February 10, 2010

Better By Comparison

The Cincinnati Reds have had general managers make their share of bad decisions. Heck, Walt Jocketty’s big one from last year, Willy Taveras, will be remembered for a while to come. (Thankfully, Taveras is gone now, but Redleg Nation still thinks Jocketty needs to continue working to redeem himself. I can’t disagree.)

However, in times like this, it’s good to compare to other clubs. For example, take the New York Mets. Please! They are a large market team that always seems to spend their millions on the wrong things. Case in point: Bobby Bonilla.

Don’t remember Bonilla? I do, from his time the last time the Pittsburgh Pirates were good. Apparently, though, his career extended until 2001. He last played for the Mets in 1999, but will be getting paid from them again starting in 2011. Why? Because former Mets GM Steve Phillips isn’t so good at math.

Bonilla was bad in 1999, and the Mets wanted to get rid of him. Instead of doing the logical thing and paying him what they owed on the remainder of his contract, they opted to defer payments until 2011. When worded that way, it sounds smart, until you know the details.

The buyout would have cost $5.9 million. The future payments are $1.2 million for 25 years, or approximately $30 million in total.

That’s right. A Mets GM thought $30 million was better than $5 million. No wonder he’s a former GM.

3 comments to “Better By Comparison”

  1. Amanda says:

    Calculating the net-present-value of the annuity and discounting it back to when the call was made, it’s actually a money saving choice given a 10% discount rate.

    10% seems kinda high, though. Phillips couldn’t have known we’d have low, even negative, inflation lately, but still…

  2. Zeldink says:

    Does that assume that the Mets invested the $5 million? Or is it just a cost-comparison of $5 million in 1999 dollars to the inflation-adjusted value of $1.2 million each of the future years?

  3. Amanda says:

    The latter. I’m not actually that good at NPV calculations, plus I was in a meeting I was supposed to be paying attention to at the time I did it, but my rough estimate had the present value of the future payments somewhere in the $4M range.