“Some Schmuck in New York”: Wilpon’s Woeful Week

New York Mets owner Fred Wilpon has had a hell of a week. First, he gave two eye-raising interviews that appeared in the last few days (both are dated to print magazines that will appear on May 30): one with the New Yorker’s Jeffrey Toobin and one with Sports Illustrated’s Tom Verducci. The Toobin interview painted Wilpon as a kind, trusting, earthy guy who got suckered by Bernie Madoff and dearly loved baseball, yet who wasn’t above criticizing his own players, calling himself a “schmuck” for overpaying Carlos Beltran, or telling former GM Omar Minaya he was “full of shit.” Then, just today, he announced that he was selling a $200 million stake in the team to David Einhorn, a hedge fund manager.

The Toobin interview had more colorful language, but Sports Illustrated had the real bombshells: Wilpon admitted that the Mets could lose up to $70 million this year and that the team will likely be shedding a lot of salary, with $64 million coming off the books this offseason. Writes Verducci: “They will not put much, if any, of that money back into the major league payroll.” When Wilpon’s comments came to light, as the New York Daily News reported, Mets manager Terry Collins tried to clear the air with the team: “Don’t get (bleeping) distracted. We’ve got to (bleeping) focus on winning (bleeping) games.”

The Madoff issue casts a pall over everything, but that’s a matter for Irving Picard, the trustee of Madoff’s investments who is suing Wilpon, and for the courts. (There is no dispute that Wilpon did not know that Madoff was a scam artist. The dispute is whether Wilpon ought to have known, and just how culpable that ignorance makes him. Picard has sued Wilpon not just for the money that Madoff made him, but for everything he originally invested, the principal — Wilpon’s personal money, mostly real estate and the New York Mets. Hence the billion-dollar lawsuit.) Toobin seems to think that Wilpon is blameless, while sportswriter (and self-nominated former Mets GM candidate) Howard Megdal sharply disagrees. But whatever Wilpon’s culpability, he has seen hundreds of millions of dollars vanish as ignominiously as the Mets’ playoff hopes in 2007 and 2008, and as he’s seen his losses rise, and the value of the team fall, he upped the share of the team that he was willing to sell. It’s unclear just what percentage Einhorn will literally control — it’s somewhere south of 49 percent, but the actual number could be hammered out over the next month.

Wilpon got the most press for comments he made to Toobin that were unexpectedly critical of his team.
Of Jose Reyes: “He thinks he’s going to get Carl Crawford money… He’s had everything wrong with him. He won’t get it.”
Of David Wright: “A really good kid. A very good player. Not a superstar.”
Of Carlos Beltran: “We had some schmuck in New York who paid him based on that one series [Wilpon is referring to himself]… He’s sixty-five to seventy per cent of what he was.”
Of Ike Davis: “Shitty team—good hitter.”

Frankly, my first thought was that they were pretty much on the money. Jose Reyes has “had everything wrong with him,” a speedster who early in his career had injuries to his hamstring, ankle, and fibula, and who in the last two years has missed significant time with injuries to his calf and oblique, as well as a thyroid condition. Moreover, David Wright certainly was a superstar from 2005 to 2008, but his performance has fallen off significantly in the last two years, both in the field and at the plate, and he’s batting .226 this year; right now, calling him a very good player but not a superstar sounds entirely accurate. And now that Carlos Beltran is an average right fielder rather than a stellar center fielder, he probably is “sixty-five to seventy per cent of what he was” — though, of course, 70 percent of a seven-win player is still a five-win player, and the way he’s hitting that seems eminently possible. And, yeah, it isn’t a very good team.

The problem is, the Toobin interview basically just devalued the franchise, while the Verducci interview confirmed that the money situation was more dire than he was previously willing to admit. As Megdal writes, Wilpon probably talked to the New Yorker because he wanted to seem like “an approachable and unpretentious guy.” And he genuinely does seem like a good guy, a working-class kid who grew up in Brooklyn and rooted for the Dodgers — his best friend growing up was Sandy Koufax, whom Wilpon convinced to switch from basketball to baseball — whose dream to own his hometown baseball team came true. In both articles, people are quoted as saying that he is loyal to a fault, and not only to Bernie Madoff. As Steve Phillips told Verducci: “Because of his loyalties, he probably kept me around longer, hoping things would turn around, than others would have.”

Still, as much as Wilpon loves baseball, he has had the capacity to make remarkably poor decisions, including his decision to trust Bernie Madoff and his unwillingness to fire Steve Phillips, and the Toobin interview is one of them. No one likes to hear the boss describe his club as a “shitty team,” even when it’s accurate, especially when the boss is trying to sell nearly half of it. The Einhorn deal is expected to be finalized next month, and while most details have yet to emerge, the 74-year old Fred Wilpon is still expected to be the day-to-day decisionmaker, while the 42-year old Einhorn announced: “The Wilpons remain in control of the team… I’m just looking forward to the overall experience this investment will lead to.” Hopefully, Einhorn will bring a measure of financial stability to the team and help Wilpon curb his worst tendencies, because most of the worst scandals of Wilpon’s ownership have come to light since Wilpon bought out his former partner, Nelson Doubleday, in 2002.

To me, the most remarkable revelation of the week was the fact that Bernie Madoff essentially provided the inspiration for arguably the stupidest and worst sports contract of all time: the Bobby Bonilla deferral. The Mets wanted to release Bonilla in 2000, but they didn’t want to pay him the remaining $5.9 million on his contract. So, instead, they agreed to defer payment for more than a decade, and then pay him $29.8 million — around $1.2 million a year for 25 years, from 2011 to 2035, starting in about a month. The Mets based the deal on an interest rate of 8 percent, just below the prime rate, and chuckled all their way to the bank because they planned to invest the money they saved with Madoff, expecting his usual 10 to 12 percent returns each year. As Verducci writes, the move helped them win the pennant:

By deferring the money to Bonilla, the Mets freed cash to fortify their roster for the 2000 season. On Dec. 23, 1999, they traded for pitcher Mike Hampton and outfielder Derek Bell in a deal that added $8.1 million to the payroll. Eleven days later they officially released Bonilla. The 2000 Mets would win the NL pennant. The Madoff fund made the roster moves possible.

The Mets, Wilpon says, used Madoff investments to fund deferred payments “several times,” making them to pitchers Bret Saberhagen and Tom Glavine, among others.

Wilpon agreed to pay Bonilla five times as much money as he owed him, simply because he thought that Madoff’s returns would continue forever. He may not have been aware that it was a scam, but putting that much money on the line for a quarter-century of expected market-beating returns is almost criminal stupidity, and that’s essentially the argument that Irving Picard is using: Wilpon’s company “turned a blind eye and continued to take money from an enterprise it should have known might be a fraud.”

That blind eye has already cost Fred Wilpon a great deal of money, and a piece of the Mets as well. He will have to hope that he does not lose even more.




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Alex is a writer for FanGraphs and The Hardball Times, and is a product manager for The Washington Post. Follow him on Twitter @alexremington.

70 Responses to ““Some Schmuck in New York”: Wilpon’s Woeful Week”

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  1. Nick says:

    I’ve never understood why people think the Beltran contract was SO bad.

    a few players’ WAR since 2005 (year he signed)

    Grady Sizemore: 30.2
    Hanley Ramirez: 30.1
    Carlos Beltran: 29.4
    Ichiro Suzuki: 29.4
    Derek Jeter: 29.2
    Carl Crawford: 28.7

    not bad company.

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    • The Beltran deal is a cautionary case study in why $100 million contracts are risky as hell. During the first four years of the deal, he performed about as well as any newly signed free agent could have hoped to perform — and then he got injured, missed most of the next two years, and finally returned as a corner outfielder with much-reduced mobility. It’s not fair to blame him for getting injured. But with all of the wasted millions — especially Oliver Perez and Luis Castillo — it’s easy to understand why Mets fans are so frustrated with their overexpensive, underachieving team.

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      • George says:

        Alex:
        I think what’s most frustrating for me is that Wilpon’s comments simply perpetuate the stupidest kind of discourse when it comes to baseball “analysis.” The comment about David Wright especially rings hollow, considering that the term “superstar” means absolutely nothing. The same with the perpetual hating on Beltran, one of the best players the Mets have had in recent history. It brings to mind these idiots that call the FAN and complain that the Mets can’t win with Wright, Beltran and Reyes because (insert ignorant explanation here; my favorite is the one about them simply not being “winners”). I really think it has become impossible to totally divorce that kind of discourse with the ways in which certain clubs are run. It’s almost as if Wilpon were speaking as a fan, which is fine, but not when he also seems to speaking with a typical fan’s intelligence.

        And according to his WAR, Jose Reyes is most assuredly worth Carl Crawford money. Even last year, during a down year, Reyes was at 2.5 WAR; not great, but valuable. But again, Wilpon, much like most of the people he has hired in the past, has no idea when it comes to advanced metrics. The turn to Alderson brings some hope with it, I suppose.

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      • hunterfan says:

        I don’t think Fred Wilpon’s point was that if 75, or even 100% healthy, Jose Reyes is unworthy of Crawford money. His larger point is that Reyes has such a history of lingering injuries that land him on the DL for weeks, or even months at time, that, strictly due to his health, giving him that kind of deal would be moronic.

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    • brian says:

      Because he struck out looking to end the NLCS

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  2. KB says:

    A non-troll Alex Remington article? No wai

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  3. Dandy Salderson says:

    He didnt de-value anything. Who in their right mind is businesses or players based on off-hand comments made by a 74 year old guy in a magazine? Nobody is.

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    • Forbes won’t adjust the book value of the Mets based on Wilpon’s comments to the New Yorker. But it’s generally considered bad business practice for the owner of a business to make a public statement that his business is “shitty.” It’s bad for morale, it’s bad for image.

      Moreover, it’s yet another suspect decision on Wilpon’s part. Think about it from Einhorn’s perspective: if you had $200 million, would you really want to enter into a limited partnership with a 74-year old with a history of bad personnel decisions who had an occasional tendency to slag his employees and players in the press? It’s unclear whether Einhorn will have any operational say whatsoever, but it’s very clear that Wilpon will retain the final say. Would you really want to give him your money and hope for the best?

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      • Dandy Salderson says:

        No, I would not. But Einhorn gets right of first refusal, so if Wilpon goes bust, he ends up owning 100% – I think that is the play here.

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      • You may be right, but that would imply that Einhorn knows a lot more about the likelihood of Wilpon going bust than we do. You wouldn’t roll the dice on an assumption like that. If he’s paying $200 million for a chance to own the Mets outright — as opposed to being content with a $200 million minority stake in the team — he would need to be reasonably certain that Wilpon would lose it all.

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      • The209 says:

        You wrote “You may be right, but that would imply that Einhorn knows a lot more about the likelihood of Wilpon going bust than we do.”

        Of course Einhorn knows more about those chances…what a silly statement

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      • Paul says:

        I believe in the UK calling your ‘product’ crap is called doing a ‘Ratner’

        http://en.wikipedia.org/wiki/Gerald_Ratner

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      • caseyB says:

        “…who had an occasional tendency to slag his employees and players in the press”

        The error in your thinking is that Wilpon has NOT shown any tendency in the past to slam his own players publicly. In fact, this is the first time in over 20 years of ownership he has done something like this. Many surmise the pressures of the Picard lawsuit and perhaps his older age caused him to lower his guard when he spoke to Toobin. Regardless of the reason, it was unprecedented for him and out of character.

        Given that, I hardly think Einhorn will be influenced at all. The most impactful thing for him and his lawyers as they finalize a deal will be the detailed financial documents the Mets owners have allowed the small group of prospective bidders to see.

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    • Steve Balboni says:

      $200,000,000 is just not that much to Einhorn. He’s probably got more than one junior analyst buying a slug of bonds today that cost as much. His comments on Microsoft might’ve added that much value to its market value. He probably views it as a down payment on obtaining a 100% stake within 10 years.

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  4. db says:

    The Bonilla deferral is a ridiculous point, perpetuated by ignorant sportswriters that know nothing about finance but like to laugh at the fact that the Mets are still paying him. The fact is, at the time of the transaction, the Mets and Bonilla agreed to a deferred payment at a market rate of interest. That the Mets thought they could profit on it through Madoff is irrelevant. If they could profit by investing in the team it made sense.

    Next thing you know, you will be advocating “front-loading” contracts because players are not as good in their later years, even though back-loading saves actual dollars.

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    • Dandy Salderson says:

      The interest is 8%. Nobody gets 8% fixed for that length of time. It only made sense for the ‘Pons, because Madoff was giving them twice that annually, like clockwork, so there was no downside.

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      • This is Irving Picard’s essential point. There is no such thing as a zero-risk deal. The Wilpons had convinced themselves that, with Madoff, there was literally zero risk. That should have set off ringing alarm bells.

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      • wobatus says:

        People did get 8% back then. It was the prime rate. 30 year mortgages were above 8% most of the time in the year 2000. The U.S. borrowed money at an over 8% rate for almost the entire 1980s, and above 10% from 1980-85, and got as high as 14%. That was the 30 year t-bill rate. That’s the “risk free” return. It’s not unusual to think that, over a long period of time, you should be able to invest and beat the treasury rate. In most 30 year periods treasuries beat a diversified basket of large cap equities. It’s foolish to think you’ll beat it year after year, consistently. And investing in 2000 was about the worst time. Returns in the 11 years since are almost historically bad. But over a long stretch equities win out usually

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      • Dandy Salderson says:

        Rates were well below 8% at this time (1999)
        http://www.wsjprimerate.us/libor/libor_rates_history.htm

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      • wobatus says:

        Dandy, LIBOR rates were close to 8%, and those were short term loans, 1-12 month terms. The rate is higher for a longer term payout (usually, not always). The treasury bill rates for 30 year loans in 2000 was mostly above 8%. Mortgage rates were certainly higher, and that’s for a loan with collateral. From what I gather, the prime rate was 8% at the time of the “loan”. Most loans tied to LIBOR are expressed in terms of LIBOR + a certain percent, since not everyone is the same credit risk as for a London Interbank Loan (hmm, quwestionable after 2008 financial crisis I guess).

        You said nobody gets a fixed rate of 8% for that long. Prcatically every mortgage in the US got a fixed rate for 30 years above 8% in 2000, and the United States itself borrowed at that fixed rate for that long a payout.

        It didn’t make sense for the Wilpns to expect twice that return annually. In general, though, over 30 years or so, there is a very good chance you can beat the “riskless” treasury rate on an annualized basis with just an s&p 500 index. There is a ton of evidence for this. It does have some risk, hence the higher returns over time generally. And black swans excepted.

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    • JH says:

      If “knowing something about finance” leads you to bank on significantly beating an 8% return over a 25 year period, I’ll throw my lot in with the uneducated masses every day of the week.

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      • wobatus says:

        There are plenty of 20 year periods where a basket of equities beat that return. Annualized returns of the s&p 500, with dividends, averaged 17.3% in the ’80s and 18.1% in the ’90s. From 1950 to 2009, annualized returns were 11%. That’s better than 8% (but treasury rates were lower than 8 in 1950).

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      • vivalajeter says:

        +1 to wobatus. People love to mock the move, but it was not out of line with how things were going. This all happened before the stock market crashed, before the housing market crashed, before a recession, etc. At the time, 8% seemed like an easy benchmark to beat. As wobatus mentions, the S&P 500 more than doubled that return over the prior 2 decades. They would have made out like bandits if things worked out, and Jonah Keri would probably be writing a book about how smart the move was.

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    • acoustic567 says:

      Amen.

      The blogger states, “Wilpon agreed to pay Bonilla five times as much money as he owed him.” A high school class in economics would inform you that that is a false if not ridiculous statement. Taking into account the “time value of money” and assuming an 8% interest rate, the money owed Bonilla originally and the money ultimately to be paid to him are fundamentally equal.

      Under ordinary circumstances, the 8% interest figure might appear unreasonably optimistic from the Mets’ perspective, but even a fairly conservative long-term investment strategy (put aside Madoff) would have made that seem a plausible, if not necessarily brilliant, deal for the Mets.

      Deferred payment arrangements are very common, even in professional sports, but for a variety of reasons people want to obsess over this Bonilla deal, especially because of the Madoff angle. Now that the Mets are due to pay up on their end, everyone wants to conveniently forget that the Mets did get their value too; it just happened to be in 2000, when they freed up $5.9 million to put to better use, which helped get them to the World Series.

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      • Salary deferral is common in sports. But the Bonilla contract is the only time in history that I’ve ever heard of a salary being deferred over a 35-year period.

        I understand the difference between real money and nominal money. $5.9 million in 2000 and $29.8 million from 2011 to 2035 are nominal sums. To understand whether $5.9 million in 2000 is equivalent to $29.8 million from 2011 to 2035 in real terms requires modeling the likely rates of interest and inflation during that period. Their model was based on a completely unrealistic rate of return based on a Ponzi scheme.

        The Verducci and Toobin articles both reveal that Wilpon essentially never asked Madoff about how he was investing their money. Wilpon and his business partner, Saul Katz (who was also his brother-in-law), had a business meeting with Madoff once a year, and they barely talked about specifics at all.

        Their economic model was laughable. It was based on an inconceivable rate of return, which was in turn based on a financial fraud that Wilpon made no effort to understand, even though he used it to back player acquisitions. It seems that he just didn’t want to know.

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      • db says:

        Remington, you are wrong. First of all, a 35 year payout period benefits the Mets, not Bonilla, who takes credit and inflation risk in the transaction. The potential returns point is also a complete red-herring. Whether the Mets made 10 percent, 2 percent lost it or never set it aside at all was irrelevant to the prospective analysis of the deal.

        Essentially, Bonilla lent money to the Mets at 8% interest with deferred payment and no call rights. I don’t know what the Mets’ cost of capital is, but I severely doubt it was ever as cheap as that deal was. Also, if the deal permitted them to profit earlier by making a playoff push, you could offset the gains, subject to an interest adjustment.

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      • wobatus says:

        Alex, it is crazy to expect a consistent return of 4% over prime, a la madof. It is NOT, however, crazy to think that over 35 years a basket of equities, an index, could beat the prime rate. That’s happened over about 80% of the last 100 or so 30 year periods (the 2 market crashes in the 2000s may skew that some, but over long stretches, beating the bond rate by 2-3% happens more often than not. The annualized return over the last 60 years is about 11%.

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      • Fair point. But there’s no such thing as one-way risk. Because he was the creditor, Bonilla was betting against a lot of inflation; because they were debtors, the Mets were betting on a lot of inflation. It was extraordinarily irresponsible of them to use Madoff to underwrite a 35-year bet on the state of the economy.

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      • kick me in the GO NATS says:

        I would argue Bonilla was the irresponsible one here. He made a bad bet.

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      • hotspur says:

        Bonilla probably got some tax advantage here as well.

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      • wobatus says:

        Alex, yes, it was foolish to let Madoff alone invest the money and foolish not to know his returns were slightly shady. There was a Barron’s article long before he was exposed that surmised as such. Not necessarily a ponzi, but speculation was he was frontrunning his market making operation (Markopolous figured it was a ponzi or some other illicit scheme, since the professed option method, basically selling covered calls, wouldn’t produce such returns).

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  5. BlackOps says:

    Alex, it has nothing to do with whether or not Wilpon’s comments were correct, but everything to do with their appropriateness.

    Writes Verducci: “They will not put much, if any, of that money back into the major league payroll.”

    How does he know that? Is it based on fact or speculation surrounding the related comments from Wilpon? Verducci had an interview with him, why did he try to conclude that from the talk rather than just ask Wilpon to his face? It can’t be that he thought it would be inappropriate for Wilpon to answer that question because, let’s face it, Fred doesn’t know what he should and shouldn’t say. No, it has to be because, like most professional sports writers, he’s looking for a story. There isn’t a story about the Mets’ future payroll that isn’t riddled with assumptions and unknowns. Unless Verducci knows something we don’t, it seems a bit, well frankly, it doesn’t surprise me at all that he tries pass this off as fact.

    Speculation can be fun, but I don’t see how Verducci concluded “They will not put much, if any, of that money back into the major league payroll” unless Wilpon said that himself.

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    • Verducci did ask Wilpon that question, and Verducci’s sentence characterizes how Wilpon responded. Wilpon was clearly vague about the answer, which is why Verducci paraphrased. In another Verducci column, he gave a little more of Wilpon’s answer:

      Wilpon provided that answer to SI when he confirmed the likely scenario is that the Mets will not re-invest most of the money coming off the payroll.
      “That’s fair,” Wilpon said when presented with that assessment. “If you invest your $100 million properly, as most clubs that are competitive are in that range . . . I think that we have to see what Sandy [Alderson, the general manager] wants to do, and Sandy wants flexibility. And I’m trying to give him the ultimate amount of flexibility. He’s going to have to make those decisions . . . The answer to your question is yeah, that could happen.”

      http://sportsillustrated.cnn.com/2011/writers/tom_verducci/05/24/fred.wilpon.mets.madoff/index.html

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      • BlackOps says:

        Thanks. You’ll have to forgive my anger: my childhood heroes on my favorite team are (likely) about to be displaced because they can’t afford them. I think I really really just need/want to see it happen before I’ll believe it.

        While it may be a fair assumption, my feelings don’t want to allow me to believe it.

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      • ofMontreal says:

        Having read these articles & the quotes they contain, I’d say that is how Wilpon talks. He gave an honest answer to an obviously leading question. He said ‘that could happen’, because ANYTHING could happen. What’s he supposed to say? He wanted to cut off Verducci there and not let it go on.

        Also, in the Toobin article, Wilpon & Katz both admit to not being financiers and not knowing enough to make informed decisions. So of course they let Madoff do his thing. And everyone leaves out the part about Madoff saying one day it would stop and so they(W & K) created their own investment arm that performed equally as well as Madoff. I don’t think Picard is going to get much, which is why this is being argued publicly. Einhorn is getting in cheap if he’s getting anything more than 30%, not to mention the first option. Also not mentioned is Katz’s stake. I’d find their childrens’ opinions interesting on this one.

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      • hotspur says:

        “He’s not a financier”? He’s a billionaire real estate magnate!

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  6. Greg says:

    Sandy Alderson was quoted yesterday as saying the Mets payroll will be between $100 million and $140 million for next season. You think the Mets have had poor season ticket sales this year? Just wait and see what happens if they let Reyes go. Mets fans would be outraged, and instead of 15-20k fans a game it will drop to 10-12k.

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  7. Neuter Your Dogma says:

    And to think, a number 5 Org. a mere two years ago.

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  8. Mr. Met says:

    Why should Wilpon should have known? Do you think he would have had $550 million invested with a man he had known for a very long time and vacationed with if he had even a shadow of a doubt of fraud? As a Mets fan I have no bad will towards the Wilpons-they want to win just as bad, if not more than any other Mets fan. My bad will only goes towards all the bad GM’s, contracts, and of course Madoff.

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    • ofMontreal says:

      Thank you for saying this. This is a media trial. Wilpon just lost a crapload of dough and then a BANKER(!) says “You should have known!” Why should he have known? People perform better than Madoff all the time. Just ask the new partner.

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    • hunterfan says:

      As the New Yorker article states, Wilpon was either a dupe or a criminal…neither of which you want heading your franchise.

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  9. Chad says:

    The Bonilla deal didn’t end up costing the Mets much at all, if anything, due to the time value of money. I think THT had an article that broke it down. I’m pretty sure they ended up saving a little bit of money in the end.

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    • I’d love to see that piece, if you can find it. But the reason it hasn’t cost the Mets yet is that they haven’t started paying yet. They’re about to do so. For the next 25 years.

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      • db says:

        See my comment above. As a loan from Bonilla to the Mets, which is what it is, they are fabulous terms.

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      • vivalajeter says:

        Alex, I mean no disrespect (honestly), but when it comes down to the Bonilla deal you (and most baseball analysts) are simply out of your league. It’s not your area of expertise. The deal absolutely made sense at the time and it had the potential for the Mets to make a huge profit, even without Madoff. It’s the way the stock market was at the time. 8% seemed easy for just about every investor at that time. It might not sound logical on the surface because the impact of time value of money can seem illogical over the course of 30+ years, but their deal was not as it seems to most people.

        As I read the responses of people who know little about finance (not just here, but on Mets sites as well), it reminds me of people who think Ryan Howard is a legit superstar. They’ll tell you about his HRs and RBIs and think he’s great, and they’ll insist he’s one of the absolute best players in the game now matter what you say about WAR, wOBA, etc. People who know about advanced stats know better, but to people who only know the basics, Howard is off the charts.

        The domino effect seems to be huge too, based on the article’s mention of not being able to trade for Hampton if they didn’t defer the money. By making the move, they made it to the world series (there’s almost no way they make it without him). How much additional revenue did that bring in? Furthermore, when Hampton signed with Colorado, the Mets received a compensation draft pick and wound up with David Wright. How much surplus value did he add?

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      • Vivaeljeter, I’ll cheerfully admit that I don’t know that much about finance and investment. Wilpon and Saul Katz admitted the same, in both the Toobin and Verducci articles.

        I recognize that the Bonilla deal had a major short-term benefit, which is why I wrote that it helped the team win the pennant. It rested on the assumption that the market would continue to expand in a predictable manner over the succeeding 35 years — that assumption is contrary to American financial history and the very notion of the business cycle. Recessions happen every decade or two, and they have done so for the last century and a half or so of American history.

        You make a strong point against the consequentialist argument — even if one concedes that the aftermath of the deal looks bad now, as the Madoff affair has nuked the Mets’ finances and the team cannot be as blithe with its millions as it could in past years, that does not mean that the underlying analysis that led to the deferral structure was incorrect. However, that analysis rested on some whopping assumptions, and Katz and Wilpon essentially refused to do any kind of due diligence whatsoever on the Madoff fund that made this all possible.

        They got the best short-term benefit that they could have hoped for — few teams are able to push their way to a league pennant by just adding $5.9 million worth of salary — but they didn’t do a very good job of thinking out the long-term consequences. That’s a problem the Mets had over and over during the past decade.

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      • A-rod's nuts says:

        “Vivaeljeter, I’ll cheerfully admit that I don’t know that much about finance and investment”

        So why the article?

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      • The article is about Fred Wilpon.

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  10. Don says:

    I can’t wait for Einhorn to show up in three months and say …. “Fred, I have been buying a ton of the Mets bank debt for 85 cents on the $ and given the Mets dismal cash flows, I am willing to convert this debt to equity. Bang, I own 50.1 percent of the team. So close the door when you leave and one more thing … you need to get your stuff out of the owners suite”

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  11. cs3 says:

    =======================================
    “the Beltran deal is a cautionary case study in why $100 million contracts are risky as hell. During the first four years of the deal, he performed about as well as any newly signed free agent could have hoped to perform — and then he got injured, missed most of the next two years, and finally returned as a corner outfielder with much-reduced mobility.”
    ========================================
    we all know long term contracts are almost guaranteed to go bad fo rthe team towards the end.
    the problem is that if you want to improve your team via free agency with a player who can put up that kind of 5-7 WAR production that every team craves, you have to swallow the cost of the decline phase, because if you don’t, another team will. and you wont ever sign a player of that quality

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  12. kick me in the GO NATS says:

    I feel really badly for Fred Wilpon!!! Madoff could have gotten anyones money. He was after all the single most respected member of the board of governors for the NASD from the 80s till the scandal. I know as my dad was a senior executive with the NASD for much of the 90s and I worked there as well. Finding out Madoff was crooked was akin to finding out Mother Theresa was a child abuser. Accordingly, I hope Bernie has a tough rest of his life in prison. MeanwhiIe, I think Picard is a bastard for going after Wilpons principle. That is just plain rude. But, lastly, as a very partisan Nats fan, I am looking forward to the salary dump. I hope we get Beltran!!!!

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    • caseyB says:

      You don’t want Beltran. Not because he isn’t an extremely good player, but because his bad knees are at risk for blowing out again any day. He’s best served by going to the AL where he can DH some of the time.

      As for your NADAQ experience, thanks for that. It reinforces what many already know that — Madoff would of and did scam almost everyone without exception. There is no way Wilpon and Katz, given their limited securities background “should have known” about the scam. Also agree with your assessment of Picard who is getting filthy rich off his lawsuits due to outrageous hourly billing.

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  13. Evan_S says:

    Just cause Beltran is eternally underrated. The “average” right fielder has the fourth highest WAR of any right fielder in the majors and second in the NL. (Not counting Zobrist since he mostly plays second. And even with his reduced mobility, his Bsr is 1.1 and after a slow start, he’s got his fielding back in the positive.

    I find it hard to imagine a healthy Beltran not being a star in this league. He plays as hard as anyone in the league and is as talented as they come.

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    • When I wrote “average,” that referred to his glove, obviously. Though it’s certainly possible that he’s above-average in the field; it’s hard to tell after just two months. His bat has been phenomenal so far, and that’s why I said it was very possible that he’s still a five-win player.

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  14. Rob says:

    If the mets are losing money, in the tune of 70 million dollars, maybe they should lower ticket prices? With the economy of NY in shambles, and taxes, especially property taxes rising, it would make sense, that if they cannot sell out each night, that they lower ticket prices to attract fans. Why not set yourselves up for a new generation of fans by making it cheap, in comparison to the yankees, to come to the ballgame. I recently attended a game in Arizona, got seats in the first 10 rows for $35 and beers cost $4!! At citi, your looking at over $100 for the seats and $8-9 beers. Jesus, cut prices and increase revenues.

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  15. Bobby Bo says:

    Hey Fred…You want another ten years? I can make that happen.

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  16. Ace says:

    Everyone is missing the point here. It’s so obvious. Finkel is Einhorn. Einhorn is Finkel. Einhorn is Finkel? EINHORN IS A MAN?!?!?!?

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  17. caseyB says:

    “The Verducci and Toobin articles both reveal that Wilpon essentially never asked Madoff about how he was investing their money.”

    Am I missing something here? The Mets owners got monthly statements with stocks of REAL companies listed. In fact, that is part of the basis for their fighting the Picard lawsuit, and according to established securities law, actual statements listing real securities are used as the basis for determining net equity for SIPC reimbursement.

    “Their economic model was laughable. It was based on an inconceivable rate of return, which was in turn based on a financial fraud that Wilpon made no effort to understand, even though he used it to back player acquisitions. It seems that he just didn’t want to know.”

    IIRC, the Mets owners’ rate of return was roughly 18% annually. That is not laughable at all and in fact there are some funds which have had higher returns, albeit maybe not without a loss in any single year. However, Madoff was considered a genius on Wall Street, was head of NASDAQ, and had been investigated and cleared many times by the SEC. Neither Wilpon and Katz were securities or investment professionals. So why would they question someone with Madoff’s credentials who had passed SEC scrutiny?

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    • Perhaps you missed the sections I was referring to. Here’s how the Toobin article describes Wilpon and Katz’s “business” meetings with Madoff:

      Wilpon and Madoff rarely talked about business, even though a great deal of money passed between them. “Because we had this personal relationship, once a year Saul and I would go to visit him, and it was sort of a schmooze, you know?” Wilpon told me. “We’d have a sandwich at his office and ask him how things were going.” They rarely went to baseball games together. “He was really not a baseball fan,” Wilpon said. “On one hand I can count the times that Bernie was at a baseball game with us.”

      Here’s how the Verducci article describes it:

      Wilpon says that his trust in Madoff was so complete that he asked only cursory questions of his friend when he and Katz would meet him, once a year, for a casual lunch. “I don’t remember talking business with Bernie any other time,” Wilpon says.

      That’s why I say that it seemed like Wilpon just didn’t want to know.

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      • caseyB says:

        Alex, know what? What exactly didn’t they want to know?? They very well knew what stocks were supposedly in their account. How much of it. And at what prices they were bought or sold, and on what dates. This was outlined in their periodic statements from Madoff.

        Neither Katz and Wilpon are experts in securities or investing, and both were personal friends of Madoff. So, (1) If you’re implying that either had the requisite background to ask Madoff detailed questions about investing strategies and then to understand his answers, then I don’t think that’s supported by any facts. Especially when you consider that folks at the SEC, who had way more expertise and knowledge about these matters than Wilpon and Katz saw nothing amiss — even after looking into his operations (2) These really weren’t pure business meetings, then. They were part personal calls so I’m not sure why anyone would expect them to get into detailed business talks at these specific meetings.

        Bottom line — Neither Katz or Wilpon had the necessary expertise to delve deeper into Madoff’s operations to the point of uncovering a fraud. And even those who did didn’t do it. So I don’t see how the Wilpons should have or could have. It’s easy to point fingers at them, but no one knew, and if not for the financial crises, Madoff would still be scamming thousands of investors today.

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    • nic says:

      If I invest 500 million dollars, I’m an investment professional. Because if I’m giving someone 500 million dollars I’m making damn sure I know what they are doing with it. And if I don’t understand it, I’ll make the effort to learn and understand it. That way, I don’t end up losing my 500 mil, and I don’t depend on the widely known incompetent SEC to sleep well at night.

      More than anyone, Katz and Wilpon had the resources and access to educate themselves about what their money was doing and how it was doing it.

      The Wilpons can play the babe in the woods routine all they want. Frankly, it doesn’t even matter. Even if true, they deserve to lose everything the way they are going to lose it. They did it to themselves.

      Just because the number of people Madoff fooled is so many doesn’t make any one of them less foolish or stupid or incompetent or inattentive. I’m sure there were many who looked at investing with Madoff and said “No, thanks”. We just don’t hear about them as often as the sob stories.

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  18. caseyB says:

    The idea that Wilpon and Katz were better equipped to detect and ferret out fraud is absolutely ridiculous. They are not more savvy or better equipped than the SEC. the financial professionals at the big banks, or the professional investors who invested their own funds’ money with Madoff. Wilpon and Katz were essentially real estate professionals who also happened to own a baseball team.

    Of course they weren’t babes in the woods but they didn’t have the investment expertise to be able to detect fraud like this. And of course they “knew” what he was doing with their money. They got statements with securities of real companies listed on them. How the heck were they supposed to know the transactions never took place?? Madoff fooled all of Wall Street for decades, and yet the owners of the Mets were supposed to know? How? The impeccable reputation of Madoff, especially as former head of NASDAQ, was all people needed to know to assume he was above board.

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  19. caseyB says:

    And, if you were an investment professional, then you wouldn’t need someone like Madoff to handle your investments. You’d do it yourself.

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  20. caseyB says:

    One other thing. It’s easy to criticize. But assuming you were in the Wilpons shoes, how would one actually go about detecting a ponzi scheme run by someone like Madoff? What would one suggest they should have actually done? Really curious.

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