You know the show….where they highlight people who seemed too smart for the room after they “earned” outrageous sums of money, only to be eventually exposed for skirting society’s rules or even worse, the laws, to gain their fortunes.
The episode I see coming may not feature any legal wrong doing…..that remains to be seen as the facts come out….but it remains a story of Greed Gone Wrong none the less. Smart people making foolish bets simply because the money was big and easy.
I am writing of course about Sterling Equities, the parent company of the NY Mets, and their ties to Bernie Madoff and his ponzi scheme.
Sterling is a private company run by two guys….Fred Wilpon and his brother-in-law Saul Katz. I have never met them but friends who have tell me they are very smart and savvy. Sterling’s assets include a stable of NY commercial real estate, some minor residential assets, a property management company, investment funds, the NY Mets, Brooklyn Cyclones and a majority interest in regional cable tv channel Sports Net New York.
In the Sterling partnership, Fred Wilpon is the Chairman and public face of the company with an expertise in property development and management. Saul Katz is the Chief Operating Officer responsible for Sterling’s operations, including the finances, and is the “inside” guy in the partnership. I am told that the partnership is run as a true partnership….that neither partner makes decisions unilaterally and together, Fred and Saul have charted the company’s course.
As the facts continue to trickle out about the spectacular fraud committed by Bernie Madoff, it seems that the financial course set by Captains Wilpon and Katz was charted by the blind desire of greed.
Sterling Equities was an early investor in Madoff’s activities, beginning back in the mid-80’s. As the years passed, Sterling’s involvement grew deeper and deeper….to the point where Madoff “invested” on behalf of roughly 300 different accounts for Sterling Equities and family members.
When the Madoff scandal was uncovered and word spread that Sterling and Wilpon had been a major investor in the scheme, Mets management insisted, right up until two weeks ago, that their financial picture was fine and that in no way would they be selling any part of the club. “Steady she goes” was the constant message from Mets COO Jeff Wilpon, “we have the money to compete and we will deliver the best product for the best fans in the world.”
This fall, the Mets fired long-time GM Omar Minaya, who oversaw the current payroll of roughly $140 million dollars. As Met management would say, Omar recommended the players but the Wilpons and Katz approved every contract signing. “The blame lies with us” the elder Wilpon said in October.
They set out to hire a new general manager and, in my opinion, conducted a charade of an interview process. Several names were mentioned as potential candidates and when the decision was finally made, Sandy Alderson was announced as the new GM.
Alderson is a seasoned and talented senior baseball executive who has become MLB Commissioner Bud Selig’s go-to-guy and chief problem solver. His most recent gig was in the Commissioner’s office, tasked with straightening out baseball’s Dominican Republic training facility and its various questionable activities.
It’s purely my speculation, but I believe that Selig forced the Mets to hire Alderson. Selig has operated very forcefully behind the scenes during his reign as Commissioner and I believe that style is in play here. He knows he has a very public and nasty battle on his hands in Los Angeles, where Frank and Jamie McCourt have leveraged the team to excess and are now mired in a protracted divorce and custody battle over ownership of the Dodgers. Selig certainly doesn’t want double trouble in the nation’s two largest markets and he has clearly flexed some serious muscle. I wonder if Selig has extended credit to the Mets from the Commissioner’s funds to help with operating costs, which has been done before to other struggling clubs. (Update: It has been reported that the Mets have “maxxed out” the money available as loans from MLB) With a sizable loan out to the team, Selig would have the “right”, in his mind, to exert authority.
The real trouble brewing has to do with recently filed lawsuits by Madoff Trustee Irving Picard. According to Picard, the various Sterling accounts allowed a withdrawal of “profits” over the years of an estimated $300 million. A lawsuit has been filed by Picard, on behalf of those Madoff investors who lost everything, to claw-back those profits for redistribution.
Those suits were filed last fall and the NY Mets figure of $48 million is publicly known. The Sterling Equities portion of the lawsuit has remained under seal as attorneys for Wilpon and Katz filed a motion with the courts to hold the information back while the two parties, Picard and Sterling, attempted to negotiate a settlement.
Just yesterday ( Friday, November 4), it was reported that negotiations between Picard and Sterling had officially ended and some time today, the actual dollar figure sought will become public. The NYTimes has estimated that the actual figure in the suit is $1.0 billion, far higher than the amount of “profit” that had been withdrawn over the years.
Picard is seeking a far higher figure than the reported “profits” alleging that Sterling, headed by the smart and savvy Wilpon and Katz, was in a position to know that Madoff was reporting unrealistic and spectacular gains on a year-in and year-out basis. I can’t wait to see those details.
Just one week ago, Mets management held a news conference stating their intention to seek minority partners for the club and a willingness in selling as much as 25% of the team itself. They would maintain control the club and make all decisions. Citi Field was not part of the asset sale, nor was SNY. I think they have real tough sledding here. As one tire-kicker said, “Buying a big piece of the Mets would be a dream come true for me, but without any say in the running of the club, I might be better off just buying season tickets.”
Here’s what I think is gonna happen….These guys are toast. They are going to be forced to sell the whole shooting match….team, stadium and network. They have huge loans on all their properties….best evidenced by their inability to raise more capital in the equity markets….and simply selling a portion of the club, let alone all of it, will not net enough money after covering the debt. Professional sports teams are bought and sold on the basis of increased asset value, not cash flow. The value of the team goes up and the owner re-finances the debt, borrowing more and taking cash off the table. No buyer will solely purchase the at-best cash flow neutral, but in all probability money losing Mets, with its expensive stadium seats, sagging attendance and bloated payroll. I’ll bet the network is Sterling’s only cash positive asset among the three and any buyer will need those profits and growing asset value to keep the whole enterprise afloat.
This is going to be great drama on the big stage….and all of us with an interest will have front row seats. Maybe those really smart and savvy guys, Fred Wilpon and Saul Katz, will teach us all a great lesson here as their once huge empire collapses in front of our eyes…..learn when enough is enough and be happy with it. Greed, for greed’s sake, just ain’t a smart play in the end.
THE LAST BITE
I admit my picks have been lousy down the stretch of the NFL season but here is a bold season closer…..Steelers 24 – Packers 20.