Wilpons sell Mets control to stave off a Madoff reckoning and maybe bankruptcy

The 2011 Mets in training. (Via mlb.com)
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So according to Forbes.com, it turns out that David Einhorn, the man who bought a 33 percent stake in the New York Mets this month, might be able to increase his stake to 60 percent three years from now, for a dollar. Which brings the true financial state of the Mets’ owners into sharpest possible relief.

The details of the deal Einhorn struck with Fred Wilpon and the other Sterling partners indicate that even medium-term survival isn’t a realistic option for the current ownership team. Essentially, Wilpon and company divested themselves of their only remaining sellable asset while the legal proceeding against them—a $1 billion suit filed by the trustee for Bernie Madoff’s victims, Irving Picard—heads toward its grim ending. The inescapable conclusion here is that the Wilpon group had nothing else to sell, and made a desperate move to stave off bankruptcy, if only temporarily.

It's a move they only would have made if they had no other options, which in fact seems to have been the case.

Sterling Equities holds real estate, but apparently they weren’t in a position to leverage those holdings for cash in this unsteady market for commercial properties. (Last month, a Sterling-owned office building in Hauppage, NY went into foreclosure).

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They also own a roughly 65 percent interest in SNY, the television network that broadcasts the Mets, and which carries an estimated value of more than a billion dollars. But that, too, is complicated. For one thing, Sterling has an agreement with minority partner Comcast that Comcast gets first crack at any sale of the majority stake in SNY. In short, the valuable commodity wouldn’t hit the market at the highest bid—Comcast would get the chance to buy it. (This is the primary reason Einhorn never had a shot at SNY, even if he wanted it: it wasn’t Sterling’s to offer.)

And no matter what their stake in SNY eventually sells for, a term of the $450 million the Wilpons borrowed against SNY is, reportedly, that any profit they’d receive from selling their stake would be turned over to their SNY creditors.

So no money from real estate, no money from TV. Oh, and no baseball profits to trade on, either: the team is now actually losing money—upwards of $70 million in 2011, according to Fred Wilpon himself.

The only thing of value the Wilpon group had to offer, in other words, was the chance to buy a stake in and eventually take over the New York Mets. Einhorn will have acquired this privilege for $200,000,001, which is cheap compared to the Mets’ recent valuation, except when you figure in the team’s debt, which is now estimated at between $400 and $600 million. The debt service to Citi Field is still in the neighborhood of $500 million. Suddenly, $200,000,001 net doesn’t sound so crazy.

The real losers here—apart from Mets fans, who are going to have to suffer through a payroll-austerity period for as long as the Wilpons are hanging on— are the Bernie Madoff victims. They (through their trustee, Picard) are hoping to claw back some of their losses from the Wilpon group, which made more money from Madoff than it lost. But the Wilpons have effectively just given up control of their most valuable asset to pay off immediate debts. When judgment (or settlement) time comes, and they are ordered to pay up, there will be nothing much left for them to give up.

As it is, it’s only the Einhorn deal that is allowing the Wilpon group to make it through a season that included a debt payment on Citi Field, payroll every two weeks, a $25 million loan due back to Major League Baseball and other unspecified debt.

If they had failed to make any of those payments, it would have triggered bankruptcy, and a forced sale of the Mets as part of a disbursement of assets—just as the Texas Rangers were sold last summer.

It wouldn’t have been a happy outcome, exactly. But it would have brought a definite end to a chapter in which the Mets and their fans have paid, time and again, for the folly of their owners.