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Is Bobby Bonilla's deferred compensation deal tax smart?

If you think baseball contracts are outrageous, like Monopoly money being thrown at players, you wouldn’t find many people who disagree with you. With Giancarlo Stanton’s 13-year, $300 million contract with the Florida Marlins inked last winter, it is a wonder how high salaries may go; especially when Bryce Harper of the Washington Nationals and Mike Trout of the Los Angeles Angels of Anaheim hit the free agent market.

Even with the astronomical numbers these contracts pay out, teams, and sometimes players, are always looking for advantages to deal with the tax burdens that come with hefty paydays. A prime example was highlighted last week when payments to former New York Mets outfielder Bobby Bonilla were revealed. 

Bonilla was a solid player in his day, even making a few All-Star teams. But he apparently is being paid more this year, even though he hasn’t played an inning in the last decade, than half of the Mets’ starting pitchers. This is because in 1999, the Mets wanted to buy out his $5.9 million contract, and part of the package included deferring payments on the contract until 2011, with Bonilla being paid $1.2 million per year until 2035.

What appeared to be a bonehead deal for the Mets, paying someone who played nearly two decades ago until he reaches retirement age, it actually may have some significant tax benefits. If the Mets invested the $5.9 million into a tax deferred program in 1999, assuming an 8 percent interest rate, the money would have grown to $14 million before a single payment was made in 2011. Moreover, the Mets would save more than $8 million by the time the payments would be completed in 2035. 

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