Introducing David Einhorn, future ex-minority owner of the New York Mets
To great fanfare, the Mets announced on Thursday that David Einhorn, president and founder of Greenlight Capital, Inc. has been chosen to invest $200 million in the team. Though the two sides have yet to reach an agreement, Einhorn held a conference call on Thursday morning to discuss his deal.
The spin from the Mets organization will obviously be that Einhorn’s investment will make the Mets financially whole again, and Einhorn’s decision to invest now, even with things looking as bleak as they do, is an endorsement of the Wilpon ownership group.
Even without the full details of the transaction, it is still possible to understand that this investment doesn't constitute a show support for the current owners, and won't ultimately get them out of the trouble they're in.
Let’s start with the investment itself. $200 million, as we already know from Wilpon's published remarks this week, doesn’t come close to paying off the massive debt on the team, allow for any stabilizing of payroll, or provide a dollar toward any potential settlement with Irving Picard, the trustee for the Bernie Madoff victims who is seeking $1 billion from Wilpon and his partners.
In fact, though the deal hasn’t been completed yet, every dollar Einhorn is putting into the Mets has already been spent: on debt service for Citi Field, to repay a loan from Major League Baseball, to cover 2011 losses, and to pay down $75 million of what Wilpon described as $427 million of team debt.
Einhorn’s story on Thursday appeared to be that he’s a genuine fan—he dressed as Dave Kingman when he was a child—and therefore was willing to accept the unbusinesslike proposition of investing in the Mets without getting any say whatsoever in the way the team is run. There are a couple of other reasons he might be doing this, though.
In the coming days, keep an eye on details of the sale that leak. Einhorn has made his fortune by purchasing companies that were poorly run with potential to be vastly more profitable. Once he’s in, he isn’t shy about pushing for a replacement to run the show.
But he’s also just as aware as anyone of the impossible math that’s now facing the Wilpon group as they seek to hang on to the team, and must realize that he doesn’t have to do much more than sit back and watch as the Mets eventually transition into different hands. He repeatedly talked about this investment as a long-term buy.
"I have no real plans to sell this investment—I expect to hold it for a long, long time,” Einhorn said on the call. “The financial rewards, they'll take care of themselves over time."
It will tell us a great deal about his intentions when we learn whether this purchase includes right of first refusal to buy a controlling stake in the Mets. If so, will have a chance to become the owner who turns around this underperforming franchise. And if not, it is still easy to see why owning a large percentage of the Mets will make sense over the long term.
Remember, when Wilpon and Nelson Doubleday bought the Mets back in 1980, they paid $21.1 million for the team. By 1986, the team was worth over $100 million. By 2002, when Wilpon bought out Doubleday, that increased to $392 million. And even in April of this year, with all that has been going wrong, the Mets still checked in at $747 million, according to Forbes.
Put simply, the Mets have been a poor short-term buy, due primarily to ownership that isn’t long for the team. Over the long-term, though, the team consistently increases in value. Double your money in eight years, even while poorly run? That’s an investment Bernie Madoff could love.
And Einhorn, who moved to Milwaukee as a child and became a Brewers fan, apparently has a longstanding relationship with Major League Baseball commissioner (and former Brewers owner) Bud Selig. Einhorn’s best friend as a child was Selig’s next-door neighbor, and Einhorn acknowledged knowing Selig for a long time. Sounds like getting the approval of MLB for this transaction (which is required) and a possible future majority changeover shouldn’t be much of a problem.
In terms of the real future of the ballclub, the next major milestone will be when Judge Burton R. Lifland rules on the Wilpon motion to have Picard’s suit dismissed. That is expected around the beginning of June. If the judge throws the suit out, Wilpon will still be heavily in debt, but would no longer face certain financial doom. But no one outside the Wilpon camp seems to believe that outright dismissal is particularly likely.
What the investment does is allow Wilpon to hold on for at least the short term, albeit in straitened circumstances. As he admitted to Sports Illustrated earlier this week, it is probable that payroll will be slashed next year even after accounting for the injection of cash from a new minority owner. In other words, Wilpon stays, and Jose Reyes has to go.
In that sense, this lifeline Einhorn is tossing to Wilpon is the worst possible news for Mets fans. But the real action is over by Irving Picard, and today’s announcement doesn’t change that a bit.