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May 26, 2011

The Payoff Pitch

How the Mets Were Lost

by Neil deMause

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Was it really only six months ago that Mets fans were hailing the arrival of Sandy Alderson as putting an end to one of the grimmest eras in a team history full of grimmage? Finally, the Omar Minaya epoch was at an end, and with it the days of throwing money at Oliver Perezes and Luis Castillos; from now on, the Mets could spend their cash reserves wisely, and leverage their big media market and their core of young(ish) talent to bring October baseball back to Flushing.

That plan essentially went out the window on the February day when Irving Picard, the trustee for the former clients of Ponzi schemer Bernie Madoff, announced that he was suing Mets owners Fred Wilpon and Saul Katz for $1 billion, on the grounds that they knew—or should have known—that his investment empire was built on fraud. As I wrote at the time, this shouldn't have had much impact on the Mets' finances—the team was still in decent financial shape, after all (even after a big dip in value, still the fifth-most valuable franchise in baseball, according to Forbes, with net profits over the last five years of more than $100 million)—and however the suit is resolved, it shouldn't hamstring the team's finances: Either the Wilpons would successfully fight off Picard's suit, in which case the threat was moot, or they'd lose, in which case they'd inevitably have to sell the team to pay the fine, and the question of whether or not to re-sign Jose Reyes would be a question for Mark Cuban, or a Dolan to be named later.

Except that in baseball ownership, things that shouldn't make a difference invariably do. Which brings us to this week's long New Yorker article on Wilpon, Katz, and their Madoff ties. Written by Jeffrey Toobin, who usually covers legal issues for the magazine, it's an odd article, part Great Man profile, part financial-malfeasance muckraking, part slack-jawed awe at being in the presence of the Grand Old Game. (Something tells me that Roger Angell never would have referred to Mookie Wilson as someone who has "almost never been known by anything but his first name," since he'd have known that that was William.) The result is an odd assortment of revelations, including:

  • Fred Wilpon pitched batting practice for the Brooklyn Dodgers, and convinced his pal Sandy Koufax to take up baseball "so we could hang around together." Koufax later invested much of his savings with Wilpon's pal Madoff.
  • Wilpon and Katz earned their initial fortune in the '70s by buying up worthless land as a tax shelter, only to find themselves unexpectedly rich when it soared in value as the real estate market recovered.
  • The pair bought the Mets in 1979 for $21.1 million, but put in only $650,000 each. The other $19.8 million was financed by Doubleday Publishing, whose owner, Nelson Doubleday, became majority partner. (Toobin doesn't actually explain this, but Wilpon and Katz later bought up half the team in 1986 after Doubleday was sold to German publisher Bertelsmann, and bought out Nelson entirely in 2002—presumably with the aid of Madoff profits.)
  • Owning a baseball team has benefits outside the team's bottom line: "You take the chairman of the board of a bank, with his grandson, on the field to meet David Wright, and make that grandfather a hero, and you do business the way we do business, it opens up everything," Katz told Toobin.
  • Other real estate barons all love Wilpon. (Whether that's related to the item immediately above is left as an exercise for the reader.)
  • Bernie Madoff insists that Wilpon and Katz didn't know enough about finance to understand that they were investing in a Ponzi scheme: "They were not sophisticated enough to evaluate it properly, nor were most of my other individual clients." To Toobin's eyes, this qualifies as "certainly relevant evidence in the question of their knowledge and culpability."
  • Wilpon thinks that Jose Reyes is "a racehorse" but won't get "Carl Crawford money" this winter, that David Wright is "a very good player" but "not a superstar," and that Carlos Beltran is "sixty-five to seventy percent of what he once was."

This last item—despite being a set of evaluations that would be seen as, if anything, unremarkable if espoused by a BP writer—was what lit up the reportosphere early this week, with banner headlines in the tabloids, sportswriters (including BP's Jay Jaffe) declaring that this meant Reyes was as good as gone, and Jim Bowden insisting that this meant Wilpon was preparing to trade everything that wasn't nailed down. Wilpon went so far as to apologize personally to Reyes and Beltran (via speakerphone—the Mets were at Wrigley), though Reyes didn't seem to be much fazed by the published remarks, telling the New York Post: " We just need to move on. He can say whatever he wants to—he’s the boss and we are the employees here."

If, in fact, Wilpon's remarks are a signal that he's planning a fire sale, it will mark one of the more remarkable self-destructive acts by a baseball owner since Charlie Finley named an 11-year-old M.C. Hammer as club vice president. First off, as Jaffe noted before the season, the Mets have effectively no hope of coming close to replacing Reyes' production, given the dismal state of the shortstop market. And if it wasn't going to be hard enough getting equal value for an oft-injured player who's four months away from free agency, think how much more difficult things will be when Alderson has to pick up the phone and hear potential trade partners say, "Reyes, huh? You mean that guy who your owner thinks is no Carl Crawford?"

More than that, though, dealing either Reyes or Wright (Beltran, as an aging player shunted to a corner outfield spot, is a slightly separate case) as a budget move would betray a remarkable failure to look at the revenue side of the ledger. Yes, the pair would likely cost upward of $30 million combined next year. But right now, they're also the only thing selling any tickets at all: Take a walk around Citi Field, and 9 out of 10 shirts will have one of those two names on the back. (The tenth will have "Davis." Johan Santana jerseys have been placed in long-term storage for the duration of the unpleasantness.) Cashing in Reyes and/or Wright (or especially Reyes and Wright) for a pile of pre-arb eligible younguns would be a huge risk, not just on the field but at the ticket window—just look at how many Mets fans who'd previously shown no qualms about spending their hard-earned money to watch Marv Throneberry play headed for the exits once the Mets turned Tom Seaver into a pile of prospectless prospects in 1977.

Even if you grant that Wilpon and Katz are bleeding cash, it should be obvious that money not earned is as damaging to your bottom line as money not spent. (Okay, obvious if you're not a House Republican.) That's why it's bizarre for Wilpon to tell Sports Illustrated (in yet another profile this week—suddenly this guy's like an old, male version of Emma Watson) that he wants to keep payroll below $100 million next year: Baseball players should be seen as investments, not mere costs, and ditching a player who'll put fannies in the seats just to keep your headcount down is as short-sighted as laying off employees who generate income for your company just because you're afraid of having to sign their paychecks. Yet while one local reporter insists that Mets management understands this, the general consensus seems to be that the club is ready to say damn any return on investment, full speed ahead.

Of course, not understanding the nature of investments is what got Wilpon in this pickle in the first place. In fact, reading Toobin's article, it's hard to wonder whether Wilpon's kindly-but-daft old baseball uncle persona isn't just the slightest bit calculated: After all, as Toobin writes, Wilpon's best hope of keeping his fortune out of Picard's mitts is to "prove that he was a dupe rather than a crook." (And Toobin says he was convinced.) If there's one takeaway from Toobin's New Yorker article, it's that Wilpon, in publicly dissing his own players to a major magazine without seeming to understand the likely consequences, has made it entirely plausible that he's ignorant enough to have invested his entire life savings in a Ponzi scheme for 23 years without ever noticing it. And if so, that could end up being what saves his assets: not guilty by reason of inanity.

Neil deMause is an author of Baseball Prospectus. 
Click here to see Neil's other articles. You can contact Neil by clicking here

Related Content:  A's,  Fred Wilpon,  The Who

14 comments have been left for this article. (Click to hide comments)

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ScottyB

Great article, Neil. As a long time NY baseball fan, I need Wilpon out of my life!!!!!

May 26, 2011 05:26 AM
rating: 0
 
NP_14

I feel bad for you. Even Bud Selig never announced his fire sales in advance.

May 26, 2011 05:38 AM
rating: 0
 
kmg1016

Terrific article, but Seaver left in 1977. Feel free to delete this comment when you make the fix, I won't be the least bit offended. ;-)

May 26, 2011 07:06 AM
rating: 0
 
kddean

Beat me to it. The Mets definitely waited too long to trade Seaver in 1997.

Great article Neil.

May 26, 2011 07:24 AM
rating: 0
 
BP staff member Neil deMause
BP staff

All those little number keys look so much alike ... thanks for the correction, now fixed.

May 26, 2011 11:03 AM
 
dianagram

Mets find a savior?

http://www.nytimes.com/2011/05/27/sports/baseball/hedge-fund-manager-david-einhorn-negotiating-stake-in-mets.html

May 26, 2011 07:29 AM
rating: 0
 
BP staff member Neil deMause
BP staff

Interesting. That's a different Wall Street guy from the initial batch of candidates:

http://blogs.villagevoice.com/runninscared/2011/03/who_wants_to_be_3.php

The whole "running out of money" thing has always been a bit ridiculous - between the Mets and SNY, Wilpon and Katz control a business worth well over a billion dollars, so they're going to be able to raise cash if they need it. So if liquidity isn't an issue, there's no need for a fire sale - unless you think the team needs to be blown up and started over, which would be a more reasonable argument if the Mets had the Royals' farm system.

May 26, 2011 11:09 AM
 
jrbdmb

There seems to be a divergence of opinions at BP on keeping "name" players like Reyes and Wright. The saber side of the argument says there is no reason to pay to get to a .500 record, therefore blow the whole thing up and plan for the future. The old-timer says that despite the record of the team, marginal revenues are effected by the names of the players on the field.

It would be interesting to see a study whether a non-playoff Mets team with Reyes and Wright would draw enough more over a similar team with league average replacements to justify their higher salaries.

May 26, 2011 08:24 AM
rating: 0
 
metfanaaron2001

I don't think the Mets would try to retain Reyes and Wright just to reach a .500 record. The whole idea is that they are both young enough to be an important part of the Mets future, even if it takes a year or two for Alderson and friends to construct a strong team.

May 26, 2011 08:55 AM
rating: 0
 
BP staff member Neil deMause
BP staff

Precisely. The Mets don't have a ton of talent in the minors, so for them, Reyes/Wright/Davis/et al (okay, not really much et al - Josh Thole?) are whatever future they're going to have. If you could trade Reyes for a Mark Teixeira-type haul, maybe it'd be worth considering, but 1) Reyes isn't that kind of player, and 2) Teixeira still had a year and a half to go on his contract when the Braves dealt for him, not just four months.

Who was it at BP who did that article showing that teams almost never get equal value back when trading established stars? I want to say it was last year sometime, but given how my memory works, it was probably in 2005.

May 26, 2011 11:17 AM
 
Shaun P.
(676)

If my memory hasn't failed me, Steven Goldman wrote it. It looked at big name trades in terms of WARP in and WARP out, going all the way back to the early Red Sox-Yankees deals of the late 1910s. I don't remember when the article appeared, though.

May 27, 2011 07:31 AM
rating: 0
 
Shaun P.
(676)

OK, I think this is it:

http://www.baseballprospectus.com/article.php?articleid=11624

Amazingly enough, Steven wrote this one too, and it did appear just last summer.

May 27, 2011 07:38 AM
rating: 0
 
BP staff member Neil deMause
BP staff

That's the one. Now if only Fred Wilpon's memory is as good as ours, since those who forget the past are condemned to repeat the Doug Flynn Era.

May 28, 2011 14:39 PM
 
Shaun P.
(676)

OK, this is the article I partially remembered. It looked just at the Sox-Yanks trades of the 1910s and 20s, in terms of WARP in and WARP out over 3 years, and Steven did write it, and it was from 2005 - but I don't think its what you were looking for, Neil.

http://www.baseballprospectus.com/article.php?articleid=4386

May 27, 2011 07:34 AM
rating: 0
 
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