Learning from Bobby Bonilla: Contract Negotiation and Deferred Compensation
Every year on July 1st you might encounter the phrase “Happy Bobby Bonilla Day” floating around on social media or coming from your favorite sportscaster. It refers to the noteworthy day that the former Major League Baseball player receives yet another annual check of $1,193,248.20 from the New York Mets. Despite having not played in MLB since 2000, Bonilla will continue to receive this payment each year until 2035 through what is called a deferred payment.
When the Mets bought out his contract in 2000, they provided him the option to receive an annual payment of $1.2 million each year starting on July 1, 2011, for 25 years, with 8% interest. He also did the same with a second contract with payment split between the Mets and Orioles, paying him an additional $500,000.00 annually for 25 years.
Ball players aren’t the only ones with the option to take deferred compensation, as it’s possible you already have this option. Do you have a retirement or a pension plan? If so, you are providing yourself with deferred compensation.
What are the benefits of deferred compensation like that of Bonilla and many other financially savvy professionals?
As opposed to taking a lump sum and possibly spending like the well will never run dry, taking the deferral ensures you will have funds coming in annually, ensuring that you live more within your means.
Deferring payments can allow you to fall into a lower tax bracket because the funds are not taxed until they are paid out each year. Further, the tax rates may be lower when you receive the deferred payments, saving you money in the long run.
Investments on Investments
Some employers will place deferred compensation into an investment option or mutual fund that provides regular interest payments. This can potentially increase the overall value of the initial contract amount, adding to the value of your deferred payments.
Although you might not be in professional sports, you may still get the opportunity for deferred payment in the future. Always make sure to read the terms and conditions of every contract you are presented with, or even better, bring in your legal counsel to break down each of your options and get the best terms available to you.
If you would like to learn more about any of the topics mentioned here, please call or text 484-801-0021 or reach out to Cassandra Ortner at firstname.lastname@example.org. We proudly support the nation’s business owners.
*Janelle Peyton is the Managing Partner of Peyton Law, a national boutique law firm providing general counsel and intellectual property legal services to small and mid-sized business owners and entrepreneurs. The firm offers business and brand-building legal strategies; including business entity formation, contract drafting and review, human resources and employee matters, joint venture agreements, trademark and copyright protection, licensing & franchising, business succession planning, and mergers & acquisitions. Peyton Law serves as outsourced general counsel to companies in a wide range of industries. Visit us at peytonlaw.com.