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> However, instead of paying Bonilla the $5.9 million at the time, the Mets agreed to make annual payments of nearly $1.2 million for 25 years starting July 1, 2011, including a negotiated 8% interest.
WTF kind of logic is this?
It's not unlike taking a lump sum payout instead of annual payments.
...Except the net present value (NPV) and interest rate would've caused my accounting prof to stroke out!
https://www.investopedia.com/terms/n/npv.asp
And based on the money the Mets ownership was making at the time (greater than 10%) on their investments, they would've made out like bandits with this deal. Unfortunately, their "investments" were with Bernie Madoff so it's not actually clear if they were able to beat the interest and future payments with other investments
Madoff was a bill of goods (unless you could use your statements to get other financing!), and even cashing out early meant you were just going to get clawed back.
There should have been an early out in that contract.
At the very least a clause that said that at any point they could pay the full original 6million (on top of whatever yearly payments have happened) and walk away.
The logic that says you could invest the 6 million yourself and use the returns on the investment to pay the annuity. A 7% annual return on $5.9 million would be $32 million after 25 years
The decision was also made when Bernie Madoff was conning the Wilpons and half the world with a Ponzi scheme that was showing pretty spectacular ‘returns’. So they got fucked.
But in general, one way, you no longer have $5.9 million. The other way, you end up with whatever the difference is in the investment less your annual payments.
OP was plainly trying to figure out how much they could have earned investing the money they would have otherwise paid Bonilla up front.
I expect they knocked 1% off Bonilla's interest rate to demonstrate that they might have made more money long term, if you know much about market return rates.
That doesn't work though. That assumes nothing is paid out for 25 years and the 7% just compounds away.
The 7% interest on a 5.9mil loan is only 413k a year. And they are paying 1.2 mil, so they are paying down the principle each year. Accounting for that this is more like 20% interest.
But that still doesn't make sense, because paying the $5 million off right away results in more money for the team. The Bernie Madoff part really is irrelevant. Even if they thought this Madoff investment was always going to be there, paying $5 million is still better than paying $25 million
The Madoff returns really do matter. You're right, they pay $25 million this way. If they thought they could get 15%, investing 5.9 million with Bernie becomes $194 mil after 25 years, more than enough to cover the Bonilla payments.
So if they invest the money instead of paying Bonilla they'll end up ahead even after paying 4x as much.
I'm not a finance guro, but if BB accepted an 8% rate, wouldn't he have made more money if he took the cash and invested in in the S&P? I am very confused why people think this is a ridiculous contract, sure it grabs headlines, but it's the same as him getting paid on an unsecured 8% loan, which seems not unreasonable. Am I missing something (of course it makes a great headline).
It’s pretty lucrative.
Usually annuities are inclusive of the interest rates.
For example the powerball jackpot today is 138M if you take the annuity. But if you take the lump sum - you get 65.8M.
The difference between the two numbers accounts for the value of time (getting paid now is worth more than the same amount later - due to opportunity costs, inflation, etc). This is called the present value.
Present value discounts future payments based on expected interest / rates. It looks like they used about a 20% assume rate.
So the face that he’s getting an annuity and getting more money isn’t the lucrative part (although the numbers they used is crazy). It’s the fact that he ALSO is getting interest on top of that. And 8% at that.
As a Mets fan, this day is a celebration of the 2000 NL championship and the signing of David Wright, both of which were direct results of this contract.
Happy Bonilla Day, everyone!
Interesting that the deal was signed when the Mets were 'invested' in a high paying Bernie Madoff account. At them time of the deal they owed BB $5.9M (and will pay far north of $25M), not the best management at the Mets it would seem ;)
Yeah. The owner thought the interest from the Madoff accounts would cover the payments and then some, so to him it made sense to free up the cash now for investment and throw BB payments down the pike. Down the pike it was thrown indeed.....
It's not that bad even if you just put it in SP500. My quick check shows that if you put 5.9m in SP500 in January 2000 and reinvested dividends the whole time, you'd have more than 34m now. The SP500 has returned 7.56% annualized since 2000, so not far off what they were expecting.
I'd say its not as bad of a deal as a lot of these articles make it sound like. The bigger hit was they lost money with Madoff, not that the original deal was actually that bad.
You're comparing investing it to not investing it though. Putting 1.19M/yr in the S&P500 over the last 24 years would have netted you over $74M in that timeframe
Yes because the base case is pay the 5.9m in 2000, which would mean you couldn’t invest it. The choice in 2000 was either pay the player the salary or take a deferred salary. The choice was never to delay it and then not pay it.
My comparison does fall apart because you would need to cash out the yearly payment starting in 2011 so likely would have reduced the gains meaningfully.
Something similar happened with Magic Johnson in the NBA. He signed something like a 25-year $25M contract in the early 80s (huge at the time), and even though he retired in the early 90s, he was still getting checks well into the 2000s.
Ohtani will save an absolute fortune in taxes. Not an American citizen & if he's no longer living in the US, he won't pay US taxes. Japan doesn't tax citizens on income earned outside Japan. So he may pay no taxes at all.
If S&P returns for 2000-2011 matched those of 1990-2001, the Mets could have invested in the S&P and had over $25 mil before they paid a single cent to Bonilla. From there, it's pretty easy to see how they could come out ahead over the next 25 years with a relatively safe investment strategy.
Of course, that's not what happened, but hindsight is 20/20. It was a calculated risk, and they lost.
One argument for the deal I heard was that theoretically they could use the $5.9 million to invest in other stuff. Stadium upgrades or new players or something that will generate money. So, again in theory, deferring his payment works because your overall return would be more than your pay out.
you fall for a ponzi scheme
Or you're like John Fisher and all your money is inherited and you're a cheap fuck who doesn't want to pay your organization anything, so you only give out 6 mil contracts if you get free money from the league because you're a "small market owner" who deserves several dozen millions more than your counterparts.
It works for compounding returns. Putting $5,000 a year in the stock market from 25 to 35 is better than putting $5,000 a year from 35 to 65. You'll have more money at 65 in the first scenario. This is why the deal that Ohtani got was "essentially" free. The capital of not paying him now and start paying him in 10 years will be paid for with the gains that they made over the previous 10 years and they'll still have the original capital to use for other endeavors.
A couple things:
It's 1.**19**m, not 1.9m
Second, those payments (2010-2035) were way out in the future compared to the year 2000. With inflation, it's worth much less.
I'm also curious about that. I plugged in 5.9 M at 8% on a 25 year loan in an amortization calculator. It said you would pay in total about 13.5 M, not $30 M. I know they are paying annually instead of monthly, but I wouldn't expect it to be so bad.
Edit: by my rough calculations, they are paying more like 20% interest.
2nd edit: I wasn't accounting for the fact that they didn't pay for 10 years. In that time, the balance owed ballooned from 5.9 to 12.7 million. That is why it is so slow to pay back. If they started right away, it would have been like 7 years of 1.19 million or 25 years of ~550k.
Ohtani’s contract is horrible for baseball. Teams should have to pay players that play for them while they play for them. One of the richest teams in the game shouldn’t be getting a massive financial boost from the best player in baseball. It completely breaks any semblance of financial fair play
Long Island is on a roll. With Bobby Bonilla Day and Rick Dipietro Day, you got the Mets and Islanders paying out over a million in contracts for guys who’ve retired from their teams at least a dozen years ago and will get paid into the 2030s 😂
>In his unprecedented contract, Ohtani is being paid just $2 million annually during the 10-year length of his deal with the Dodgers. From 2034 to 2043
If Ohtani moves to Texas in 2034 he'll save \~$1.5 million a year in taxes he would have had to pay in California.
Id like to see the legal argument that says his deferred income from a contract in california wasn't earned from work done in california. Well, or atleast ~60% of it (because you are taxed on away games in the state you play in)
The bigger issue is that iirc if it is structured in a certain way, it is counted as qualified retirement income and not subject to any state taxes no matter where he lives. I think the qualifier is deferred 10+ years and paid out over 10+ years.
You can argue with TurboTax and the other tax prep companies.
https://turbotax.intuit.com/tax-tips/tax-payments/strategies-for-managing-your-tax-bill-on-deferred-compensation/
if the employee has elected to take the deferred compensation payments over a period of 10 years or more, the deferred compensation payments are taxed in the state of residence when the payments are made."
IIRC, Ohtani will only pay state tax on wages earned during the 'active' part of the contract. He will not owe state taxes on the deferred money. His financial advisors are geniuses
Given my financial situation, I'd much rather have all that money now than in 10+ years when I'm physically less capable. That said, Ohtani has so much money right now that it doesn't matter - so it's a genius move.
For everyone else, however, ie; those who are the standard working class, it's a less wise move.
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Quick someone tell Henry it’s Bobby Bonilla day.
Hail Henry!
Hail yourself!
[Heil....Myself!](https://www.youtube.com/watch?v=PRlKIO3KE3g)
Christ be praised, Henry has come to see us!
Where's my fuckin' sword?
I’m so happy this is the top comment
Only now realize this is the sports sub haha
We mustn't dwell... no, not today. We can't. Not on Bobby Bonilla day!
> However, instead of paying Bonilla the $5.9 million at the time, the Mets agreed to make annual payments of nearly $1.2 million for 25 years starting July 1, 2011, including a negotiated 8% interest. WTF kind of logic is this?
It's not unlike taking a lump sum payout instead of annual payments. ...Except the net present value (NPV) and interest rate would've caused my accounting prof to stroke out! https://www.investopedia.com/terms/n/npv.asp
And based on the money the Mets ownership was making at the time (greater than 10%) on their investments, they would've made out like bandits with this deal. Unfortunately, their "investments" were with Bernie Madoff so it's not actually clear if they were able to beat the interest and future payments with other investments
Madoff was a bill of goods (unless you could use your statements to get other financing!), and even cashing out early meant you were just going to get clawed back.
Madoff victims eventually got back 91% of their investments. Of course even if that was 100%, that is a long way from 30 years of 10% growth
Madoff victims eventually got back 91% of their investments. Of course even if that was 100%, that is a long way from 30 years of 10% growth
Hell, even Treasury Bills or term deposits (which are at like 5% annual interest these days, but IIRC often <1% back then!)
There should have been an early out in that contract. At the very least a clause that said that at any point they could pay the full original 6million (on top of whatever yearly payments have happened) and walk away.
The logic that says you could invest the 6 million yourself and use the returns on the investment to pay the annuity. A 7% annual return on $5.9 million would be $32 million after 25 years
That’s a nice guaranteed return. Almost $100k a month!
Except Bernie madoff was promising (and reporting) way bigger gains than 7% annually.
I mean the payments come out to $30 million. And that doesn't count the 8% interest. So I'm not sure that really works out too great.
The decision was also made when Bernie Madoff was conning the Wilpons and half the world with a Ponzi scheme that was showing pretty spectacular ‘returns’. So they got fucked. But in general, one way, you no longer have $5.9 million. The other way, you end up with whatever the difference is in the investment less your annual payments.
OP was plainly trying to figure out how much they could have earned investing the money they would have otherwise paid Bonilla up front. I expect they knocked 1% off Bonilla's interest rate to demonstrate that they might have made more money long term, if you know much about market return rates.
That doesn't work though. That assumes nothing is paid out for 25 years and the 7% just compounds away. The 7% interest on a 5.9mil loan is only 413k a year. And they are paying 1.2 mil, so they are paying down the principle each year. Accounting for that this is more like 20% interest.
Yeah, I guess that makes sense
They didn’t have the cash on hand “not my problem”-itis.
Bernie Madoff was promising returns that made this worth it and they didn't suspect a thing.
But that still doesn't make sense, because paying the $5 million off right away results in more money for the team. The Bernie Madoff part really is irrelevant. Even if they thought this Madoff investment was always going to be there, paying $5 million is still better than paying $25 million
The Madoff returns really do matter. You're right, they pay $25 million this way. If they thought they could get 15%, investing 5.9 million with Bernie becomes $194 mil after 25 years, more than enough to cover the Bonilla payments. So if they invest the money instead of paying Bonilla they'll end up ahead even after paying 4x as much.
They thought they could make 10% interest annually on that $5.9 million instead but got scammed out of it. So, the Mets.
Can Cohen just buy out the contract
I am sure he could try but ultimately it's up to Bonilla
Some goat tier agentitng, Jerry McGuire level
I'm not a finance guro, but if BB accepted an 8% rate, wouldn't he have made more money if he took the cash and invested in in the S&P? I am very confused why people think this is a ridiculous contract, sure it grabs headlines, but it's the same as him getting paid on an unsecured 8% loan, which seems not unreasonable. Am I missing something (of course it makes a great headline).
It’s pretty lucrative. Usually annuities are inclusive of the interest rates. For example the powerball jackpot today is 138M if you take the annuity. But if you take the lump sum - you get 65.8M. The difference between the two numbers accounts for the value of time (getting paid now is worth more than the same amount later - due to opportunity costs, inflation, etc). This is called the present value. Present value discounts future payments based on expected interest / rates. It looks like they used about a 20% assume rate. So the face that he’s getting an annuity and getting more money isn’t the lucrative part (although the numbers they used is crazy). It’s the fact that he ALSO is getting interest on top of that. And 8% at that.
Happy ESPN posting the same article every year and getting tons of clicks on it day! They are the real winners here. Well except for Bobby of course.
Pretty sure the guy cashing another million bucks today is a winner…
Dude found a way to get a double pension- one from the union and one from his employer. What a smart man.
I gotta wonder if Dennis Gilbert is still getting a percentage.
If it ain't broke, don't fix it.
As a Mets fan, this day is a celebration of the 2000 NL championship and the signing of David Wright, both of which were direct results of this contract. Happy Bonilla Day, everyone!
I will always celebrate anything regarding Wright. LGM!
So losing the World Series and never going back?
Life is a lot happier when you celebrate the smaller wins.
They were in the world series less than a decade ago, more recently than most teams.
Interesting that the deal was signed when the Mets were 'invested' in a high paying Bernie Madoff account. At them time of the deal they owed BB $5.9M (and will pay far north of $25M), not the best management at the Mets it would seem ;)
Yeah. The owner thought the interest from the Madoff accounts would cover the payments and then some, so to him it made sense to free up the cash now for investment and throw BB payments down the pike. Down the pike it was thrown indeed.....
It's not that bad even if you just put it in SP500. My quick check shows that if you put 5.9m in SP500 in January 2000 and reinvested dividends the whole time, you'd have more than 34m now. The SP500 has returned 7.56% annualized since 2000, so not far off what they were expecting. I'd say its not as bad of a deal as a lot of these articles make it sound like. The bigger hit was they lost money with Madoff, not that the original deal was actually that bad.
You're comparing investing it to not investing it though. Putting 1.19M/yr in the S&P500 over the last 24 years would have netted you over $74M in that timeframe
Yes because the base case is pay the 5.9m in 2000, which would mean you couldn’t invest it. The choice in 2000 was either pay the player the salary or take a deferred salary. The choice was never to delay it and then not pay it. My comparison does fall apart because you would need to cash out the yearly payment starting in 2011 so likely would have reduced the gains meaningfully.
He didn’t start getting paid until 2011.
He didn’t start getting paid until 2011.
Well they lost money to Madoff and also didn't put it in SP500
There are multiple articles showing the time value of money calculation on the move, with math working in the Mets favour.
Every team in every sport that has a foundational player they'll need for many years would do some iteration of this deal in a heartbeat.
Something similar happened with Magic Johnson in the NBA. He signed something like a 25-year $25M contract in the early 80s (huge at the time), and even though he retired in the early 90s, he was still getting checks well into the 2000s.
Ohtani will save an absolute fortune in taxes. Not an American citizen & if he's no longer living in the US, he won't pay US taxes. Japan doesn't tax citizens on income earned outside Japan. So he may pay no taxes at all.
Yeah that’s not a good thing Actually pretty fucked up if true
> GODS I WAS FEDUCIARILY STRONG THEN! - Bobby B
GO FIND ME THE ANNUITY STRETCHER!
YOU EVER FUCK A MEADOWLANDS GIRL!
Every single year I reply to posts like these thinking the last one felt like yesterday.
Help me out. 5.9m once vs 1.9m per year for 25 years. Even with phony maddoff return rates, how did this ever make sense?
If S&P returns for 2000-2011 matched those of 1990-2001, the Mets could have invested in the S&P and had over $25 mil before they paid a single cent to Bonilla. From there, it's pretty easy to see how they could come out ahead over the next 25 years with a relatively safe investment strategy. Of course, that's not what happened, but hindsight is 20/20. It was a calculated risk, and they lost.
Ok , I'm wholly underestimating compound interest x sound investing.
And also the 11-year delay in payments. That’s why/how this was supposed to work.
/r/bogleheads
Good looking out
One argument for the deal I heard was that theoretically they could use the $5.9 million to invest in other stuff. Stadium upgrades or new players or something that will generate money. So, again in theory, deferring his payment works because your overall return would be more than your pay out.
It makes sense if for whatever reason you desperately need 5.9 million dollars in 1999 lol. That's about it.
How do you own a team and not have the means to get 6M in funding..
you fall for a ponzi scheme Or you're like John Fisher and all your money is inherited and you're a cheap fuck who doesn't want to pay your organization anything, so you only give out 6 mil contracts if you get free money from the league because you're a "small market owner" who deserves several dozen millions more than your counterparts.
It works for compounding returns. Putting $5,000 a year in the stock market from 25 to 35 is better than putting $5,000 a year from 35 to 65. You'll have more money at 65 in the first scenario. This is why the deal that Ohtani got was "essentially" free. The capital of not paying him now and start paying him in 10 years will be paid for with the gains that they made over the previous 10 years and they'll still have the original capital to use for other endeavors.
A couple things: It's 1.**19**m, not 1.9m Second, those payments (2010-2035) were way out in the future compared to the year 2000. With inflation, it's worth much less.
I've always wondered how that 8% interest works. On the total amount remaining to be paid? APY?
I'm also curious about that. I plugged in 5.9 M at 8% on a 25 year loan in an amortization calculator. It said you would pay in total about 13.5 M, not $30 M. I know they are paying annually instead of monthly, but I wouldn't expect it to be so bad. Edit: by my rough calculations, they are paying more like 20% interest. 2nd edit: I wasn't accounting for the fact that they didn't pay for 10 years. In that time, the balance owed ballooned from 5.9 to 12.7 million. That is why it is so slow to pay back. If they started right away, it would have been like 7 years of 1.19 million or 25 years of ~550k.
And a good Chris Davis day to you’s, too
Henry Zebrowski out there having the best day of his life
One of the best contracts ever 😂🤡
Ohtani’s contract is horrible for baseball. Teams should have to pay players that play for them while they play for them. One of the richest teams in the game shouldn’t be getting a massive financial boost from the best player in baseball. It completely breaks any semblance of financial fair play
Long Island is on a roll. With Bobby Bonilla Day and Rick Dipietro Day, you got the Mets and Islanders paying out over a million in contracts for guys who’ve retired from their teams at least a dozen years ago and will get paid into the 2030s 😂
What day is Jon Voight Day?
what i love about this. is telling people about it , who have no idea this is happening
>In his unprecedented contract, Ohtani is being paid just $2 million annually during the 10-year length of his deal with the Dodgers. From 2034 to 2043 If Ohtani moves to Texas in 2034 he'll save \~$1.5 million a year in taxes he would have had to pay in California.
Would he not still be getting the money taxed in California? You get taxed where the money is made not where you live
His $2 million non-deffered salary will be taxed in California.
But his deferred salary is still for work done in California
Doesn’t matter. The money is taxed where it’s paid.
Id like to see the legal argument that says his deferred income from a contract in california wasn't earned from work done in california. Well, or atleast ~60% of it (because you are taxed on away games in the state you play in) The bigger issue is that iirc if it is structured in a certain way, it is counted as qualified retirement income and not subject to any state taxes no matter where he lives. I think the qualifier is deferred 10+ years and paid out over 10+ years.
You can argue with TurboTax and the other tax prep companies. https://turbotax.intuit.com/tax-tips/tax-payments/strategies-for-managing-your-tax-bill-on-deferred-compensation/ if the employee has elected to take the deferred compensation payments over a period of 10 years or more, the deferred compensation payments are taxed in the state of residence when the payments are made."
IIRC, Ohtani will only pay state tax on wages earned during the 'active' part of the contract. He will not owe state taxes on the deferred money. His financial advisors are geniuses
Given my financial situation, I'd much rather have all that money now than in 10+ years when I'm physically less capable. That said, Ohtani has so much money right now that it doesn't matter - so it's a genius move. For everyone else, however, ie; those who are the standard working class, it's a less wise move.
The money is yours anyway....even if lets say you have a fall off well before then.
But he’ll have to live in Texas
The Lone Star State…because you cannot give a rating lower than 1 star.
so why would he move to texas !?
No state income tax, compared to California’s high state income tax.