What a Dodgers TV deal says about the Mets' future

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Fred Wilpon. (AP Photo/Jeff Roberson)
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The Mets lost Sunday, 14-2, dropping the team's record to 5-7 on the season. It's hardly a fatal start, but it dovetails with what most people expect the Mets to be this season, which is a team that loses more than it wins.

Precisely why that's the case, here in 2014, the year Mets ownership promised everything would be different again, has more to do with what's going on off the field than on, in particular with the team's TV deal.

Team owner Fred Wilpon and his partners spend roughly what the St. Louis Cardinals do on players just servicing their enormous debt against the team, against their majority stake in SNY, and twice annually on the bonds that financed Citi Field.

But thanks in part to the ever-rising values of Major League Baseball franchises, and a commissioner who has been willing to let Wilpon and his partners drain the team and network (powered by a sweetheart deal to televise the team) to stay afloat financially, the Mets managed to get their $250 million debt against the team re-financed this spring, without having to pay money they almost certainly can't spare.

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Mostly, though, the Mets ownership team is hanging on because of its ownership stake in SNY. 

Thanks to the owners' steady-earning position in SNY, Bank of America believes there's enough equity in the team to cover the loan, and that won't change over an additional five years. In the meantime, the bank can continue to collect interest on the loan. If that changes, a forced sale keeps them in the clear. 

And it's been generally assumed that even though Wilpon and his partners owe far more than that against their 65 percent stake in SNY, something north of $600 million, a similar rising tide would lift even the Wilpons' boat when that debt load comes due in 2015.

So you can be sure the Wilpons, perhaps even more than those who own sports networks around baseball, are paying very close attention to the current battle between Sportsnet L.A. and the Los Angeles-area cable-satellite providers.

In January 2013, Time Warner Cable paid the Dodgers around $8 billion for the chance to create Sportsnet L.A., a cable-satellite channel that would carry Dodgers games. Time Warner Cable themselves service around 30 percent of the Los Angeles area, so it would be up to them to get the other carriers—DirecTV biggest among them—to take Sportsnet L.A.

Now, the reason these sports networks are so lucrative is the huge carriage fees, caused primarily by the absence of a la carte pricing. That is to say, every channel DirecTV makes you take on as part of your subscription service makes you someone who subsidizes that channel. Watch SNY, but not YES Network? Doesn't matter. You can't find a cable or satellite provider who doesn't force you to take (and buy) both.

At the moment, DirecTV is balking at the idea of forcing its customers to take Sportsnet L.A., at a price of $4-5 per customer, along with its other programming. DirecTV's position is that customers should be able to order the new network only if they wish to, individually.

The resulting standoff means that approximately 70 percent of the Los Angeles area doesn't get to hear Vin Scully call Dodger games right now. If DirecTV gets its way, there's simply no way Time Warner Cable will come close to recouping what it invested in the Dodger TV deal, which runs to approximately $340 million per year through 2038.

The Dodgers were reportedly guaranteed this money regardless of whether Time Warner Cable could get the other providers on board, so their inconvenience is how many of their fans can't see them on television right now, likely a temporary problem, and not really a financial one.

But that's the Dodgers. 

To see what it has to do with the Mets, let's go back to where we started. The Mets' owners have a debt load of more than $600 million against their 65 percent stake in SNY, with that debt coming due in 2015.

When they go to refinance—the only option if they can't find a way to come up with more than $600 million—are lenders going to be so sure that SNY will maintain its value, let alone increase it? That alone could be problematic for the Wilpons, if lenders decide the only way to recoup all that money is to force a sale right then, by demanding payment in 2015.

And let's also remember, the money that's keeping ownership afloat right now is the roughly $100 million SNY takes in, annually, in profit. This is money they won't continue earning without owning SNY.

The team is losing money, no surprise when cuts in payroll have degraded the team on the field, resulting in decreased attendance. 

So let's say the banks give the Wilpons another five years. They still need that profit to help manage their debt every year. And how does SNY make its money? Two words: carriage fees. Any change in that basic structure, and suddenly SNY can't piggyback other networks carrying more popular programming to get into people's homes.

Nor does SNY have other significant sports to sell to people, as YES does with not only the Yankees, but the Nets as well. It's essentially the Mets and Fordham basketball these days.

In an a la carte world, SNY's popularity, and moreover, its financial well-being, will be tied to the popularity of the Mets. And to remind you where we started, that's the team whose payroll is in the bottom fifth of baseball, despite the Mets playing in the largest market in the country (even half of New York, even 35 percent of New York, is larger market share than any other team in the league). That's the team whose owners spend more on debt service, annually, than they do on payroll, with a product that shows it. That's the team that's 5-7, and looks destined for another losing season in 2014.

Fans of that team can spend some time hoping the young pitchers pan out, that Matt Harvey makes a complete recovery, that a Triple-A team whose best hitter is apparently 40-year-old Bobby Abreu produces some position players soon.

But the real action, for the future of the New York Mets, can be found in a battle between two companies out west.