Before, the Wilpons looked like dupes; now they look like liars
The detailed account of the financial relationship between Bernie Madoff and Fred Wilpon in Wednesday's New York Times leaves Wilpon, the CEO and owner of the New York Mets, in a bad spot. It seems to indicate that Wilpon, along with several other members of the Mets' top brass, must have knowingly lied when he claimed the operations of the Mets were unaffected by the Madoff scandal.
Public declarations by Wilpon, his son (and COO of the Mets) Jeff, and Mets executive vice president David Howard that the daily operations of the Mets were wholly separate from the Wilpons' investments with Madoff now look like bunk.
The most charitable thing to say about the Wilpons now is that the story makes the idea somewhat more plausible that they were unaware of the extent of Madoff's criminal schemes. After all, it looks as if Fred Wilpon exposed every corner of his business and personal operations to Madoff's investment business, something he could hardly have been expected to do if he were aware that the business was a sure-to-collapse scam.
But that may be beside the point. Whatever they knew or didn't know about the propriety of Madoff's money-making activities before the scandal became public, it seems as though they would have to have known that the operations of the Mets were affected afterward.
The denials issued by the Mets were unequivocal: The Madoff scandal did not have the slightest impact on how the Mets did or would do business. As Jeff Wilpon told the Associated Press in December 2008: "The individual partners lost some money at Madoff. It doesn't affect the Mets. It doesn't affect the Citi Field project. It doesn't affect SNY or any of our other operating businesses."
Fred Wilpon, in August 2009, told the Times' Richard Sandomir that the Madoff scandal hadn't impacted the Mets in any way.
“But Fred Wilpon felt the need to emphasize again that the finances of the team had not been affected”, Sandomir wrote. “The resources available to him — revenue from luxury suites, club seats and a nearly 70 percent stake in the SNY network and his real estate holdings — have not been compromised by Madoff, he said.”
Around the same time, Howard called into a Fox Business Network interview with Erin Arvedlund, author of a book on Bernie Madoff. Arvedlund had asserted that the Wilpons would be forced to sell at least a part of the Mets to cover Madoff losses, something the Wilpons long denied, but acknowledged last week. Howard said, in the course of disparaging Arvedlund's reporting as“outrageous, unfounded and grossly irresponsible”: “We have said from the outset that the losses incurred from the Madoff fraud have not and will not affect the operation of the Mets.”
The reality seems to be that all three men had to have known that these statements were untrue when they uttered them. As Serge F. Kovalevski and David Waldstein wrote in Tuesday's piece: “When the Mets negotiated their larger contracts with star players—complex deals with signing bonuses and performance incentives—they sometimes adopted the strategy of placing deferred money owed the players with Mr. Madoff’s investment firm. They would have to pay the player, but the owners of the club would be able to make money for themselves in the meantime. There never seemed to be much doubt about that, according to several people with knowledge of the arrangements.
“'Bernie was part of the business plan for the Mets,' a former employee of the club said.”
In other words, the moment Madoff went bust, the principal for every deal with deferred money invested with Madoff disappeared as well. At that moment, the business of the Mets was affected.
The Times reported, for instance, that the deferred compensation the Mets famously negotiated with Bobby Bonilla—to be paid out in annual increments of $1,193,248.20 each year from 2011 through 2035—was invested with Madoff. When Madoff money ceased to exist, the Mets immediately needed to find that principal elsewhere.
Near the end of the piece, the Times notes the following: “And when the costs of disability insurance spiked, the former employee recalled, the Mets began to self insure. They did it by investing premiums with Mr. Madoff, he said.”
In other words, the moment Madoff went bust, the liability the team had on individual players increased. Once again, the team's business was directly affected.
It's possible that the ties between the Mets and Madoff goes even deeper than what's been made public, even now. The Wall Street Journal reported Wednesday: “For years, the Mets and Sterling used Mr. Madoff's firm as a virtual bank account, depositing everything from ticket revenue to deferred compensation for players to Sterling employees' 401(k) money with the firm, according to a person familiar with the team's finances.”
The suit filed against Fred Wilpon by Irving Picard, the trustee in charge of recovering money for Madoff victims, is currently under seal at Wilpon's request. It has been reported that a motion brought by The New York Times and WNBC-TV to unseal the suit will be heard on February 9, though there's been speculation among the Mets beat reporters that a judge will make a decision on it sooner than that.
If the suit is unsealed, the public will have lots more detail about the relationship with Madoff that now threatens the Wilpons' ownership of the Mets, and the basis for making an informed decision about whether the Wilpons are mendacious or just naive.