9:23 am Feb. 23, 2012
Here we go again.
Newsday reported on Wednesday evening that Fred Wilpon and his partners, who own the New York Mets, had reached an agreement to sell seven minority shares in the club. Only one buyer, Steven A. Cohen, manager of the hedge fund SAC Partners, was identified.
But the news, presented by the embattled Mets ownership group as progress, is anything but. If the Mets have only seven minority share commitments, that means they are still three short of the ten they need simply to pay some fast-approaching debts, with their latest deadline, the end of the month, just a few days away.
For the better part of a year now, the Mets have reportedly been close to a $200 million infusion of capital through the sale of minority shares, first in the person of hedge-funder David Einhorn, then through sales of ten smaller, $20 million blocks.
Thanks to the reporting of the Times' Rich Sandomir, we know that two of those blocks are to be purchased by... Fred Wilpon and his partner, Saul Katz.
The reason they'd do this, rather than simply invest that money into the team directly, is precisely the same reason the Mets aren't closing on the minority sales individually, but only once they line up ten such investors: the move wouldn't be likely to earn approval from the team's current debtholders.
Keep in mind that the minority shares are, in reality, additional debt against the team. Minority owners would earn three percent interest on their shares per year, for six years, and then would have the right to sell those shares back to the Wilpon group and collect their interest.
As a result, the current owner of the debt against the New York Mets, JPMorgan Chase, wants a substantial payment from that $200 million investment in exchange for approving the deal. During the Einhorn negotiations, JPMorgan Chase was set to receive half of that money, and held up the deal until they were satisfied in this regard.
Sandomir also reported that SNY, the Mets-partnered cable network, would be purchasing four shares, for a total of $80 million.
SNY, which is 65-percent owned by Wilpon and his partners, has plenty of motivation to try to bail them out as owners of the Mets. Their minority partner at SNY, Comcast/Time Warner, knows that SNY becomes far less valuable if decoupled from the Mets in terms of ownership. The network earns its profits almost entirely through showing Mets games, and pays a far lower rate for those rights than a new owner would likely demand.
So that's six shares. The seventh is from Cohen, who is in the bidding to purchase the Dodgers, and would need to sell whatever Mets share he owns if he manages to buy the Dodgers outright. His purchase amounts to little more than a gesture of goodwill toward Bud Selig and Major League Baseball.
In other words, despite months of aggressively seeking buyers, the Mets appear to have found exactly no one, other than people who are already owners, who is willing to risk $20 million in what amounts to a low-return CD from a company with a high chance of bankruptcy.
After all, a minority owner can't expect a clear shot at earning back $20 million plus three percent annually in six years if the $430 million debt against the Mets due in 2014, the $450 million debt against SNY due back in 2015, the roughly $600 million remaining in debt payments on Citi Field due twice annually for the forseeable future, or the $386 million lawsuit brought against the owners by trustee for the Bernie Madoff victims, Irving Picard, gets the Wilpons first.
Meanwhile, the Mets owners have more immediate hurdles to clear. Wilpon and his partners took out a $40 million bridge loan at the end of November simply to pay one of their Citi Field debt payments on December 15; that bridge loan is due back in March. They still owe $25 million to M.L.B., long past due—the minority sales are supposed to pay that debt, too.
And Thursday, Federal District Court Judge Jed S. Rakoff will hear arguments about whether he should rule in favor of summary judgment for Picard's seeking of $83 million in fictitious profits Madoff paid the Wilpon group over the final two years of Madoff's scheme. Rakoff has previously indicated that he may well rule in Picard's favor on this. If he does, Wilpon and his partners need to either come up with the $83 million, or post a bond worth 110 percent of the judgment—around $91 million—just to appeal.
The math isn't that hard: $83 million judgment plus $40 million in bridge loan repayment plus $25 million to M.L.B. plus $100 million to JP Morgan Chase is a far greater sum than the $200 million they'd raise with ten minority owners.
But facing such a problem will require something else first, something that, more than a year after the process started, the Wilpon group doesn't yet appear to have: a single soul willing to put up real money on the premise that Mets ownership will be good for it.
Here's what the Mets had to say about it, in a statement: "As has been our practice, we will not comment on any aspect of the limited partnership sale process."