David Einhorn’s waiting game: Why the clock is ticking on the Wilpon era of the Mets

David Einhorn talking to Charlie Rose. ()
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The newly-revised terms under which Greenlight Capital's David Einhorn would purchase a minority stake in the New York Mets from Fred Wilpon's ownership group, Sterling Equities, illuminate a likely endgame for Wilpon ownership by June 2014 at the latest, and cast further light on the idea behind Einhorn's bet. Einhorn doesn't want his money back, he wants the team.

As Josh Kosman of the New York Post reported, Einhorn will pay $200 million for a 17 percent interest in the New York Mets. Sterling can pay Einhorn back his $200 million in five years, and if they do, Einhorn gets to keep the 17 percent interest in the team. If Sterling cannot pay him, Einhorn can then take majority ownership in the Mets for “a token amount,” which sounds a lot like earlier reports that had the additional sum at a dollar.

This deal differs in several respects from the one Einhorn thought he'd reached with Sterling—and those differences have everything to do with JPMorgan Chase, to whom Wilpon's group owed $500 million dollars borrowed against the team itself. With those loans coming due in June of 2014, JPMorgan Chase didn't want to take the chance that Einhorn would get repaid first.

As it stands now, JPMorgan Chase will receive $70 million of the $200 million Einhorn is paying Wilpon's group, leaving the Wilpon bill with JPMorgan Chase at $430 million. The rest of Einhorn's $200 million is already earmarked as well, with $30 million going to pay a loan from Major League Baseball, and the remaining $100 million set to pay off team operating losses of between $60-70 million in 2011 and assumed losses in 2012.

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And that's the problem with imagining the Wilpons as long-term owners of the Mets—the Wilpon group appears to have sold the only asset it can profit enough from to pay David Einhorn or a large portion of what it owes JPMorgan Chase.

Consider that we now know the Wilpons need to come up with $430 million to pay JPMorgan Chase by June 2014, or in less than three years. That's assuming they can weather the storm of further team losses, debt payment on Citi Field, the hundreds of millions of dollars borrowed against SNY, and don't forget... Irving Picard, the court-appointed trustee for the Bernie Madoff victims, is still seeking $1 billion from the Wilpon group.

In other words, Einhorn is betting that a judgment coming from the Picard case will be a knockout blow. If Wilpon somehow escapes from that suit unscathed—for instance, if the August 19 hearing to dismiss the case goes his way—Einhorn is still betting that another one of the massive debts coming at Sterling will force a change in ownership. And if, against all odds, they weather Picard, JPMorgan Chase and all the rest, Einhorn's hoping that coming up with another $200 million in five years to pay him off is a bridge too far.

If Einhorn were truly more concerned with getting his $200 million investment back, he wouldn't have put himself in a position to get paid only after JPMorgan Chase got $430 million, and Picard possibly received some large, undetermined judgment. That's no surprise, really—17 percent of the Mets wouldn't be worth $200 million if the team weren’t in massive debt.

Instead, Einhorn is spending his $200 million now to avoid getting into a bidding war later for a potentially lucrative franchise. So the fact that JPMorgan Chase is in a position to demand $430 million from the Wilpons before he'd get paid actually works to his advantage.

Fred Wilpon has actually had or two things go his way recently. The decision by United States District Court Judge Jed S. Rakoff to at least temporarily move Picard's suit against Sterling from Bankruptcy Court took what was certain financial doom and gave Wilpon a chance of survival.

But while Picard is in court seeking $1 billion—a sum he may or may not receive—there's no uncertainty about what Sterling owes JPMorgan Chase. And to raise that $430 million by June 2014, Sterling can no longer sell a majority interest in the Mets. A condition of Wilpon's borrowing against SNY, Sterling's other major holding, was that any profit from a sale of his share would go to the borrower—so that's a move that nets him zero.

It's not clear that even a complete liquidation of Sterling's commercial real estate holdings could raise that kind of money, particularly in the current economic climate—never mind that most of it is collateral for other loans.

So the Wilpon Era of the New York Mets could end sooner than June, 2014. But it's getting harder to picture a scenario in which it ends any later.