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Thursday, July 4, 2013

What Could Be More All-American than a Baseball Contract?

NY  MetsThere have been a few articles over the past few days about Bobby Bonilla's contract with the New York Mets.  Bonilla played for the Mets until he retired in 2001.  At that point, he still had $5.9 million outstanding on his contract.  Rather than giving Bonilla a lump sum payment, the Mets opted to pay him start paying him in 2011.  The Mets are to pay Bonilla a total of $29.8 million over 25 years.  

Cork Gaines of the Business Insider explains that this was a good deal for the Mets in terms of their bottom line on the Bonilla contract.  Assuming an 8% rate of return, the long-term payout deal is worth $10 million less over time to Bonilla than would a one-time payout.  And, because the Mets had the use for teny years of the $5.9 million that they owed Bonilla until the payouts began in 2011, they were able to invest that money, and the come out at the other end looking pretty good, assuming an 8% annual return on investment and ignoring all other issues, like the tax consequences of the transaction.  

In the New York Times, Jeff Z. Klein and Mary Pilon are decidedly less positive about the Bonilla contract, but they dutifully report that all parties involved stil believe they acted in their own best interest.  The Times provides some details missing from the Buinsss Insider report.  The Mets needed to get Bonilla off their books and out of their clubhouse so that they could free up space under the MLB salary cap and free themselves from an underperforming player who had become a distraction.  

We have expressed our view before that multi-million dollar, multi-year deals for veteran ballplayers are irrational.   With baseball mania for statistics, it ought to be possible to fine-tune baseball contracts with incentives so that players actually get paid for performance (you know, like CEOs) rather than getting paid for hitting .250 when they are 35 because they hit .320 when they were 29.

[JT]

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Comments

The Mets and any other major league team can enter bad contracts if they so choose. But the analogy to CEO's is interesting. How about we allow major league teams to write off players pay that is tied to performance (above 1 Million) like we allow companies to do with CEO pay? Do you think that would help the dilemma you mention?

Posted by: George E. Bourguignon, Jr., Esq. | Jul 18, 2013 4:24:55 PM

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