- FanGraphs Baseball - http://www.fangraphs.com/blogs -

Are the Wilpons About to Lose the Mets?

We’ve all known for a long time that the Mets are in trouble financially. But we may not have realized just how much trouble. Four days ago, it emerged that the Mets had received a secret $40 million loan from Bank of America approved by MLB, still not having paid off a $25 million loan from Major League Baseball a year ago. As Forbes reports, the loan was prompted by their inability to pay bonds used to finance the construction of Citi Field, and the Mets will owe $32 million more in each of 2013 and 2014. It’s not exactly robbing Peter to pay Paul, but for a team snookered by a major Ponzi scheme, taking out loan after loan definitely isn’t a good trend.

The need for cash was exacerbated by the dissolution of the David Einhorn deal in September, in which the wealthy investor eventually decided against investing $200 million in a minority stake in the cash-strapped team. The team tried to put a brave face on it, but they had lost out on money they thought they’d sewn up, and the new loan proves that they didn’t raise as much money through new sources as they hoped. The trouble is that the loans, and the mammoth amounts of debt owed from the construction of Citi Field, detract from the book value of the team in the event that there is a sale. The New York Daily News reported that MLB isn’t about to step in and take the team away just yet, but is growing increasingly nervous about their ability to repay their loans and service their debt.

Two days ago, Dan Lewis wrote a comprehensive FanPost at Amazin’ Avenue exploring the publicly available information about the Mets’ bleak finances. The major bullet points were that the Mets have been running serious annual losses on the field, they have tons of debt, the Bernie Madoff clawback hasn’t gone away, and while their 65% stake in the SNY channel is profitable, it isn’t enough to cover the losses. The Mets are still seeking a new minority owner: now they’re offering mini-stakes for $20 or $30 million, and they’re offering to pay 3 percent interest annually over six years. While they could try to sell their interest in SNY to raise money, their co-owners apparently have some veto power, and anyway SNY is the only goose laying golden eggs in Flushing at the moment. If they sold their shares in SNY, it would be awfully hard for them to hold onto the team, because it’s one of their greatest revenue streams.

Matthew Callan at Amazin’ Avenue called for Bud Selig to step in and effectively force the Wilpons to sell, as he did with the Rangers, but the Daily News article makes it clear that no one in the commissioner’s office wants that to happen any time soon, and they stress that it’s not because of a personal relationship between Selig and Wilpon — as Callan alleges — but because the “Wilpons have been considered good owners over the years who always put money back into their ballclub,” while McCourt and his ex-wife famously used the Dodgers as an ATM. But the longer that Fred Wilpon goes without repaying his loans, the harder that argument will be to sustain.

Are there any other ways that the team can raise money? Back in February, I explored the idea of going public, selling shares in the Mets the way that the Cleveland Indians did in the 1990s, but found that was unlikely to be a workable solution. Ultimately, the trouble with selling shares of stock in a sports team is the same trouble with selling $20 million stakes in the team: there aren’t many good financial reasons, other than simple fan loyalty, to buy a small nonvoting share in a troubled corporation.

Howard Megdal, a Mets gadfly (who once launched a campaign to make himself the GM), goes through the numbers to show that the latest Mets loan probably will not be the last:

Come March, if the team has completed deals with ten minority investors for approximately $200 million—an extraordinarily tall order—$40 million gets paid back for the bridge loan. Another $25 million, owed to Major League Baseball and currently past due, also gets repaid.

That leaves $135 million to get them through the season with a team that lost $70 million last year….
Let’s be extremely optimistic, and estimate the team loses just $35 million next year. That leaves $100 million. That’s just about enough to cover the two more debt payments against Citi Field, the $30 million in interest on the debt against the team, and the $20 million in interest on the debt against SNY.

And it doesn’t address some other massive issues for this ownership group: the $430 million in debt against the team (due in 2014), the $450 million in debt against SNY (due in 2015), or even a penny of the massive legal fees they’ll be paying to fight the Madoff lawsuit, with a trial date set for March 19 of next year. Oh, and they’ll owe $200 million, plus 3 percent per year, to their ten minority investors in 2017.

So the best-case scenario places them right back in this position a year from now—on the brink.

Fred Wilpon hasn’t been giving any more ill-advised interviews about the dire straits that he and his team are in, but there’s no denying that things are coming to a head. It’s going to be awfully hard for him to get any new loans until he starts paying some loans back, it’s going to be awfully hard for him to pay some loans back until the team starts making more money, and it’s going to be awfully hard for the team to start making more money until they win.

That’s why virtually every interview with a Mets official, including the Sandy Alderson interview on why they didn’t make a formal offer to Jose Reyes, talks about how excited they are to be getting Johan Santana back. Unfortunately, it looks like Santana won’t be ready for opening day, and his operation in September 2010 — to repair a torn shoulder capsule — was most recently undergone by Chien-Ming Wang, who required two years of rehab and wasn’t the same when he returned last year. As always when it comes to a pitching shoulder, it’s unclear whether we’ll ever see Johan Santana pitch like Johan Santana again. But right now, it looks like the Wilpons’ best hope to hold onto the team is to contend in the division, and their best hope for that is for Johan Santanana, Jason Bay, and David Wright to come back and pretend it’s 2008.

If they can’t? Well, read the headline.