Friday, September 4, 2009

Who is the bright guy?

In today's Wall Street Journal there is a full page a kind of parody the the lost baseball season of the New York Mets: it details the woes that have beset the team this year. An interactive version takes it further. Both include this gem: "Starting in 2011, you must pay Bobby Bonilla, who hasn't played for you in a decade, $1.2 million every year until 2035."

Bonilla retired in 2001. I remember him from his days in Pittsburgh, when he and Barry Bonds were a great 1-2 punch. The Mets signed him as a free agent, and gave him a $29 million contract. The 1991 article has it this way:

Bonilla received a $1.5 million signing bonus, and will earn salaries of $5.5 million in 1992, $5.6 million in 1993, $5.7 million in 1994, $4.7 million in 1995 and $4.5 million in 1996. He will also receive $1.5 million for commercial endorsements.

That is 29 million, indeed, but clearly the exact arrangements weren't detailed, or, perhaps, known. So, now it turns out, there were deferred payments. One point five million a year for 25 years is $37.5 million, which is more than the original value of the contract. Yes, I know the arguments about the discounted value of cash flows over time, about present value versus future value, but the fact remains that 20 years after signing, and for the subsequent 25 years, the man is going to receive a million and a half dollars every year. Nice annuity.

O, and who was the bright guy who approved that contract?

No comments:

Post a Comment