What does Bobby Bonilla have to teach us about personal finance? The answer? A lot! This is a really fun one. (Even if you’re not a sports fan, stick with me. It’s good..trust me!)
Let’s get into it.
Who is Bobby Bonilla?
Bobby Bonilla is a retired baseball player who played (mostly) right field from 1986 – 2011 for a bunch of different teams. He was certainly an above average player. He did make the All Star team 6 times and was awarded as the best hitter at his position 3 times (Silver Slugger award). Further, he won a World Series title in 1997 with the Florida Marlins.
But we are going to be talking about him completely outside of the context of his baseball skills.
Bobby Bonilla played for the New York Mets
He actually played for the Mets in two different stints, from 1992-1995 and then again in 1999.
And both stints play a role in this story. See, Bobby started out with the Pittsburgh Pirates from 1986-1991. During that time, he established himself as one of the best young players in the game. He made the All Star team 4 years in a row among other accomplishments.
He then became a free agent, able to sign with any team that he wanted.
The New York Mets came along and offered him the opportunity to become the highest paid player in the National League with a 5-year, $29 million contract. Needless to say, he signed the contract.
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Then what happened?
Well, he played below expectations with the Mets and was traded to another team. He bounced around the league a bit. In the late ’90s, he started to produce a bit better and became a bit of a commodity again.
So, in 1999, the Mets traded for him. This did not work out well. He clashed with his manager and the media and got into scandal after scandal.
At the end of the 1999 season, the Mets released him. But they still owed him $5.9 million.
This amount needed to be paid in full…
Or did it?
Bobby Bonilla and his team came up with a plan. Instead of taking the lump sum $5.9 million in 1999, they offered the Mets to delay the payment for 10 years. Then, from 2011 to 2035, the Mets would pay the money back with 8% interest. This amounted to $1.19 million each year on July 1.
July 1 has since then become known as Bobby Bonilla Day.
Why in the h*ll would the Mets make this deal???
Seems like a horrible deal for the Mets and a great deal for Bonilla, right?!
So why would the Mets agree to this? It’s a funny (at least for me as a Yankees fan) and all too familiar story.
See, the owner of the Mets at the time was a guy named Fred Wilpon. He was a real estate developer that made a ton of money and bought a majority stake in the Mets baseball team.
When Fred met Bernie…
Around this time, Fred Wilpon met a fella named Bernie Madoff.
Bernie told him about all the money he could make investing according to his proprietary strategy. He was getting returns of 10% or greater consistently.
Fred was sold. He invested a ton of money with Bernie. And he expected to receive 10% or greater returns. And in the beginning he did…
So when it came to Bobby Bonilla, Fred made the smart decision
Fred Wilpon is not an idiot. He knows math.
He had an opportunity to either pay a lump sum of money to Bobby Bonilla.
Or, he could defer the payment to later pay an interest rate of 8%. But he knew that he could invest that money in the mean time for 10% returns. Easy decision, right? C’mon, duh!
Wait a second! This strategy sounds familiar right?
Why yes it does!
I can’t go a day without talking to someone or seeing someone post in a forum about how silly it is to pay off debt or even invest in traditional investments like index funds when there are investments out there promising HUGE returns.
This is called interest arbitrage and it is all the rage.
Especially currently given that interest rates are quite low. And there are a plethora of tempting investments purporting large gains, like cryptocurrency, SPACs, and others.
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Anyway, back to our story…
Fred agrees to pay Bobby in a deferred fashion with 8% interest because he knows his money invested with Bernie Madoff is making at least 10% returns.
So, what happens next?
You all know. Bernie’s investments fell apart in 2008 and were found to be a massive Ponzi scheme. He was invited and imprisoned.
Fred Wilpon purportedly lost $700 million as a result of his investments with Bernie. Needless to say, he never saw those 10% returns.
And Bobby Bonilla?
Well, he keeps getting paid $1.19 million every July 1 by the Mets. Until 2035. Exactly 36 years after he last played for the Mets and 34 years after he last professionally played in a baseball game.
The moral of the story
I don’t know that I can say there is only one moral of the story. Seems like there are a lot more.
Let’s list a few:
- Investments that are too good to be true often are
- Paying off debt is often the best investment
- There is no substitute for thorough due diligence in an investment
- Interest arbitrage is not fool proof
- The Mets stink
- Past performance does not predict future investment returns
- Paying off debt is a guaranteed investment
- Many (most) investments are designed to be sold, not bought
- The quickest path to wealth is getting interest to work for you instead of against you
And that, my friends, in the story of Bobby Bonilla, Bernie Madoff, and the New York Mets.
In short, be like Bobby. Don’t be like the Mets.
Want to learn more about sound investment strategies that will build you wealth without the need for a functioning crystal ball? Check out these posts!
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What do you think? What other morals are there in this story for investors? Have you come across investments that just seem too good to be true? How did they turn out? Let me know in the comments below!
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