The Mets and their affiliated cable TV network, SNY, are both saddled by tremendous debt. As with any business enterprise with a large debt-to-equity ratio, debt service (interest payments plus paydowns of principal) can turn an enterprise that is "profitable from operations" into an actual money-loser.
These claims, which are from confidential sources not identified in the report and if found to be true, would suggest that the Mets may have trouble generating enough net income during the upcoming 2011 season to remain solvent. (Solvency has already been an issue, as indicated by this and prior reports that the Mets received a $25 million emergency loan from Major League Baseball in November 2010.) Additional indications that the team is now a money-losing venture -- albeit one with the potential for significantly greater future performance, both financially and in terms of won-loss record -- will only depress the price any potential buyer would offer for part or all of the franchise.
The Wilpon family, owners of the Mets, have previously stated a willingness to sell a minority, non-management stake of up to 25 percent of the club. However, it is this author's opinion that it is likely (due to the magnitude of the losses and the mammoth financial and possibly even criminal exposure the Wilpons face as a result of their involvement with the Bernard Madoff fraud) the Wilpons will have to sell their entire interest in the Mets and SNY.
An educated prediction -- based upon my background in corporate finance -- is that a prospective purchaser will condition a purchase on a pre-packaged bankruptcy filing that will renegotiate much of the existing debt to a level acceptable to both the purchaser and the federal bankruptcy court that will have to approve the entire transaction. Current creditors of the Mets, already worried due to the fears of insolvency, may have already accounted for a likely "haircut" in what they will eventually receive from this struggling franchise.
As for the on-field product, the financial difficulties suggest that, absent active intervention by the Office of the Commissioner of Major League Baseball to prevent an all-out fire sale of high-salaried players (reminiscent of what happened to two unprofitable championship clubs, the Florida Marlins did in 1998 or the Oakland A's did under their legendary skinflint owner Charles O. Finley in the mid-1970s) and "preserve the integrity of the game," many of the Mets' most attractive ballplayers will be traded as soon as possible to reduce payroll and make the club more attractive to a prospective buyer.
Eric Dixon is a New York lawyer with a background in corporate finance, investigations and litigation stress counseling. Mr. Dixon has been practicing in New York since graduating from Yale Law School in 1994. Mr. Dixon has also represented over two dozen political candidates, committees and party organizations in ballot access matters.