Mets may need bailout after deal collapses
With the collapse of their deal to sell a $200 million stake in the club to David Einhorn, the New York Mets may have to ask Major League Baseball Commissioner Bud Selig for more money to meet their revenue payment obligations to low-revenue teams in November, according to people familiar with the matter who do not want to be mentioned because they would break confidentiality agreements or jeopardize their business relationship with the league.
The economics facing the Mets and their owners, Fred Wilpon and Saul Katz, are daunting: $60 million to $70 million in losses this season, a dwindling season ticket base and the likelihood of having to eventually pay around $300 million to settle their legal problems from their investments with the fraudster Bernie Madoff.
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Last year the Mets had to pony up over $60 million to meet their revenue-sharing obligations. Given the decline in the team’s revenue this season, their obligation will be significantly lower this year. But even $1 would seem like a lot given the magnitude of their losses.
In a statement Thursday announcing their failure to reach an agreement to sell a minority stake in the club to the hedge fund tycoon, the Mets claimed the club has enough money to remain solvent.
“Ownership has provided additional capital to cover all 2011 losses and is moving forward with the necessary resources to continue to operate the franchise. Ownership will explore other strategic transactions and is under no financial pressure to do a deal on any particular schedule.”
Einhorn said in a statement that he was disappointed the deal fell through. “The extensive nature of changes that were proposed to me at the last minute has made a successful transaction impossible,” he said.
The Wall Street Journal reports that one key area where the two sides were unable to come to agreement was on a mechanism to give Einhorn the opportunity to take full ownership of the franchise, according to sources familiar with the discussions.
Under the framework agreed to in May, Einhorn was to have paid $200 million for a one-third stake in the Mets, with the right to obtain a 60 percent interest in three years unless Wilpon and Katz returned the $200 million to Einhorn. The hedge fund manager would have retained his 33 percent ownership in the club in that case, making the deal, in effect, a very pricey short-term loan.
The deal was presented like a marriage made in heaven when it was first announced, but it went through more delays than the divorce between Frank and Jamie McCourt. The Mets had previously engaged in discussions with another Wall Street high flier, Steve Cohen of SAC Capital, but ended the talks in May after the SEC said it was investigating his hedge fund for “suspicious” trades.
Einhorn runs Greenlight Capital, a successful hedge fund that is known for making daring and contrarian investments. Attempting to buy into the Mets may well fall into that category: The team drew only 2.6 million fans last year and is on track to attract even fewer fans this year. Emotional attachments certainly played a role for Einhorn. “Having an opportunity to become part of the Mets franchise is exciting beyond my wildest childhood dreams,” Einhorn said when the deal was first announced in May. “I spent my first seven years living in New Jersey and rooting for the Mets. In 1975 I even dressed in a homemade jersey as a Met for Halloween.”
Irving Picard, the court-appointed trustee liquidating Bernard Madoff’s investment firm, is suing Wilpon and Katz for $1 billion, saying the Mets’ owners knew or should have known about the Ponzi scheme. He’s seeking $300 million in fictitious profit from them and $700 million in principal. Wilpon and Katz have denied any knowledge of the Ponzi scheme. The dispute is being mediated by Mario Cuomo.
Picard has sued about 1,000 investors, banks and other entities involved with Madoff, seeking to claw back money for his victims.