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.
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The Wilpons should sell the team and buy the dodgers. They’re closet dodgers fans, end of story.
Why is Bud Selig running Frank McCourt out of baseball, but is trying to preserve Fred Wilpon’s ownership of the Mets? Just cut off all the loans, and Wilpon is forced to sell the team to someone who can actually pay the bills.
The reason Selig isn’t running Wilpon out of baseball is that he thinks that Wilpon is a “good owner.” Selig is a control freak when it comes to who owns a team — that’s why he blocked Mark Cuban. I think he’s frightened by the prospect of a team being sold if there weren’t a prospective owner of whom he approved.
The McCourt divorce also unveiled a lot of financial dealings that made for bad PR… stuff like that hasn’t come out with respect to the Wilpons, as far as I know, other than the Madoff dealings and massive debt.
MLB ownership is definitely a good ol’ boy league, hence Moorad being allowed to own 2 teams in the same division while others aren’t allowed in.
Wilpon helped Bud get his current job.
Well, yeah, there’s that too. But Bud is very secure in his current job, supported by all the other owners he’s enriched over the years. He doesn’t need Wilpon. I’m sure he feels a strong sense of loyalty to him. But it’s not a quid pro quo any more.
Not only is he very secure, he’s set to step down in a year.
Mets fans: we’ll trade you Jeff Moorad for the Wilpons, straight-up.
i think i’d take that. he can’t be as bad as wilpon…
I’ll let you know how he is as an owner in 2014…when he actually owns the team and does more than trot out a team whose payroll in 2012 “start with a 5″.
Today’s UT on the whole situation: http://www.signonsandiego.com/news/2011/dec/14/moorad-gift-for-city-would-be-buying-out-moores/
It’s going to have to go the way of the rangers at this point. Mets are going to declare chapter 11, and it’ll get ugly. maybe Tom Seaver will be to the Mets what Nolan Ryan was to the Rangers. That’s probably a pipe dream…
this is really depressing.
Early christmas present for this team.
A few comments:
1) Megdal’s math looks wrong. He assumes $35MM losses, then adds the debt interest to that. But when the team says they lost $70MM last year, doesn’t that included all debts? It seems like Megdal is double counting interest payments.
2) “it looks like Santana won’t be ready for opening day” Is this based on anything? Obviously a shoulder injury is touch-and-go. But other than Alderson saying he doesn’t know if Santana will be ready, I haven’t really read anything on his status. I certainly haven’t read anything that suggests he’s unlikely to be ready.
3) “the new loan proves that they didn’t raise as much money through new sources as they hoped” Does it really prove that, or is it possible that this was a bridge loan? From what I’ve read, they’re trying to sell a bunch of $20MM shares, but that will take a few months. This loan doesn’t necessarily prove that they didn’t raise as much money as they hoped, it might just be a timing issue.
4) Does anyone know what kind of green the Wilpon’s have outside of the team? If they’re broke, and the team is essentially their only asset, then it won’t be long before they sell. But if they have money to weather the storm, then I don’t see why they should sell. Up until the Madoff scandal, they had the highest payroll in the NL over the previous decade. They didn’t always spend money in the smartest way, but they put a lot of money into the team. It seems very shortsighted to force them to sell because of what’s going on now, unless they simply don’t have enough money to get them through the scandal.
Well, the Wilpons have their real estate, and apparently they’ve been putting money into the team. But clearly not all of their money.
As to Santana, I partly based that on what I read on Santana’s player page on Fangraphs — “Santana (shoulder) may not be able to return to the Mets by Opening Day or necessarily any time in April, ESPN New York reports.” — and partly on the fact that most injured Mets players in recent memory have faced delays in their return timetable.
The new loan was certainly called a “bridge” loan. But New York Times article reporter who first broke the story about the loan wrote this: “The recent $40 million loan suggests that the effort to sell minority shares in the team was not generating the cash that the owners needed in the near term.” So that’s the basic insight I was using.
Like Megdal says, he’s being optimistic — even though the team lost $70 million last year (most of which was probably debt), a great deal of payroll-shedding may enable them to bring down their losses this year to around $35 million or so. Most of that will still probably be debt service.
Regarding Megdal’s #’s in the second paragraph you quoted, he says (optimistically) that they’re lose $35 million. He then says they’ll have to pay another $55 million in interest. That’s the part that didn’t make sense to me. I think the $55 million in interest is a part of their losses – it’s not in additional to them. So I think he’s double counting the interest. Either way, if they really owe $880 million in 2014/2015, then they’re screwed.
Thanks for the clarification on Santana and the bridge loan. I’m not expecting much from Santana this year (or ever again, really) but I hadn’t seen anything to suggest he was behind schedule, aside from a “you never know” type of quote from Alderson.
Either way, it’ll be interesting to see how it plays out. If their wins matched their payroll over the last few years, they’d be a powerhouse with their new stadium. It doesn’t seem like anything has gone right for them though.
My understanding of the $20 million shares was that while they had some people who agreed to buy them, they wouldn’t get any of the money until they sold all ten shares. If that’s the case, the $40 million loan isn’t informative at all, except to tell us that the Mets haven’t sold all ten shares yet.
Kevin S is correct. The Wilpons will not collect a dime of the $200 million until all 10 shares are sold.
The Wilpons own Sterling Equities, which is a corporate real estate firm. Not sure what the net worth is of something like that, but it’s probably pretty good.
Greg owning a real estate firm these last few years is about as like is about as profitable as owning a Hummer dealeship when gas is $4 a gallon.
Yikes I really need to stop posting from my phone…
Viva they are certainly broke. If they had the money to pay back these loans using their “non-Mets funds” they would have. The Wilpons are obviously very rich men but they aren’t Larry Ellison rich. I doubt they would allow bad press of this magnitude to fester if they had the cash on hand to make it go away. Taking a broad view of the Wilpons last ten years in ownership it’s pretty easy to see why they are so strapped. It’s hardly a coincedence that the Wilpons hired Minaya and went on a massive free agent splurge around the same time the housing and overall real estate market started booming, all while getting massive returns on their investments with Madoff. Not mention that the new TV station and stadium had been in the works for years (if not for 9/11 the Mets and Yankees probably would have been in new stadiums 7 or 8 years ago). Then they were financially blindsided by two catastrophic events (The fall of Madoff and, as I not-so-eloquently stated two posts ago, the implosion of the housing market). The Wilpons are holding on for dear life. As a Mets fan its bittersweet. As much as I hate Wilpon for the way he has run this organization it’s hard not to feel somewhat bad for the guy assuming he isn’t a crook who knew Madoff was a swindler. I was around when the Mets OWNED this town in the 80′s. It’s really depressing to see my team in this state.
Let me get this straight: the Mets’ owners are broke, but get one secret loan after another, with nary a wink from Bud Selig.
But back in 2003, when the Pittsburgh Pirates didn’t meet MLB’s debt to equity ratio, they were forced to trade Aramis Ramirez to the Cubs for diddley squat in return.
It’s funny how MLB works, isn’t it?
You know all the talk over the years about Mets fans revolting against the team? Here in Queens, it’s already happening. Boycotts are already being discussed. All Mets fans seem united in trying to get rid of the Wilpons, and it’s quite obvious that the way to do this is to dry them up. If they thought losing $70 million was bad, just wait until the gate receipts drop dramatically next year. We’ll get our team back one way or another.
Occupy Wilpon 2012!!!!!
Like they say of the dog chasing the car, once you “get your team back” what are you going to do with it?
This is the first good article that Alex Remington has ever written on this site.
Having said that, I think Megdal is wrong to some degree about the finances because it doesn’t take into account the money the Wilpons are making on SNY. They may need to repay $20 million in interest for SNY but I understand the network is making a profit so that helps to some degree as I don’t think he mentions SNY’s income – only the annual interest payment and the total debt owed.
Thanks, Ralphie. You’re right, Howard Megdal mostly covers the outflow rather than the inflow in that piece, but the Dan Lewis article at Amazin’ Avenue that I linked speculates that the Mets probably netted about $40-$50 million from SNY last year. In other words, it’s profitable and a good source of revenue, but it’s not enough to prop up the ship by itself.
I suspect that the Wilpon and McCourt cases aren’t all that different. Both ownerships have their (non-baseball) wealth in commercial real estate, where cash flow is down, values are down, and assets are illiquid. For McCourt (family issues aside) the situation was that because he’d bought low on the Dodgers, but with borrowed money, he had to juggle funds (mobilize equity) in a way that made financial sense but was unacceptable (perhaps reasonably so) to Selig. For the Wilpons, the pressure comes from non-baseball financial problems, and the team just adds to the burden. I’d guess they’re desperate to avoid a forced sale in a bad market.
Actually, they are different. The McCourts systematically looted the Dodgers organization, splitting up its various revenue streams (parking lots, tickets, etc) into separate corporate entities and then taking loans against each. And they used borrowed money to buy the team in the first place. While the Wilpons have put their own (perhaps Madoff-enhanced) money into the Mets over the years, the McCourts clearly took more money out of the Dodgers than they ever put in. That’s at least one distinction that Selig is using in his “good owner” vs “bad owner” Weltanschauung.
If you haven’t already, you must read
http://itsaboutthemoney.net/archives/2011/06/21/commissioner-selig-frank-mccourt-must-go-a-petition/
It’s long, and a little dated, but still fascinating (in the way any horrendous car wreck is fascinating)
This is sad. I’m a Yankees fan and I still find this news depressing. The Wilpon’s don’t appear to be bad owners, and this is supposed to be one of baseball’s biggest franchises. More than just that though, they are the ONLY thing in New York that can detract from the Yankees’ monstrous revenue stream. Even as a Yankee fan, I know that someone needs to do that.
Frankly, I’m surprised it took this long for an article like this to come out. The writing has been on the wall for a while now with regard to their financial situation. It really is not that difficult to piece it together, at the least in rough estimations, from the outside.
One really has to wonder why it is the Wilpons would not be actively trying to sell a franchise they are getting crushed on. If they can walk away from this team and get someone to pay them in the range of 250 million they should just thank their lucky stars and leave.
I actually think that the answer is simple: Fred Wilpon didn’t buy the Mets because he wanted to make money off them. He bought the Mets because he grew up in Brooklyn as a huge Dodger fan, and when he grew up he wanted to own his own baseball team. Selling the team would mean giving up his childhood dream. And that’s just agonizing.
Yes, I agree. I think it is that simple. However, one has to wonder when he will ‘wake up’ and realize his childhood dream is costing him a big chunk of his fortune.
What does he want MORE than he wants to own the Mets that he should give the Mets up to keep the rest of the money?
At some point lossing a fortune on a sports team can be a rational decision. If what you want is to own a good sports team and you have the money then why not? And the Wilpons still seem to think (possibly correctly) that what they’re facing is a temporary cash flow problem, not a real lossing situation where holding on too long will risk seriously hurting their life-style.
The Mets and SNY are both still assets, hold on and they can probably dig their way out eventually, sell out and the Mets are probably gone forever.