Einhorn exits, while the Mets owners wait around for a happy ending

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Fred Wilpon. (Screencap via mets.com)
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The long-expected and often-announced deal for Greenlight Capital's David Einhorn to purchase a minority stake in the Mets from Fred Wilpon and his partners fell through on Thursday.

“I am disappointed to announce that I will not be purchasing an ownership interest in the New York Mets baseball team at this time,” Einhorn said during a conference call today with reporters. “It is clear that it will not be possible for me to consummate the transaction on the terms that the Sterling-Mets organization and I originally agreed to several months ago. The extensive nature of changes that were proposed to me at the last minute has made a successful transaction impossible.”

Instead, the Mets plan to sell smaller blocks of the team to friends and family, according to reports, a plan that would deny any one minority owner a clear path to majority ownership while collecting enough money to equal Einhorn's $200 million investment.

The problem with this plan, aside from the fact that it sounds like something out of It’s a Wonderful Life, is that the Wilpons already tried this months ago. It was a failure to drum up interest from friends and family that led them to seek out a wider range of bidders in the first place.

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And don't forget, many of their closest friends and family are already part of Sterling Partners, the Mets owners’ business entity, to begin with, so what they’re proposing is, on some level, the sale of the team to itself.

The Mets issued a statement this morning, saying in part: “Ownership has provided additional capital to cover all 2011 losses and is moving forward with the necessary resources to continue to operate the franchise. Ownership will explore other strategic transactions and is under no financial pressure to do a deal on any particular schedule.”

No one outside Sterling and their advisers is in a position to know for sure whether their claim about not being under financial pressure is true. But it seems unlikely.

One has to presume that if the Sterling partners had access to the kind of capital that just walked away from them, they wouldn't have needed to seek Einhorn's investment to begin with. To be clear, it has been confirmed that the Mets are continuing to seek investors, and that they need to, because the $200 million they were to receive from Einhorn had been earmarked to cover a range of immediate debts, including a $25 million loan from Major League Baseball due back by season's end, and team losses of around $70 million in 2011 alone.

Notice that not a penny of the Einhorn money would have gone toward the $1 billion lawsuit Wilpon and his partners face from trustee for the Bernie Madoff victims Irving Picard. It would seem that they needed that cash infusion no matter, even if they somehow were found by a court not to be on the hook for a single penny of Ponzi money.

In the conference call with reporters, Einhorn painted the Wilpons as having been less than forthright with him throughout the process of their negotiations. (A spokesman for the Mets did not respond today when asked whether the Wilpons would be going public with their version of events.)

According to Einhorn, the two sides came to an agreement on a term sheet in late May, an agreement that Major League Baseball also approved. Subsequently, other Mets creditors raised objections about order of payment—they wanted to make certain, understandably, that they would get paid off before Einhorn did.

But by July, Einhorn said, the terms had been modified to the creditors' satisfaction, and he'd been ready to finalize the deal. His exclusive window ended, but with the agreement set, Einhorn allowed it to expire as “a gesture of good faith.”

“Unfortunately, the Mets then reopened negotiations with at least one other bidder,” Einhorn said. “This action gave me cause for concern.”

Einhorn quickly re-established exclusive negotiating rights, and as recently as last week, believed the deal would get done. But according to Einhorn, the agreement, more or less static since May, was returned to him with extensive changes.

One change Einhorn alleged was the attempt by the Mets to keep Einhorn from taking the unusual step of receiving pre-approval from the league to become majority owner, should financial circumstances allow him to take control. Einhorn said that this term was in both his original proposal to the Wilpons in April, and agreed to by the Wilpons in May.

“It wouldn't make sense to invest $200 million, then not get the chance to buy,” Einhorn said.

Einhorn said that he'd gotten that pre-approval from MLB Commissioner Bud Selig, but the Mets subsequently went to Selig and convinced him to rescind that approval.

It’s easy to see why the Wilpons may have done this. From their perspective, Einhorn was the distasteful little guy they were compelled to do business with to get through what they were hoping would be a rough patch. Yes, they’d made a deal with him that would let him take the Mets from them if things failed to pick up in the next couple of years, but that was a technicality. It was an affront that Einhorn was so openly, humiliatingly, betting on them to fail.

Whatever the reasoning, without that pathway to majority ownership, Einhorn’s motivation for making the purchase vanished.

That is precisely the problem the Wilpons face once again. They still need money. And while majority ownership in the Mets is worth plenty, due to the medium- and long-term ability of a National League franchise in New York to make money, it’s conceivable that any investment that keeps the cash-strapped, debt-saddled, and possibly Ponzi-profit-owing Sterling folks in place will have the effect of suppressing that value by encumbering the Mets with payroll limitations.

So now the Wilpons, who thought they had the financial backing to at least keep running the Mets and fighting Picard for a while longer, are counting on those friends to materialize with those baskets of cash.

And with the angel out of the picture, Citi Field lurches toward Pottersville.