The Mets lose a troubled hedge-funder and, probably, Jose Reyes

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Steve Cohen. ()
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On Wednesday morning, the New York Post reported that hedge fund manager Steve Cohen, considered the leading candidate to purchase a minority stake in the Mets, was out of the running. Related: Jose Reyes probably won't be a Met by this time next year.

The possible reasons for the sudden Cohen shift have ranged from Cohen's reported insistence on getting first crack at buying the Mets outright should the Wilpons sell, to objections from baseball authorities over the investigation into Cohen's role in his hedge fund, SAC Capital, and allegations of insider trading.

The likeliest reality is a combination of these two: Cohen would need to receive Major League Baseball's approval to buy even a minority stake in the Madoff-tainted, let alone a majority one, and if he received some indication that he could pass muster, it wouldn't make sense for him to continue his pursuit.

So where does that leave the Mets? Well, the Post reports that Sterling Equities, the company that is run by Fred Wilpon and Saul Katz and which owns the Mets, has gone back to those bidders they'd previously rejected and asked for bids again. And as Mike Ozanian writes over at Forbes, “The problem for Fred Wilpon and Saul Katz, who own Sterling Equities, is that no buyer in their right mind is going to hand them that much money and allow them to keep running the team.”

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That's a simple question of equity value. If the total value of the Mets is $747 million, as Forbes valued them in April, but they have more than $500 million in debt, the net they would receive from a total sale of the team would be around that $200 million they are reportedly seeking. A minority stake, though, with no majority possibilities, would presumably be worth considerably less than that.

And even if they find someone willing to grossly overpay for a minority stake—even one that meets their asking price of $200 million—much of that money is earmarked to pay back the $25 million they owe MLB from last year's loan, the $60-70 million the team expects to lose this year, and a $22 million debt balloon payment due on Citi Field in June. (And that doesn't come close to addressing the $1 billion Bernie Madoff Trustee Irving Picard is seeking from the Sterling principals.)

It is the final 2011 expense, the $22 million, that may be the magic number. It has been reported that the Mets are hoping to have a minority investor in place by June. They'd like this in the same way that someone facing foreclosure by June would like someone to come pay their mortgage by June.

So the immediate task for Sterling Equities is to find someone to invest. But as Newsday reported, they've already given up on the idea of that investor waiving the right to get in the door first on any subsequent majority stake negotiations.

Put simply: if the Mets find a minority owner to finance the team’s short-term obligations, that doesn't come close to helping Sterling Equities address the massive debt on the team, nor any portion of the Picard suit. And remember, while Picard is seeking $1 billion, $300 million of that is in “fictitious profits,” and was litigated successfully by Picard before the very judge presiding over the Wilpon case. So for all intents and purposes, that money is gone.

So the 2011 Mets have two likely ownership scenarios. Either the Wilpons find enough cash to hang around until an eventual settlement on their Madoff restitutions forces them to give up the team completely, or they fail to raise the requisite cash by June to avert disaster, putting the team in the same boat as the Dodgers or the 2010 Rangers: receivership by MLB while the bankruptcy proceedings play out.

In either case, it is awfully hard to imagine Mets General Manager Sandy Alderson getting the green light to sign Jose Reyes to a long-term deal. Reyes is likely to require a contract along the lines of the one signed last winter by Carl Crawford: seven years, $142 million. In fact, with Reyes both younger and playing a position with fewer elite options than the left fielder Crawford, that number may be low.

How likely are the Wilpons to add a new expenditure north of $20 million per season in 2012, when a debt balloon payment of $22 million lurks as an ownership-killer in 2011? Even with a number of salaries set to come off the books—Carlos Beltran's $18.5 million, Oliver Perez's $12 million, Luis Castillo's $6 million, and others—it is hard to imagine the financials on that making sense for the Wilpons, no matter what Reyes means to the Mets.

Reyes could mean more fans in the seats over the life of his new contract—but clearly, the Wilpons need money now, and will need lots more again when the Picard suit reaches a conclusion.

And if MLB is the caretaker for the franchise, the outcry over a long-term contract for Reyes while the other 29 teams are paying the day-to-day operational expenses of the Mets would be deafening. The Rangers, during their 2010 turmoil, were able to add Cliff Lee's salary. But Lee was in the final year of his contract, and Texas didn't bid for his services long-term until after a new owner, Chuck Greenberg, was in place.

Keep in mind that Greenberg first surfaced as a possible owner for Texas in September 2009 and entered exclusive negotiations in December 2009, but didn't complete the purchase of the Rangers until August 2010. And unlike Tom Hicks, the ruined Texas owner who faced bankruptcy, the Wilpons have the added complication of the Picard suit to reconcile with any majority sale.

The reason was simple: Hicks' creditors balked at how much money they'd get from such a sale. That same scenario looms for the Wilpons, who have hundreds of millions in debt—plus Irving Picard seeking a billion dollars on top of that.

And the timeline for keeping Jose Reyes is short. He will become a free agent at the end of the 2011 season, around five months from now. But Sandy Alderson will need to determine if he'll have the chance to sign Reyes much sooner than that—the non-waiver trading deadline (in essence, Alderson's chance to trade Reyes to the highest bidder) is July 31.

So Alderson has to make his best guess within around 75 days whether the Mets will be healthy enough financially in five months to sign Reyes. Otherwise, Alderson will see one of his most valuable trading chips sign with another team this winter, netting the Mets just a draft pick or two. And the best guess probably isn't going to involve keeping Reyes around.

One can understand the Wilpons' point of view, with their only salvation appearing to be a minority owner followed by a turnaround on the field from the Mets to boost attendance and a favorable result from the Picard lawsuit. But as they hold on, grasping at this longshot trifecta, it is the Mets who suffer the consequences.

Howard Megdal edits PerpetualPost.com and writes about baseball for The Journal News, MLBTradeRumors.com and others. His new book, Taking The Field, was just published by Bloomsbury.