Madoff-victim trustee says he lost interest in pursuing the Mets owners because they didn’t have money

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Following the settlement last month between Fred Wilpon and his partners, owners of the New York Mets, and Irving Picard, trustee for the Bernie Madoff victims, avoiding a March 19 trial in which Picard was suing Wilpon and his partners for $386 million, Wilpon and his partners claimed to have been vindicated.

After all, the trustee, under the terms of the settlement, was to receive just $162 million—less than half of what he could have earned at trial, and a smaller fraction still of the $1 billion he originally sought from Wilpon and his partners. Moreover, the settlement allowed the defendants themselves to go forward with their own claims against the Madoff estate of up to $178 million, meaning that in all likelihood, the settlement wouldn't cost Wilpon and his partners much of anything.

The conclusion the Mets owners have encouraged the media to come to is that the trustee had been bluffing all along.

But that doesn't make sense. The burden of proof at trial would have been on the defendants, and the settlement actually lessened the financial burden on Wilpon and his partners: Instead of needing to come up with $83.3 million in the very near future, a floor locked in by a ruling from the judge in the case, they'd need to come up with a maximum of $29 million themselves, and not for years.

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On Friday evening, in a court filing that set forth the terms of the settlement, Picard made it clear why he agreed to such an apparently lenient deal: Wilpon and his partners wouldn't have had the money to pay him anything.

"Based upon financial information provided by Defendants since the [agreement], and on the advice of my counsel, we have become satisfied that Defendants' cash flow and lender covenants would not have enabled me to recover more for the BLMIS customer fund in the forseeable future by litigating to the point of judgement," Picard wrote in an affidavit filed with the settlement terms.

This is a staggering statement, if true, in light of the public attempts by Mets ownership to assert that their problems ended on the day the settlement occurred. 

Fred Wilpon and his partners were about to face a trial that would have bankrupted them, and a judgment already found against them—for $83.3 million—was more than they could pay. 

That's a problem for the forseeable future of the New York Mets, whose payroll is already down by more than $50 million from last year.

The trustee took what he could get and got out. In this case, what he got was of considerable value—a six-year lookback standard that affects roughly 250 other cases against net winners and a potential $6 billion more to the Madoff victims, and the end of an appeal by Wilpon and his partners that should clear the way for the victims to receive another $6 billion more quickly. It also, in all likelihood, enabled him to avoid having to contend with other of the Wilpon group's creditors after a bankruptcy filing.

But it makes the claim by Wilpon and his partners is that they are financially in the clear seem absurd. The sale of $240 million in minority stakes in the Mets, many of which were purchased by either Wilpon-owned SNY or some of the partners themselves, provided enough of a life preserver to get them through the year.

With more than $100 million of that $240 million simply used to pay down a portion of the team's $430 million debt in 2014, that left no more than $140 million—and according to a source with the Mets, significantly less than $140 million—to pay back the $25 million debt past due to M.L.B., and $40 million bridge loan due back to Bank of America.

The Met owners, having paid back those loans, thus have no more than $75 million to pay off the interest on what remains of the 2014-due loan against the team. That was $30 million in 2011, and if they've managed to slice a third off of the $430 million (which is unlikely) that would still put the interest to pay on that debt alone at $20 million. But we'll call it $20 million.

That leaves $55 million. The interest on their $450 million debt against SNY, due in 2015, was $20 million in 2011. That leaves $35 million.

Two debt payments, one due in June, the other in December, on Citi Field, totaled $43.7 million in 2012. That likely goes up in 2012, but assuming it stays even, that still leaves $35 million to pay $43.7 million—in other words, allowing the entire $240 million to run out around December 2012.

The problem for the Mets owners is that they have to come up with all that interest and payment on Citi Field all over again in 2013. Interestingly, that total—conservatively estimated here at $83.7 million—is nearly identical to what they'd have had to pay the trustee, at minimum, without a settlement. Picard went over their books, and determined they didn't have it.

Now, that lack of funds fails to take into account whether they can count on any revenue from the ballclub itself. But consider that the team lost $70 million in 2011, charging significantly more for tickets and drawing 2.37 million fans, and it is easy to understand just how precarious the position of Wilpon and his partners is, and how dependent it is on the Mets playing a lot better than they're expected to in 2012.

Even after cutting more than $50 million from payroll—which still leaves the team, at 2011 revenues, solidly in the red—any further erosion in attendance or other revenue simply increases that loss even further. And simply by maintaining 2011's attendance, the team losses go up, since they have cut ticket prices significantly (actually giving them away in some early games, and selling them at $2.50 per ticket in some others).

So the Mets need to draw very well in 2012, shrunken payroll and all. Because as far as the trustee could tell, the money the owners need to keep up with their obligations isn't coming from anywhere else.