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Subject: Weird Baseball Contracts....
Posted by: Bond, James Bond
- Leader [04352469] Mon, Apr 26, 2010, 17:04
Anybody see this ?
Mets have to begin paying Bobby Bonilla...again??? LOL |
1 | Perm Dude
ID: 5510572522 Mon, Apr 26, 2010, 17:13
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That's why the lawyers get the big bucks sometimes. Bonilla waits ten years to get paid, then it is like winning the lottery for him.
Let's hope the Mets didn't invest the $5.9 mill in real estate in the meantime.
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2 | Farn @ work Leader
ID: 451044109 Mon, Apr 26, 2010, 17:14
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They paid him for years to do nothing. What's another 25?
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3 | blue hen Dude
ID: 710321114 Tue, Apr 27, 2010, 13:58
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Like winning the lottery? Hardly. Time value of money.
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4 | Perm Dude
ID: 5510572522 Tue, Apr 27, 2010, 14:17
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When you win the lottery, you can choose to get it paid out in installments over 25 years. The total value of the payouts is more than the "cash value" precisely because of the time value of money.
So this is exactly like winning the lottery.
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5 | Razor
ID: 57854118 Tue, Apr 27, 2010, 14:50
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Time value of money? NPV in 2000 of $1.1 million from 2011-2035 is far, far greater than $5.9 million in 2000. How much do you think inflation has increased in the last 10 years?
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6 | Perm Dude
ID: 5510572522 Tue, Apr 27, 2010, 15:16
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It isn't just ten years, but spread out over the payout term. The value of the dollars received decreases over the payout term, so the dollar received in 25 years (35 years after the deal) is a lot less than even the dollar received this year.
And it isn't just the inflation value, but the opportunity cost (he could have had the $5.9 mill in a simple money market CD, making him $200K/year or so in interest for ten years easy).
For a time in which his income has dropped (endorsement deals, etc no longer being what they wer) he was obviously planning on this income from a timing standpoint. This is a great deal for him, IMO.
For the Mets--well, depends on what they did in the meantime. Right now the MLB minimum salary is around $400K, I believe, so the Bonilla payout is not a huge number to have to cover. Would have been nicer if he's actually done something, however.
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7 | blue hen Dude
ID: 710321114 Tue, Apr 27, 2010, 15:24
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For the sake of simplicity, let's say the interest rate is 6 percent. The S&P has returned between 8-11 percent, on average, over the last 20 years, but I'll give you 6.
5.9 mil in 2000, at 6 percent interest rate, is 45.3 mil in 2035. 1.1 a year from 2011-2035 years is 60.4 mil in 2035. He increases his 2035 value by 15 mil - a nice payment (I'd take it), but only a modest lottery winning.
If the interest rate is actually higher, as I suspect it is, it helps the 5.9 number. By 10 percent, the numbers are pretty far apart.
Here are some tools to help you calculate:
TVM calculator
Future value calculator
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8 | Seattle Zen
ID: 1410391215 Tue, Apr 27, 2010, 16:02
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Why didn't Antoine Walker's agent think of this?
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9 | barilko6
ID: 42312716 Tue, Apr 27, 2010, 17:01
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Wait...can we assume that Bonilla would actually have been smart enough to not blow all of the lump sum within a week or two of receiving it?
Based on his character exhibited throughout his baseball career, I wouldn't give him the benefit of the doubt here. His agent protected him nicely, even if he could have potentially made more money off of the accrued interest on the initial lump sum.
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10 | beebop
ID: 451113150 Thu, Apr 29, 2010, 00:20
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Based on alot of baseball players, arent a large percentage of them broke within 5-10 years of leaving the majors??
What do these guys spend their money on to have nothing left of it when they retire?
I would think only a small percentage of them are smart with their money and invest/save for long term.
Good for Bonilla to have realised he would not be able to save the money and opt for it at a later date.
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11 | blue hen Dude
ID: 710321114 Thu, Apr 29, 2010, 10:50
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I'm sure we only hear about the broke ones. I wouldn't call it a "large percentage." Pretty sure Mike Piazza and Tim Salmon and Albert Belle and Robb Nen aren't broke.
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