Even when the Mets' owners get a break, there’s a catch
It has been an extremely difficult year for Fred Wilpon and his partners in Sterling Equities, owners of the New York Mets.
A year ago next week, a lawsuit by Irving Picard, trustee for the Bernie Madoff victims, against the Sterling partners was unsealed, revealing both the depth of the financial connections between the operations of Sterling's companies (particularly the Mets) and the massive investment they made with Bernie Madoff. Also revealed that day: the evidence underlying Picard's pursuit of both $300 million in "fictitious profits" and $700 million in principal invested by the Wilpon group.
Since then, the news has only gotten worse. In the ensuing year, the true depth of the financial obligations facing Wilpon and his partners has come to light: $430 million borrowed against the Mets, due in June 2014, $450 million borrowed against SNY, due in June 2015, and approximately $600 million in debt against Citi Field, still due in biannual payments each June and December.
The team's $25 million loan from Major League Baseball, due at the end of last season, still hasn't been paid. A $40 million bridge loan, taken out last November simply to make the December debt payment on Citi Field, is expected to be repaid in March. (Related: The Mets' payroll continues to shrink, and Jose Reyes is now a member of the Florida Marlins.)
And the only plausible revenue to pay off even these and any other short-term obligations, investments by minority partners, has yet to materialize.
Earlier this month, the Mets' general manager Sandy Alderson said he expected the first round of those sales to close by the end of January. With the end of January coming tomorrow, no sales have been announced.
Through this difficult year, only one person has consistently provided good news for Wilpon and his partners: Federal District Court Judge Jed S. Rakoff. From Rakoff's decision in August to take the Wilpon case out of bankruptcy court and into his own courtroom to a September decision that, for now, limited Picard's maximum judgment to $386 million, to last week's decision to deny Picard a chance to appeal directly to the Second Circuit Court of Appeals, Rakoff has repeatedly sided with Wilpon against Picard.
And yet, ironically, it could be a decision by Rakoff next month that will make it more difficult that ever for Fred Wilpon to extend his tenure as owner of the New York Mets.
In papers filed last week, Picard asked Rakoff for a partial summary judgment against Wilpon and his partners for $83 million. That sum represents the two-year fictitious profits the Wilpon group received from Bernie Madoff. The term “fictitious profits” refers to the fact that Madoff earned no profits at all, nor did he make any investments in this period—that $83 million came from other people's money, the zero-sum reality of a Ponzi scheme.
Despite Rakoff's frequent findings for Wilpon and Sterling, he has not been a rubber stamp for them. For instance, he is allowing the trial to go forward, though on a far more limited basis than originally requested by Picard. He ruled that Picard had a right to a jury trial, finding for the trustee and against a request from the Wilpon lawyers to have the trial decided by Rakoff himself. And with the possibility of an overturn by the Second Circuit, Rakoff hasn't gotten Wilpon and his partners out of their financial difficulties—it's quite possible that all he's doing is giving them a little time.
Most important, Rakoff has previously indicated support for Picard, should he seek that $83 million through summary judgment. Back in his Sept. 27 opinion, Rakoff wrote: “Although, given the difficulty defendants will have in establishing that they took their net profits for value, the Trustee might well prevail on summary judgment seeking recovery of the profits, how to determine which profits the Trustee can recover remains an open question.”
In other words, even Rakoff believes that $83 million represents the floor for what Picard is likely to recover. This statement makes it extremely unlikely that Rakoff will dismiss the entire case, as requested by Wilpon's lawyers, and he could rule from the bench during a Feb. 23 hearing on the matter that the $83 million judgment has already been adequately proven, and need not go before the jury in the trial scheduled for March 19.
In the event of a summary judgment on the $83 million, Wilpon and his partners would have the right to appeal. But to do so, they'd likely need to post a bond worth 110 percent of the judgment against them—in this case, $91 million. Suddenly, a cash crunch that has them scrambling to meet Major League Baseball's $25 million loan and the $40 million bridge loan by March would require significant more capital, immediately.
Even the five minority partners cited by the Mets as approved by M.L.B. earlier this month, yet strangely still not signed, sealed and delivered, would only provide a total of $100 million. That leaves a significant remaining gap in necessary funds, even if M.L.B., which has been extremely willing to grant this ownership group extra time, relents on its most recent deadline to be repaid.
Should Wilpon and his partners be unable to post the bond, Picard would have significant leeway in recovering the money owed, including the potential to force a sale of the team.
As has been the case throughout, Fred Wilpon has needed absolutely everything to go right to retain ownership of the New York Mets. Now, it appears he'll need a judge to go against his previous written inclinations just to make it to spring.
Howard Megdal is the author of Wilpon's Folly, a book on the financial and legal problems surrounding the owners of the New York Mets.