Bobby Bonilla is understood to baseball followers of a sure age as the most effective batters within the sport again within the Eighties and 90s. To grumpy followers of the New York Mets, he is named the person who fooled the Mets into agreeing to one of many worst contracts within the historical past of baseball. And, due to an entertaining new information to economics, Planet Cash, he’s recognized to me as a person who teaches us 5 important classes about danger and retirement.
The naked information of the matter are these. In 1999, Bonilla was previous his prime, however underneath his contract, the Mets nonetheless owed him just below $6mn. Bonilla agreed that as a substitute of $6mn instantly, he would settle for nearly $30mn deferred. It could be paid in 25 annual instalments of over $1mn, each July 1, beginning in 2011. Every July 1, Mets followers grumble or joke about Bobby Bonilla Day, the saddest vacation within the 12 months. Bonilla retired 1 / 4 of a century in the past — and the Mets nonetheless owe him 10 extra million-dollar-plus paydays.
It isn’t solely Mets followers who hate this. Enterprise Insider described it as “the worst contract in sports activities historical past”. But anybody with an economics coaching would shrug. As Planet Cash factors out, anybody who managed to take a position $6mn at a ten per cent fee of return in 1999 would have practically $19mn by 2011. At that time, the funding pot would generate greater than sufficient earnings to pay Bonilla his 25 annual instalments, leaving the principal sum to develop additional. In different phrases, if the Mets may discover a 10 per cent return on their cash, they might shake palms with Bonilla, make investments the $6mn, pay each penny of the $30mn they owe him, and have tens of hundreds of thousands of {dollars} left over in 2035 when the settlement expires.
So there was nothing silly concerning the Mets agreeing to the deal. Perhaps Bonilla was the one being silly? Most likely not. The cope with the Mets locked in an 8 per cent return for him at very low danger. Not dangerous; ok, anyway.
The primary lesson right here is that most individuals don’t perceive the facility of compound curiosity. Outraged Mets followers really feel that their workforce acquired their faces ripped off by Bonilla and his brokers; they didn’t. It simply appears opposite to all logic and motive that $6mn now may probably be value $30mn later, however a number of many years and an annual return within the excessive single digits will do wonders. (Many FT readers will already know the straightforward rule of thumb: divide 72 by the expansion fee, and that’s what number of years your cash will take to double. Seven per cent will double in about 10 years; 10 per cent will double in about seven. I point out this solely as a result of I’m endlessly shocked on the variety of mathematically gifted and educated individuals who don’t know this cognitive shortcut.)
The second lesson is concerning the psychological ache of debt. One of many causes that Bobby Bonilla Day appears so egregious to the Mets followers is that Bonilla continues to be receiving cheques such a very long time after he retired. That is, after all, actually how a pension works — but it surely additionally illustrates how annoying it may be when some shiny purchase-on-credit is gathering mud, but the funds come via month after month. Some issues are value borrowing to pay for, but it surely’s additionally value considering forward.
The third lesson is that even in what appears to be a zero-sum negotiation, there are sometimes positive factors from commerce to be discovered. The Mets needed to pay as little as attainable, and Bonilla needed to be paid as a lot as attainable, however there was nonetheless room to make either side pleased. The Mets urgently needed the $6mn, whereas Bobby Bonilla didn’t. Skilled baseball gamers are usually wealthy and younger, don’t have any explicit abilities in investing and are weak both to sharks or to their very own worst impulses. Bonilla didn’t need to bankrupt himself making an attempt to take a position his $6mn someplace. He simply needed to retire and loosen up, realizing that he had an everyday earnings locked in. It suited each Bonilla and the Mets to comply with defer the funds.
A fourth lesson is that some dangers can’t be made to vanish, or are so expensive to insure that few individuals would hassle. Bonilla’s deal exposes him to 3 of these dangers: longevity, inflation and counterparty danger.
Longevity danger is solely that whereas the funds expire in 2035, Bonilla most likely is not going to. If he dies earlier than the funds cease in 2035, he received’t get to take pleasure in the advantages of a contract that would have paid him in full in 1999. Conversely, he would possibly simply stay till 2045 (when he will likely be 87). That will imply scraping by for a decade with out these good cheques each July 1.
Inflation danger may not have appeared value worrying about when Bonilla agreed the deal in 1999, however it’s actual. A cheque for $1mn at this time buys about as a lot as a cheque for $500,000 in 1999 — and that’s after subdued inflation for (most of) the final quarter century. If the 2010s had been a rerun of the Seventies, with inflation usually between 5 and 10 per cent a 12 months, the buying energy of Bonilla’s annual cheques would have spectacularly shrunk by now. The ethical of the story is that any long-term contract agreed in nominal phrases comprises a hidden wager on the inflation fee.
Bonilla additionally faces counterparty danger: the danger that the Mets someway can’t or received’t pay. Fortunately, Bonilla has a plan B: he’s been amassing $500,000 a 12 months from the Baltimore Orioles since 2004.
It’s good to see Bonilla being held up as a case research in retirement planning. Compound curiosity appears very summary. What makes it actual is seeing Bonilla flip $6mn into $30mn by the straightforward train of deferred gratification.
I need to confess that the actual maths of Bonilla’s contract did strike near house. He agreed to attend 12 years in trade for receiving an additional 25 years of annual earnings. I’m 52, so such a deal would pay me between the ages of 64 and 89, which sounds just about excellent so far as retirement plan timing goes.
Regrettably, no person owes me $6mn. But when I may make investments an additional £6,000 now — and earn an 8 per cent return someplace — that will enhance my retirement earnings by £1,000 a 12 months. Fifty-two is later than superb to be planning for retirement, but nonetheless not too late.
What’s that, I hear you say? You had been promised 5 classes?
Right here is the fifth: the Mets spent their $6mn on a brand new pitcher and reached the World Sequence; then they reinvested all of the proceeds of their success. The man they put answerable for the funding was Bernard Madoff, essentially the most well-known Ponzi fraudster since Ponzi.
All that compound development appears to be like nice within the spreadsheet, however in funding — as in life — nothing is for certain.
Written for and first revealed within the Monetary Instances on 25 March 2026.
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