Wilpon and Katz: Too lucky to fail

By Adam Cancryn

The Mets' owners settled their Madoff case, ensuring they'll be around to ruin the team for years to come.

In the end, everybody won. Except, of course, for Mets fans.

After months of debate between the Wilpon family and trustee Irving Picard over whether the Mets' owners were willing participants or just horrendously naive in buying into Bernard Madoff's Ponzi scheme, the two sides reached an agreement: Horrendously naive it was.

In a settlement announced March 19, Fred Wilpon and brother-in-law Saul Katz consented to paying $162 million of "fictitious profits," slightly more than half the maximum amount they stood to lose had the case gone to trial. Even better for them, there's little chance the two will ever have to shell out even a fraction of that total. In exchange for forfeiting their claim as victims of the Ponzi scheme (Wilpon and Katz contended that Madoff cheated them out of $178 million), Picard agreed to first try to recover that $162 million from others that he is suing in connection with the fraud. Only if he cannot claw that amount back over the next three years will the Mets' owners have to pay a cent of the penalty. And if they do have to pay some part of it? They can do it in installments.

The settlement has the strange effect of putting Wilpon and Katz and Picard on the same team. Both parties now have a vested interest in recovering the $162 million, if for vastly different reasons. The Mets' owners simply want to escape any punishment for their bumbling ineptitude, while Picard just wants to get the real victims their money, no matter where it comes from.

And so everyone emerged from the Manhattan courthouse that morning with a smile, while Mets fans the world over shook their heads in disbelief. These two stooges, who treated a baseball team like a personal investment vehicle, who gave the keys to that vehicle to the nation's largest fraudster, who sunk the team into incredible debt and then gutted it to save themselves — these same two stooges simply waltzed away from the only situation that could have forced them to end their abusive marriage to the Mets.

Image via Mets Journal

Now, as the Wilpon family's troubles end, the Mets' problems are ramping up. The settlement means that Wilpon and Katz will not have to sell the franchise to cover their fines, allowing them to return to running a team that they drove into the ground a couple of years ago and have left, smoldering, by the side of the road since then. Even if the team's owners no longer face dire financial straits, the Mets themselves will for years to come.

The franchise lost $120 million over the past two years despite playing in the nation's biggest and best market. That deficit forced the Mets to cut their payroll by about $52 million this offseason, the greatest year-over-year drop in MLB history. To tide over their day-to-day operations in 2011, the team took out multiple loans, including a $40 million advance from Bank of America and a $25 million one from Major League Baseball.

To pay back those loans, the Mets turned around and begged other people for money, this time in the form of minority investments. They did find enough investors to purchase 12 stakes worth $240 million total, even if at least half of those were purchased by Wilpon, Katz or the Wilpon-owned company SNY. In financial terms, the cash-strapped team borrowed money from both a bailed-out bank and a sympathetic regulator, then turned around and paid off those loans using funds partially provided by that same team's cash-strapped owner. In simpler terms, the Mets are their own self-contained financial crisis.

Just like any fiscal meltdown, these issues will cripple the franchise long into the future. Even after much of the $240 million was whisked off to various creditors, the Mets still needed to cover part of the $430 million in debt it took out with JP Morgan. Only after that can it begin thinking about funding its current-year obligations, of which Capital New York's Howard Megdal chronicled on March 20:

The owners will have to make a pair of payments on Citi Field — those payments totaled $43.7 million last year. They'll have $20 million in interest on the $450 million debt against SNY due in 2015, plus $30 million in interest on the $430 million debt against the Mets. If we assume that's been knocked down by a quarter, or even a third — those three obligations still total right around $75 million.

All those payouts, he adds, would only bring the Mets up to speed for this year. Massive operating losses for a third consecutive year would plunge the team right back into unsustainable debt. Given the lower ticket prices and dismal attendance predictions, it's a good bet we could be right back here at this same time next year, especially if the Mets fail to sell off their only two remaining stars, David Wright and Johan Santana.

That crushing financial burden is the Wilpon family's legacy when it comes to the Mets. Or at least, it would be, if they had been forced to sell the team. A sale would not have wiped the slate clean, but at least the new owner would have had ample personal funds to inject into the team. He or she could stabilize its finances, and still have the cash to put toward the building of a competitive baseball team, the concept of which seems to have been lost in this entire mess.

But Wilpon and Katz escaped from that Manhattan courthouse with just enough money and an abundance of arrogance to continue this sad charade.

"I can't wait to get back to our businesses, which I love, and the first order of business, the first priority, is getting down to Florida tomorrow, getting to that spring training camp and bringing the Mets back to the prominence our fans deserve," Wilpon said following the settlement, according to The New York Times.

That's a popular refrain, Wilpon saying that he loves the New York Mets. But there's a major difference between loving a team and loving having ownership of a team. If an owner whose mistakes have left the team financially broken, culturally depressed and devoid of talent can't bring himself to step down for the good of the franchise, then it's not hard to see on which side he falls.

Adam Cancryn is an editor and co-founder of Began in '96, and likely has a better credit score than Fred Wilpon.