10:13 am Mar. 20, 20123
Fred Wilpon and his partners in New York Mets ownership just won big, twice. Following their $162 million settlement with Irving Picard, the trustee for the victims of Bernie Madoff's ponzi scheme, word was put out that Wilpon had sold 12 minority shares in the New York Mets, worth $240 million.
The practical effect of Monday's settlement with Irving Picard, trustee for the Bernie Madoff victims, is that the Mets owners don't have to pay anything toward that settlement for four years, and the likelihood is much if not all of what they owe will come from other settlements made by Picard.
At the very least, these two developments should mean that for the time being, they'll avoid being forced to sell the team.
While it is still unknown who bought all of the minority shares—the already-identified new owners are, well, the old owners, with Jeff Wilpon and Saul Katz each purchasing a share, and SNY, the Wilpon-owned network, purchasing at least four—that matters less than the reality that if the Mets did take in $240 in exchange for 48 percent of the team, then the owners bought themselves time.
How much time? Given what is known about their remaining obligations, as much as a year from this sale. Let's take a look at where the money is going.
Of the $240 million, $40 million went out the door immediately to pay a bridge loan from Bank of America from last November, $25 million went to pay a past-due loan to Major League Baseball, and at least $100 million to JPMorgan Chase to pay down a portion of the $430 million debt against the team due in June 2014. That's $165 million of the sale that immediately went back out. It may be more: JPMorgan Chase might have needed more money to allow the Mets to take on new debt, which is what the sale is, since the owners can sell their stakes back to the Mets in 2018, for what it cost them plus three percent annual interest. But let's give the Mets owners the maximum possible use of this new money.
That leaves $75 million to deal with this year's obligations. The owners will have to make a pair of payments on Citi Field—those payments totaled $43.7 million last year. They'll have $20 million in interest on the $450 million debt against SNY due in 2015, plus $30 million in interest on the $430 million debt against the Mets. If we assume that's been knocked down by a quarter, or even a third—those three obligations still total right around $75 million.
That leaves essentially no breathing room for the team to deal with any team losses in 2012. But there is a massive difference between last season's budget, which saw the Mets lose $70 million, and this one. The team chopped $52 million off the books in salary, cut ten percent of their workforce, and even eliminated a minor league team (at an estimated savings of $800,000). If we assume, best-case, that the workforce laid off amounts to even $2 million—doubtful, if you know how M.L.B. employees who aren't on the field or executives are compensated—then we'll estimate that they chopped $55 million off the expenses, getting 2012 losses down to $15 million.
The problem there is assuming their intake will be static as well. The Mets managed their 2011 budget with attendance of 2.34 million. Attendance, of course, is the financial lifeblood of a baseball team. Having cut ticket prices significantly, the Mets wouldn't even have the same revenue if every fan who attended in 2011 returned in 2012. And there's little indication that even that is happening so far.
With every 200,000 fans worth $25 million to the Mets, even a drop to, say, 1.7 million fans in 2012 would create a shortfall equal to the money they need to pay off 2012 Citi Field debt and interest payments.
But again, giving the team the benefit of the doubt—maybe the depleted roster, inspired by Terry Collins, will find a way to scrap their way into contention—let's say that the owners' projection of attendance increasing by ten percent in 2012 is correct. (That projection was rejected by Standard and Poor's late last year, and seems entirely at odds with both the product on the field and fan sentiment, but never mind.) That would keep revenue essentially flat, since they've reduced ticket prices.
Their owners' dilemma is that in a year, that $240 million will be spent. And in 2013, they face the same payments all over again: two Citi Field payments, interest on their SNY debt, interest on their Mets team debt. And in the intervening year, because of these crushing obligations, they have little opportunity to improve the on-field product, making it hard to increase revenue.
They will no doubt try to make some gesture to the fans to show that they mean to rebuild the threadbare team, even as they claim that all is now well with its owners.
But without other circumstances changing, Mets fans will see the organization in almost precisely this position a year from now. And next time, there won't be any more minority shares left to sell.