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February 13, 2012
Mets Shell Game with Money May Stave Off Take-Over
With Sandy Alderson’s foray into Twitter the exception, these are dark times for the Mets. Besieged by Irving Picard (the trustee in the Bernie Madoff case), declines in attendance, and (as a result) a decline in cash flow, the Wilpons and Saul Katz (aka Sterling Equities) are throwing everything but the kitchen sink in front of the door to block a takeover.
Most Mets fans are at the point where they’d like nothing more than to see new ownership take over the club. Such is sports. While Sterling strikes one as part of the “1%” for ownership, they view the Mets in much the same manner that homeowners across the country feel about their home that’s teetering on the edge of repossession. Anything and everything is being done to try and protect it, which means moving around assets, restructuring loans, and bringing in what little fresh money can be found through minority investments.
In the eyes of baseball, the situation is far different from what is happening a coast away with the Dodgers. Sterling is not Frank McCourt. Up until being entangled with the Madoff Ponzi scheme fallout, from MLB’s perspective, the Mets followed the league’s mantra to the letter: invest in your team, maximize your ballpark. They did both by getting Citi Field built and shoveling money into player payroll.
It’s frequently overlooked, but while owners often get involved with sports properties as a way to stroke their egos, once in, they’re highly competitive. In fact, they can be so competitive that sometimes they’ll bring non-baseball-revenue-related money into play. Sterling was just such a case.
It’s too soon to say whether the Mets willfully turned a blind eye to the returns that Bernie Madoff brought in, although one whistleblower could possibly place that into perspective. What is known is this: the Sterling partners poured a lot of money into the Mets via the Madoff investments, notably for matters such as handling the mountain of deferred compensation money that the Mets had created through back-loaded contracts like as Johan Santana’s six-year, $137.5 million deal that, according to BP colleague Jeff Euston, has $5 million deferred annually at 1.25 percent compound interest (payable June 30, seven years after the season in which salary was earned). On July 1, 2011, Bobby Bonilla collected his first installment of $1,193,248.20, which is to be paid annually for the next 25 years. Deferred compensation is serious stuff in the eyes of MLB labor. Missing deferred compensation payments is considered a violation of the CBA and got at least one former owner (Tom Hicks) in trouble when the Rangers were on the edge of bankruptcy.
The Mets are in a shell game, but they’re likely to survive through 2012 season… if everything goes Sterling’s way. Here’s a breakdown:
Will it be $386 million or $83.3 million for the Madoff trustee?
Minority Shares: Enough to Float the Boat?
With that, the Mets’ broadcast partner, SNY (which they own 70 percent of) would control 16 percent of the Mets. Hedge-fund magnate Stephen Cohen is also purchasing a stake. Cohen is an interesting addition, as he was originally in line to purchase the full $200 million minority interest but backed out. Cohen was part of an insider trading investigation but appears to have been cleared, so much so that he is also involved in an attempt to purchase the Dodgers. If he were to find success in that endeavor, he would have to sell his minority interest in the Mets. All told, there are 10 shares of the Mets which, according to the term-sheet, have to be held for three years before Sterling can buy them back. If (and as of publication, it appears that the sales will be completed) the $200 million arrives, it will allow the Mets to cover their debts, which include the bridge loan to Bank of Americaa, the bond payment, MLB’s $25 million loan, and their deferred compensation payments. That, of course, is predicated on how much Sterling will be on the hook for with the Madoff victims.
Attendance, Player Payroll Will Be Critical
Will Selig Push Sterling Out?
The Mets: A Cautionary Tale for All Owners
Sterling’s failing is that they invested poorly in contract construction, and when headwinds hit, here they sit. Is it not entirely out of the question to say that a similar calamity to could befall Mike Illitch (with the Prince Fielder deal) or any of the clubs out of compliance with MLB’s debt service rules (the Phillies, for example)? Fans need to take a closer look at what their team owners are really about. There is a constant tug of war that goes on between “my team isn’t spending competitively in the free agency market” and “my team is spending inefficiently in the free agency space.” In the midst of all this, the idea that owners are spending—albeit to a detriment, at times—gets lost. Do you want an owner that is willing to not only spend, but to go into debt to try and bring you a championship? Or are you looking for one that shuttles it aside? The Mets were asked to comment for this article in terms of what the long-term restructure strategy is but declined.
In some other universe, I envision the Wilpons and Saul Katz sitting on the porch of their home, shotguns in hand, saying, “From our cold, dead fingers.” It’s an extreme view, but the reality is, they’re going to move the deck chairs around to try and keep ownership of the Mets. The question is, “Are they rearranging deck chairs on the Titanic?” At least for the time being, the answer appears to be “no”. For the current Mets ownership group, 2012 appears to be make or break.