Bloomberg News

New York Mets Main Financial Challenge May Be Fielding Competitive Team

March 03, 2012

Owner Fred Wilpon of the New York Mets. Photographer: Marc Serota/Getty Images

Owner Fred Wilpon of the New York Mets. Photographer: Marc Serota/Getty Images

New York Mets general manager Sandy Alderson, preparing to drive to Florida for spring training earlier this month, joked with fans through Twitter messages about the sorry state of his baseball team’s finances.

He would need a fundraiser for gas money to get to the Mets Port St. Lucie training complex because the team only reimbursed miles at a “downhill rate,” he said.

Mets fans, on local talk radio or in blogs devoted to the fortunes of the beleaguered Major League Baseball team, give the impression they consider the financial prospects of the team a joke too.

That may be about to change. After fan predictions of bankruptcy, the Mets owners are set to hear by March 5 whether they must go to trial to fight a $386 million claim for money they had with Bernard Madoff, the con man who ran the biggest Ponzi scheme in history and now resides in federal prison in North Carolina.

A ruling that ends or limits the potential liability would come on top of a pending infusion of about $200 million from minority investors in the team, which will be used to pay $65 million of short term loans from Major League Baseball and Bank of America (BAC) Corp. If all goes well, the principal challenge as spring training season games begin may be fielding a team that will get fans back in the seats at Citi Field, the Mets’ home park in Queens, New York.

“We’ve got to win the fans back,” Mets owner Fred Wilpon told reporters last week at the team’s spring training facility. “We have a diminished population coming to Citi Field. We need that revenue. And the only way we’re going to get that revenue is if we have a competitive, interesting team on the field.”

Few Stars

The Mets’ roster has only a few proven stars, including third baseman David Wright, 29, a five-time All-Star whose production slipped in 2011, and Johan Santana, 32, a former 20- game winner for the Minnesota Twins who missed all of the 2011 season because of shoulder surgery.

The team lost shortstop Jose Reyes, 28, last year’s National League batting champion, to the Miami Marlins after he was offered more money in a longer contract than the Mets thought made sense. Carlos Beltran, a six-time All-Star and former Rookie of the Year, was traded to the San Francisco Giants last year for a package of players including pitcher Zack Wheeler, 21, who has yet to play in the major leagues. Wheeler along with pitcher Matt Harvey, 22, are the two Mets ranked among Baseball America’s top 100 prospects.

“They’re not barren, but the farm system won’t play a major role in their resurgence the next couple of years,” said Jim Callis, Baseball America’s executive editor, referring to younger players brought onto the team.

Revenue Slide

That doesn’t bode well for improvement on the field this year from 2011, when the Mets finished fourth out of five teams in the NL East. Sterling Mets LP, which runs the team and owns Citi Field, took $51 million out of Queens Ballpark Co. in 2010, down from about $167 million in 2009, according to the stadium’s latest published annual results, available on the Municipal Securities Rulemaking Board website. Results for the full year 2011 aren’t available yet.

Distributions to Sterling Mets in 2009 were swelled by $50 million of cash on hand at the beginning of the year and about $20 million of lower lease and other costs, according to the financial statements.

Revenue from the stadium slipped further in 2011, falling 12 percent through November as attendance fell to 2.29 million, according to Standard & Poor’s analyst Jodi Hecht. Stadium managers’ projections of a rebound in attendance in 2012 to 2.5 million appear “aggressive,” she said in a December report.

Ticket Sales

The Mets owners get paid mainly from ticket sales from 81 home games a year. Bondholders get all revenue and receivables from luxury suite premiums, some ticket sales from club and premium seats, food, beverage and merchandise concessions, advertising and most of the naming rights, certain sponsorship agreements and parking operations. Separately, the Mets owners also get paid from their stake in SNY, a regional sports network.

S&P in December cut to negative the outlook on $695.4 million of debt issued to build Citi Field after the team’s third straight losing season and falling attendance.

“If your attendance numbers are going down, the unsold inventory is putting pressure on your primary market -- season ticket holders, mini plans,” said Rob Tilliss, managing partner at advisory firm Inner Circle Sports. “If there’s that much inventory out there on, say, StubHub, it’s harder to retain pricing power.” StubHub is a secondary ticket market.

Revenue Stream

Selling tickets is key to the Mets’ finances, as it’s one of the few revenue streams the team keeps from the stadium.

Most season-ticket holders will pay less this season, the Mets said in October. About 80 percent of their seats will cost at least 5 percent less; 57 percent will dip at least 10 percent, and 35 percent will drop at least 20 percent. Under a new “dynamic pricing” policy, fans will probably pay more to see relatively more popular clubs such as the Philadelphia Phillies and Miami Marlins, than for clubs such as the Houston Astros or San Diego Padres.

Last season’s average ticket price for the Mets was $31.81, fifth-highest in Major League Baseball, according to Team Marketing Report, an industry newsletter. Premium seats cost $102.13, sixth highest in baseball.

At that level, the Mets lost $70 million last year, general manager Alderson has said. The team’s loss, and the owners’ slide in revenue from the stadium, comes after the Madoff fraud wiped out $500 million the Mets owners thought they had of their own and the team’s money, they estimated.

Team Expenses

Also gone is about $63 million a year of Madoff money that paid team expenses including players’ deferred compensation. The amount represents withdrawals in the six years before the con man’s 2008 arrest, calculated by the Madoff firm’s liquidator, Irving Picard. During baseball’s regular season, when money was needed, Sterling made about three-quarters of its withdrawals from Madoff accounts, Picard said.

Sterling Equities Inc., Wilpon’s and his partners’ company, restructured a bank loan of more than $500 million after Madoff’s arrest, Picard said in his lawsuit. Bankers ordained that a judgment in the Madoff case of more than $100 million, or in some cases $50 million, would be “an event of default,” he said.

‘Team-Generated Revenue’

Picard’s assertion that the Mets couldn’t make their payroll without Madoff money was “disingenuous,” the owners said in a court filing this month. The money they withdrew from their Madoff accounts to meet the payroll came from ticket sales and other “team-generated revenue” deposited with the con man, they said.

William Halldin, a Bank of America spokesman, declined to comment on loans to the Mets’ owners.

The Mets’ themselves have a $430 million loan that comes due in June 2014, a year before a $450 million loan to SNY, the sports network built around the Mets, falls due, according to author Howard Megdal, who wrote a 2011 book, “Wilpon’s Folly: The Story of a Man, His Fortune, and the New York Mets.”

Restructuring Firm

While Sterling declined to discuss the loans, its partners have hired a restructuring firm “to provide services in connection with financial reporting and budgeting processes,” according to a statement. The loans may be restructured, said a person familiar with Sterling’s finances who declined to be named as the debt plans are private.

The team owners are partly offsetting the loss of Madoff income by reducing their basic payroll to about $90 million this season, from $140 million. This is the first time since 2002 that the franchise’s Opening Day salary total has dipped below $100 million. The Mets finished with a 77-85 record last season, slashing costs during the offseason by not re-signing Reyes, whose contract with the Marlins is worth at least $111 million over six seasons, according to ESPN.

The Mets in the past five years have spent $24.9 million on draft bonuses for players in school, which ranks 22nd among 30 teams. Baseball America has the Mets as the 24th-ranked farm system in baseball.

‘What You Pay For’

“For a team in their market, with a new ballpark, that’s inexcusable to spend that little on the draft,” Baseball America’s Callis said. “Money doesn’t guarantee success, but a lot of what you get out of the draft is what you pay for.”

Bondholders who helped finance the stadium’s construction are repaid by revenue allocated to them, including from luxury suites, and can’t pursue the Sterling partners. There’s enough revenue to make bond payments, according to S&P and Moody’s Investors Service.

If the judge handling the Mets owners’ case, Jed Rakoff, awards Picard the $83 million he wants immediately before trial, out of a total of $386 million, Wilpon will have to post a bond to appeal the ruling.

The team has sold seven minority ownership shares, out of a targeted 10, $20 million shares, each representing about 4 percent of the franchise, Wilpon said last month. If he buys the shares back in six years, as the New York Times reported investors were told, he’s adding debt, not getting an equity infusion.

More of a Loan

“It’s more of a loan than an investment if he buys them back,” said Chip Bowles, a bankruptcy lawyer and baseball fan in Louisville, Kentucky. Sterling wouldn’t say if a buyback is planned.

The sale was largely to Sterling companies and partners. Four shares went to SNY, the regional sports network owned by the team with Time Warner (TWC) Cable Inc. and Comcast (CMCSA) Corp. Two shares went to Sterling partners. Billionaire hedge-fund manager Steven Cohen of SAC Capital Advisors, a bidder for the Los Angeles Dodgers, is among those investing in the Mets, a person with direct knowledge of the situation told Bloomberg News.

If the judgment in the Madoff case is more than $100 million, that could technically trigger a default on Sterling’s $500 million loan, according to Picard’s reading of the documents.

The Mets owners have hired restructuring firm CRG Partners, which advised the Texas Rangers on its bankruptcy. The Mets say they haven’t hired CRG for such advice.

“Sterling could file for bankruptcy,” Bowles said. “I would be shocked if they hadn’t consulted someone about using bankruptcy as a way to reduce a legal judgment.”

To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net Scott Soshnick in New York at ssoshnick@bloomberg.net

To contact the editors responsible for this story: Michael Sillup at msillup@bloomberg.net; or John Pickering at jpickering@bloomberg.net


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