Oklahoma City? For crissakes, what did he actually say?!!
   11. J.C. Bradbury Posted: July 01, 2010 at 02:30 PM (#3575933)
Francoeur is the team's representative to the players association? Wow.
   12. Dale Sams Posted: July 01, 2010 at 02:34 PM (#3575935)
For crissakes, what did he actually say?!!


This.
   13. puck Posted: July 01, 2010 at 02:39 PM (#3575943)
Income, eh? That is smart!


Ah, it's a profit deal.

I think I could take the lump sum payment and not have to worry about (stuff).


Take a chance and win some crap!
   14. snapper (history's 42nd greatest monster) Posted: July 01, 2010 at 02:39 PM (#3575944)
I think I could take the lump sum payment and not have to worry about (stuff).

Where are you getting 8% long-term with credit as good as an MLB team? Nowhere. It's a great deal for Bonilla.

The Mets should have done LIBOR + 300 or something.
   15. Misirlou cut his hair and moved to Rome Posted: July 01, 2010 at 02:40 PM (#3575945)
Maybe the union should force a percentage of all contracts to be paid out like this, as a hedge against "broke former athlete" syndrome.


Eh, then they would just call J.G. Wentworth.
   16. The Interdimensional Council of Rickey!'s Posted: July 01, 2010 at 02:53 PM (#3575957)
He said "sh*t."

“You pull something off like that, and later on you don’t have to worry about [sh*t].”
   17. Never Give an Inge (Dave) Posted: July 01, 2010 at 03:24 PM (#3575984)
I think the headline is inaccurate -- the story says the annual payments are $1.2 million, not $1.9 million.
   18. TerpNats Posted: July 01, 2010 at 03:43 PM (#3575999)
Income, eh? That is smart!
Cue Yogi Berra from the Aflac commercial: "And they give you cash, which is just as good as money." (Although, the more I think about that line, that's a parody of a Berra-ism; there's no circular logic, merely redundancy.)

Anyway, to show his appreciation, Bonilla should give something back to the Mets. The rights to his charity bowling tournament, for example.
   19. I Left Tim Raines Down In Africa Posted: July 01, 2010 at 03:51 PM (#3576009)
(Edit: Damn it. #15 beat me. Coke to #15.)
   20. Captain Joe Bivens, Pointless and Wonderful Posted: July 01, 2010 at 04:20 PM (#3576044)
On further review, it seems Mr. Bonilla made a wise choice in deferring the 5.9 and turning it into 29.8.
   21. Josh1 Posted: July 01, 2010 at 04:21 PM (#3576046)
At the time of the buyout, riskless instruments with the same duration of the $1.2mm annuity would have probably payed around 6.5%. The AAA corporate bond index quoted on the Fed website was paying 7.78% and BBB index 8.33% in 1/2000 (don't know the average maturity, but the yield curve was pretty flat then, so it doesn't matter too much). It seems the Mets and Bonilla struck a reasonably fair bargain at the time to defer his contract. Obviously with the move in interest rates over the past 10 years, Bonilla did very well for himself. The Mets could have (and very well may have) at the time hedged out their interest rate exposure with a fixed for floating swap, in which case they would be net paying extremely low interest now.
   22. snapper (history's 42nd greatest monster) Posted: July 01, 2010 at 04:45 PM (#3576066)
The AAA corporate bond index quoted on the Fed website was paying 7.78% and BBB index 8.33% in 1/2000

The AAA-BBB spread was only 55 bps? And the AAA-Tsy spread was 228 bps? That seems unlikely. You sure you've got the right #'s?
   23. kthejoker Posted: July 01, 2010 at 05:20 PM (#3576116)
Have you noticed that their stuff is (stuff) and your (stuff) is stuff? God! And you say, "Get that (stuff) offa there and let me put my stuff down!"
   24. smileyy Posted: July 01, 2010 at 05:21 PM (#3576117)
That article reminds me how much I love the WSJ style guide. All "Mr. Bonilla" and "Mr. Francouer".
   25. Josh1 Posted: July 01, 2010 at 05:25 PM (#3576130)
It certainly does sound weird, but take a look at the link below. (FYI, the numbers I gave earlier are slightly different because they were I think averages from January, and these are from 12/24/99.)

http://www.federalreserve.gov/releases/h15/20000103/

There were a number of anomalies in the credit markets during the dot-com boom when people focused on stocks that moved 20% in a day instead of on other things, and this may well have been one of overlooked relative values.
   26. TerpNats Posted: July 01, 2010 at 05:28 PM (#3576136)
Mr. Bonilla is probably thanking his lucky stars he signed as a free agent with the Mets and not with the Phillies (who also pursued him). He'd have been teammates with Len Dykstra, and who knows where his investments would have gone?
   27. David Nieporent (now, with children) Posted: July 01, 2010 at 05:40 PM (#3576145)
It seems the Mets and Bonilla struck a reasonably fair bargain at the time to defer his contract. Obviously with the move in interest rates over the past 10 years, Bonilla did very well for himself. The Mets could have (and very well may have) at the time hedged out their interest rate exposure with a fixed for floating swap, in which case they would be net paying extremely low interest now.
Right. The idiot media really don't grasp the time value of money at all; they don't understand that he's not getting a windfall and the Mets didn't make some idiotic decision. Yes, this turned out somewhat better for Bonilla and not as well for the Mets because of what has happened with rates, but that was just a gamble that each side took.

Note that they had to strike a reasonably fair bargain (at least from Bonilla's perspective) or the MLBPA wouldn't have approved the arrangement.
   28. snapper (history's 42nd greatest monster) Posted: July 01, 2010 at 05:43 PM (#3576150)
It certainly does sound weird, but take a look at the link below. (FYI, the numbers I gave earlier are slightly different because they were I think averages from January, and these are from 12/24/99.)

http://www.federalreserve.gov/releases/h15/20000103/

There were a number of anomalies in the credit markets during the dot-com boom when people focused on stocks that moved 20% in a day instead of on other things, and this may well have been one of overlooked relative values.


Weird. Just shows you better look at more than a snap shot of current rates before making a trade.

Market consistent prices can still be irrational. Unfortunately, the market can stay irrational longer than you can stay liquid.
   29. Joey B. is counting the days to Trea Turner Posted: July 01, 2010 at 05:49 PM (#3576153)
The interest rate on the deal was eight percent. Bobby should play the bond market.

He should wait and see just how much his taxes go up next year first.
   30. snapper (history's 42nd greatest monster) Posted: July 01, 2010 at 05:52 PM (#3576158)
Right. The idiot media really don't grasp the time value of money at all; they don't understand that he's not getting a windfall and the Mets didn't make some idiotic decision. Yes, this turned out somewhat better for Bonilla and not as well for the Mets because of what has happened with rates, but that was just a gamble that each side took.

Note that they had to strike a reasonably fair bargain (at least from Bonilla's perspective) or the MLBPA wouldn't have approved the arrangement.


It was ex-ante fair, but ex-post not. He made a good trade, they made a bad one.

Any voluntary transaction is "fair" at the time, or it wouldn't get made. It's still a stretch to say the results were fair.

Was the AOL-Time Warner deal fair? Not really. Time Warner shareholders got ripped off, and AOL shareholders got a windfall b/c of the collective stupidity prevailing at the moment.
   31. ian Posted: July 01, 2010 at 05:57 PM (#3576163)
Right. The idiot media really don't grasp the time value of money at all; they don't understand that he's not getting a windfall and the Mets didn't make some idiotic decision. Yes, this turned out somewhat better for Bonilla and not as well for the Mets because of what has happened with rates, but that was just a gamble that each side took.

How is it not a windfall for Bonilla? I can see how if the Mets hedged it was not an idiotic decision for them.

Or is Bonilla *that* disadvantaged by future value of money < present value of money
   32. Backlasher Posted: July 01, 2010 at 05:59 PM (#3576165)
Weird. Just shows you better look at more than a snap shot of current rates before making a trade.

Based on the new practice of gaming, I sometimes wonder if I'm not better off taking a better look at the Daily Racing Form
   33. David Nieporent (now, with children) Posted: July 01, 2010 at 06:01 PM (#3576168)
Any voluntary transaction is "fair" at the time, or it wouldn't get made. It's still a stretch to say the results were fair.
Not to a libertarian. There's no such thing as fair (or unfair) results independent of process.
   34. David Nieporent (now, with children) Posted: July 01, 2010 at 06:05 PM (#3576173)
How is it not a windfall for Bonilla? I can see how if the Mets hedged it was not an idiotic decision for them.
It was a good investment decision by Bonilla; if that's what you mean by "windfall," then it was one. But "windfall" usually connotes more than a mere profit -- it connotes a large unearned gain. In any case, what I meant is that the media is treating it as though Bonilla traded $6M for $30M, as though the Mets are spending many multiples of the original contract.
   35. RollingWave Posted: July 01, 2010 at 06:26 PM (#3576199)
So is Bobby Bonilla a better financial consultant than Lenny Dykstra?
   36. The Polish Sausage Racer Posted: July 01, 2010 at 06:28 PM (#3576201)
It's not as if Bonilla was not accepting some risk here, after all; as badly as the Mets are run, they well could have been in bankruptcy by 2010.
   37. Never Give an Inge (Dave) Posted: July 01, 2010 at 06:39 PM (#3576215)
It's not as if Bonilla was not accepting some risk here, after all; as badly as the Mets are run, they well could have been in bankruptcy by 2010.

I know you're joking, but given the Madoff rumors last year and what was going on in the credit and real estate markets, I wouldn't be surprised if Bonilla did have some moments of worry about the security of his future paychecks.
   38. snapper (history's 42nd greatest monster) Posted: July 01, 2010 at 06:52 PM (#3576229)
I know you're joking, but given the Madoff rumors last year and what was going on in the credit and real estate markets, I wouldn't be surprised if Bonilla did have some moments of worry about the security of his future paychecks.

As long as he is a creditor of the MLB ballclub, and not some random Wilpon entity, he had no risk. There is virtually no scenario in which a NYC MLB club can't meet its payroll obligations that doesn't involve every other financial instrument being worthless too.
   39. Tracy Posted: July 01, 2010 at 06:53 PM (#3576232)
So is Bobby Bonilla a better financial consultant than Lenny Dykstra?


My cat has coughed up hairballs smarter than Dykstra.
   40. Pops Freshenmeyer Posted: July 01, 2010 at 07:15 PM (#3576269)
At the time of the buyout, riskless instruments with the same duration of the $1.2mm annuity would have probably payed around 6.5%. The AAA corporate bond index quoted on the Fed website was paying 7.78% and BBB index 8.33% in 1/2000 (don't know the average maturity, but the yield curve was pretty flat then, so it doesn't matter too much). It seems the Mets and Bonilla struck a reasonably fair bargain at the time to defer his contract. Obviously with the move in interest rates over the past 10 years, Bonilla did very well for himself. The Mets could have (and very well may have) at the time hedged out their interest rate exposure with a fixed for floating swap, in which case they would be net paying extremely low interest now.

Unless it was with Lehman...
   41. snapper (history's 42nd greatest monster) Posted: July 01, 2010 at 07:26 PM (#3576285)
Unless it was with Lehman...

Nah. Interest rate swaps are usually collateralized daily.
   42. You Know Nothing JT Snow (YR) Posted: July 01, 2010 at 07:46 PM (#3576311)
So is Bobby Bonilla a better financial consultant than Lenny Dykstra?

My cat has coughed up hairballs smarter than Dykstra.


In your ashtray, no less.
   43. Best Dressed Chicken in Town Posted: July 01, 2010 at 07:49 PM (#3576313)
He said "sh*t."

OHHH, is that what it was? Thanks!

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