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1. Loren F. Posted: January 28, 2011 at 08:26 PM (#3738306)The worst case scenario (from their POV, anyway) is that they simply cannot afford to lose the revenue that they would have to give up to make a reasonable investor happy, and neither can they afford to invest in the team sufficiently to run it as sole owners. In that case, their only option is to sell.
1) You need to expand and don't have the capital to do it
2) You're having trouble meeting current expenses and need an influx of cash
I'm guessing the Mets aren't trying to expand.
"Who" isn't the right question. "Why" is the right question, and the answer is the same reason that anyone invests a lot of money even though they aren't the controlling partner: to profit. If an investor gets a look at the books, and has good enough accountants, and gets a good enough deal on return on investment, then there is no inherent reason why a smart investor necessarily wouldn't invest in the Mets/SNY. If I had the money, and was convinced that the Wilpons' situation is such that they simply need money right now and can't get access to it (for any number of good reasons -- the lack of collateral they can pledge and the Madoff lawsuit being biggies), I could easily see the potential for a nice return on investment from the Mets/SNY cash flow.
As a Mets' fan, would I be thrilled if a portion of the Mets' potential revenue stream was diverted to a new minority shareholder, whose up-front stake was being used to save the Wilpons' butts? Well, no. But that's my issue, not the potential investor's. He or she can still see it as a potentially strong investment.
Presumably, the Wilpons have a list of other Madoff investors.
Ha!
It will depend on how much they sell, and to who. As bad as things have often been under the Wilpons, it could always be worse - MLB could always lend Loria the money to buy yet another team.
Some of these deals are strucured so the minority owner gets an option to purchase a majority share after a period of time. IIRC, that's how Art Modell was eased out of the NFL Ravens' ownership. Seems like a bit of a face-saving maneuver.
Yes. It was attached to the summons and complaint they were served with after the word, "Plaintiffs."
Exactly. The key point here is that this is a Wilpon financial problem. While they lost personal funds the Mets are undoubtedly operating at a profit. From an ROI perspective this may be a very good deal for someone.
Exactly. The minority owner will have first right to become majority owner at a future point in time.
The minority owner could insist on autonomy on baseball issues for the GM, and a budget, and could ask for veto power in replacing the GM. Contracts can be written giving minority owners negative control, i.e. the right to block actions.
Anything diluting the influence of Jeff Wilpon is good news. Anything.
And if there's one thing 2010 in Arlington taught me, it's that a hideous ownership debacle is quite consistent with winning an unexpected pennant. Enjoy, Mets fans.
In 2008, the Mets won 89 games and drew over 4 million fans (top in the NL). Since then the Mets have finished 4th in their division twice and attendance has dropped to around 2.5M (and if the Mets are losing again this year it might drop further). Even with the new stadium, I could see their valuation being lower then it was in 2008.
My first thought, too.
I more or less agree with the original article. It's not so much that you couldn't set up a situation where the minority owner makes out ok, it's that it's hard to think of a situation where becoming the minority owner is the best play available.
Theoretically, it would be mutually beneficial for me to give a mugger 20 bucks in return for leaving me alone. But once my wallet's out, what are the chances that the deal goes through?
It might not be the best play available if Potential Minority Owner A (PMO A) is the only game in town -- the only possible deep pocket who could/would ride to the Wilpons rescue. In that scenario, then of course, PMO A would be a fool not to use that leverage to force the Wilpons to sell and take over the team himself (or at least take a controlling interest and leave the Wilpons as only minority owners).
But another possible scenario is that there could be multiple PMOs, and that would give the Wilpons at least some leverage. Each one of them might prefer to just buy the team, but as long as even one of them is willing to settle for the second-best alternative knowing that is what the Wilpons prefer, then they can use his presence to make sure they keep the team -- while trying to make the best deal they can with whichever of the PMOs will agree to a deal they like.
Calcaterra again, just now:
It wouldn't shock me if the trustee is seeking something like that. At various times, according to reports, Sterling took out at total of about $570M from their Madoff investments. They had invested something quite a bit less than that -- $525M or so. The assumption has been that this meant they were on the hook for the apparent profit (something just short of $50M). But if the trustee has a theory (and any sort of proof to back it up) that anyone involved with Sterling was a participant in the fraud, then he could be going after every penny they took out, with penalties and interest. A billion? Sure. And even if that theory is a longshot, with flimsy evidence to back it up, even the slim chance it might have legs would be a massive threat to the Wilpons.
Let's put it this way. If the Wilpons do need to sell the team, the way they would almost certainly do it would be to first put out the cover story that they were seeking a minority investor. So today's story is absolutely consistent with the possibility they are facing truly massive Madoff liability. But it is also absolutely consistent with them facing merely substantial Madoff liability, for which they need an infusion of capital, and thus a minority investor.
As a Mets' fan, even putting aside whatever you think of the way the Wilpons run the franchise from a competence standpoint, I would rather they not be taking money from the future profits and channeling them to a minority investor whose investment went not to help operate the franchise, but to pay off the Wilpons' Madoff debt. Fundamentally, if a minority owner is getting a return on his or her money, that less that can be plowed into the team and its future. And that loss isn't balanced by a present-day infusion of cash into the team. So the whole minority investor thing just is not a positive development. An outright sale would be much better for the future of the team.
OTOH, as one of the Yankees' limited partners once said, "There's nothing as limitied as being a limited partner of George Steinbrenner."
OOOH! OOOOO! PICKME! PICKME! PICKME!
I have no problem with someone more emotionally stable taking over the Mets, finances be damned.
Conflict?
1: I don't see how they could be one the hook for $1billion- unless someone with the last name of Wilpon is alleged to be liable to other Madoff investors in negligence or actual participation in Madoff's fraud.
2: The big issue I always saw was that the Wilpons saw $500m disappear- that was money they and everyone else thought they had- that was "money" they used as collateral - that was a source of a steady stream of income- 25-60 million a year that they withdrew from their Madoff account- 2009/2010 what did they have to replace that revenue- the Mets
If the Wilpons need money the worst case scenario for Mets fans is that they cut payroll to Pirate/Marlins like levels- I suspect that the Wilpons are wholly willing to completely gut the team short term in an effort to save their ownership position long term.
As a Met fan? Oh god I hope Picard is suing for $1B, and that he has some basis for that claim- the Wilpons will not be able to keep the team- if the allegations are bad enough Seligula may try to force them out too- it's time he used his powers for good rather than evil :-)
I dont want to pick a legal fight with a law professor, and I don't know the law here (funky SIPC stuff, I think) but is this correct? Wouldn't the correct claim, even assuming no malfeasance, be:
Amount Withdrawn(=$570) - [Percentage that other Madoff claimants will receive on account of their claims] * [Investment(=525)
And I thought the return to Madoff victims is going to be something like 50% . . . meaning Madoff would be on the hook for a couple of hundred million
If the whole fund is deemed a fraud from the beginning, the trustee can possibly claw back any proceeds removed going back several years, and divy them up among all the victims.
The $1B could be the ~$500M already lost plus the ~$500M withdrawn, of which they would get some % back (the same % all the others victims get).
Well, in regards to my #17, um... well, do you maybe have a third choice you'd accept?
This is why I think the play for majority ownership makes more sense than investing as a minority owner. If you invest as a minority owner, you're throwing your lot in with the Wilpons. It's not just a question of return -- the principal itself is at risk if the ownership group ends up undercapitalized. Add in that it's a fairly illiquid asset, and becomes more illiquid if things get worse on the Wilpon front, and it becomes a less attractive proposition.
At some level, you could always set some return that makes things even out. But I think the stronger play is to pay a premium and get a majority interest. Would you rather be a minority owner with the Wilpons, or with Ownership Group X? With Ownership Group X, you've at least got confidence that they won't come down with a case of the shorts.
I have to compete? Gee, thanks.
A shirtless fight with Bernazard. Or Srul. Whichever.
However, I have bought a Powerball AND a Megamillions ticket. Two dollars and a dream!
Amount Withdrawn(=$570) - [Percentage that other Madoff claimants will receive on account of their claims] * [Investment(=525)
And I thought the return to Madoff victims is going to be something like 50% . . . meaning Madoff would be on the hook for a couple of hundred million
Feel free to pick the fight; this sure as hell isn't my area. If that's right -- and it certainly might be -- it still wouldn't justify or explain the basis for the rumor that the trustee is going after $1B or thereabouts. That would (I assume/guess) depend on a theory that the Wilpons were somehow complicit, and perhaps that their involvement (as investors or otherwise) caused to some significant extent the success of the scheme in defrauding others. In that case, I'm assuming the argument is that they should have to return the amount they withdrew, plus interest and penalties, and should be denied participation in any return due to the other investors.
The other point is that, even if they are not realistically facing $1B worth of liability, but "only" around $300M, then the amount they are going to need from this hypothetical minority investor is going to be very substantial. Not tens of millions, but hundreds of millions. That adds to zach's argument that it is not a good investment, because the cash flow that would have to be diverted to give this person a solid return (and a risk premium, in light of the Wilpons' problems) would itself compromise the future operations of the team.
Really, I have a strong suspicion that this is all a smokescreen to hide the true purpose of these moves, which is actually to sell the damn team. The more I think about it, the more it just doesn't seem tenable that the Wilpons can operate the team if their position is as weak as it seems to be, and then take out the money that a minority partner would need to make the investment worthwhile. So this gives them a face-saving way to not say they're selling the team, while Greenberg goes about . . . um, selling the team.
Too bad the Wilpons couldn't be smart like Ben Stein who turned down a chance to invest with Madoff because the numbers didn't add up.
Wasn't there a woman at "Barrons" who said last year the Wilpons will sell because of the losses? She got criticized a lot by Fred and Mini but was probably reasonably accurate.
So Sam, here's the key question about that: do the Mets derive any advantage in this smokescreen? Wouldn't the alternative- making it clear that the team is for sale- be just as effective, if not more so? I realize this is assuming Myth of the Rational Wilpon, but still...
I've been trying to game it out all day, too. Here's my theory- if they can find a sucker to overcapitalize them for negligible return, great. If not, they're no worse off in terms of position to sell the team. Reason this doesn't work is the distinct possibility that a difficult position will get worse with the passage of time.
True Blue - from the wsj:
Erin Arvedlund, author of the 2009 book, “Too Good to Be True: The Rise and Fall of Bernie Madoff,” predicted that New York Mets owner Fred Wilpon might have to sell the baseball team after he was caught up in the Bernie Madoff fraud.
Portfolio via Bloomberg“It’s a matter of when. It could be as soon as next year,” Arvedlund told our MarketWatch colleague Jon Friedman for an August 2009 column. Arvedlund said that Wilpon may have lost up to $700 million in the Madoff scheme, and the losses might force him to sell the team or take on investment partners.
Today — more than a year after her prediction — Wilpon disclosed he may sell a piece of the Mets to “remove uncertainty about funding its operation in light of litigation stemming from the Bernard Madoff case,” reported Deal Journal colleagues Chad Bray and Brian Costa. Wilpon said he will remain the principal owner.
The trustee overseeing the Madoff bankruptcy estate has sued Wilpon and his investment firm, Sterling Equities Associates, to recover money to pay Madoff’s victims. The trustee, Irving Picard, said Sterling Equities and its partners are among the so-called “net winners” or people alleged to have withdrawn more money from the Madoff funds than they had invested.
At the time Arvedlund made her claims against the Mets, team executives vehemently denied Wilpon would sell the team. Mets executive Dave Howard, in a Fox Business interview, said Arvedlund’s claims were “outrageous, unfounded and grossly irresponsible.” He said her information was “flat out wrong,” and he said the team wasn’t for sale in whole or in part.
“I take no pleasure in seeing anyone suffer from the Madoff affair,” Arvedlund said in an interview today.
(An earlier version of this post said Arvedlund predicted in her book that Wilpon might need to sell the team. She disclosed the Wilpon prediction in subsequent interviews, not in her book.)
Make it so.
NY Times:
I've been trying to game it out all day, too. Here's my theory- if they can find a sucker to overcapitalize them for negligible return, great. If not, they're no worse off in terms of position to sell the team. Reason this doesn't work is the distinct possibility that a difficult position will get worse with the passage of time.
Two or three idle thoughts. First, ego: the Wilpons are not ready to just come out and say, after so many months/years of denying that the Madoff thing has crushed them, that it has. This is their "I'm Fred Wilpon, and I'm an alcoholic" moment: the first step is admitting you need help. Just doing that is hard enough; you can't expect too much too soon.
Second, I think there could be something to your idea that they have nothing to lose in trying to find a limited partner willing to capitalize them for a too-small return. Why not? And as to your "here's why not," answer, my thought is that their position may not be likely to get worse. They may be at the very moment where the thing they need is to create the appearance that they can bring in capital and keep the team, in order to preserve leverage in their negotiations with the government. It's a delicate game to seek an investor and hope they don't run out of time, but if it gives them the position to cut the best possible deal, then it could save them -- who knows -- even tens of millions of dollars on a $300M tab.
Third, going back to my smokescreen theory (as opposed to your "try the partner thing first, and see if you find a sucker"), the advantage they derive is avoiding rumors that will inevitably break. Once Greenberg starts talking to people, leaks become inevitable. That starts getting splashed in the tabloids, and denials become meaningless. If public statements about this come after rumors start flying, nobody in the world is going to believe it's just about finding investors. Getting out ahead of it allows Greenberg to make a deal with a seller with a plausible story already out there.
There are plenty of extremely rich people who actually enjoy living private lives, and who would be content with the luxury suite and one-on-one time with David Wright.
I think by this criteria, you have to give the whole thing to Sam M.
Um . . . really? Someone needed to let me in on this happy news . . . .
His theory is that everything taken out -- both "principal" and "profits" -- should go to the trustee.
Which means, effectively, that the Wilbons may have to kick in $1B (if that's what they took out) but will eventually get a higher percentage back than they might have originally thought. They'll suffer a big loss and a serious cash flow issue between kicking the money in and the final distribution. This whole thing is likely cash flow related, you'd think, since their current wealth ex-Madoff plus what they'll get back when the workout is finally settled is probably enough to borrow enough against to run the Mets themselves. But they're facing a serious liquidity crunch in the very near future.
Not sure I understand the formula, but ...
Most caselaw holds that you cannot claw back principal from innocents in a Ponzi. So trustees and victims allege knowledge or recklessness (i.e. ignoring "red flags"). In the Madoff cases, the "red flag" allegations have been failing over and over again -- Madoff went to great lengths to successfully fool a lot of people, including the SEC.
The $7B was from the widow of Jeff Picower. Picower was not likely an innocent, and his wife seemed to get a conscience -- she coughed up virtually everything that was demanded.
All of this is to say, Picard will certainly try to squeeze hundreds of millions out of the Wilpons, but realistically he's never getting that.
"THEY...OWE...FOUR...BILLION!!"
In other words, the line must be drawn here?
Well, remember that CF has much less capacity than Shea did. And 2008 saw the last-stadium-year bump for Shea, and 2010 the second-year new stadium slump. So there's more to the story than simply dropping from 4M to 2.5M.
I guess Howard Megdal really did shut down his GM campaign.
However, the good new is, no one won Mega, so although my bid will be delayed until next week, it will have more weight behind it. I mean, I'm not going to lose twice in a row.
Yeah, but fat lot of good that does us. You know the deal to sell the team is closing this week. You snooze, you lose. Damnit.
And history tells us the fact you're unemployed increases your chances greatly.
Might make a nice comedy bit.
The Wilpons' best weapons are fear and surprise. And fanatical devotion to the Omar.
Well, it's certainly not ruthless efficiency.
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