Ask Brad: Why You Shouldn’t Take an Upfront Bonus Check for Changing Firms

This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.

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Every July 1, the New York Mets pay Bobby Bonilla $1,193,248.20. This has been occurring since 2011 and will continue until 2035. Bonilla has not played for the Mets since the 1999 season and hasn’t played baseball since 2001!

Why is he receiving those annual checks?

Before the start of the 2000 season, Bonilla had $5.9 million remaining on his contract. With his performance slumping, the Mets wanted to buy out his contract.

Instead of cutting a check for the $5.9 million, they agreed to pay him ~$1.2 million a year between 2011 and 2035. That is almost $30 million in aggregate! Bonilla accepted.

What’s the catch?

For the Mets, they didn’t have to immediately ante up the $5.9 million. They postponed payments into the future. In an unusual twist, the then-owner of the Mets was heavily invested with a hedge fund manager named Bernie Madoff. Perhaps they thought keeping the $5.9 million invested would pay off in the long run!