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Saturday, May 28, 2011

Freddy Gets Fingered? Mets Sale Hints That Wilpon Expects To Be Prosecuted

Might New York Mets principal owner Fred Wilpon be expecting to be indicted on federal criminal charges in connection with his alleged role in the Bernard Madoff investment fraud?

New York Mets' owners Fred Wilpon and Saul Katz have reportedly agreed to sell "less than 49 percent" (now reported to be one-third, see below) of the franchise (but excluding coveted cable television channel SNY) to hedge fund executive David Einhorn for $200 million.  The deal is not final and final terms may ultimately be different than reported or contingent on additional details not yet revealed or negotiated.

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UPDATE 5/28:  The business logic behind the investment may be getting clearer. The New York Times reports in its upcoming Sunday edition that Einhorn will receive a one-third stake in the Mets for $200 million, and has an option to purchase up to 60 percent of the Mets franchise in three years, at a price to be determined.  Moreover, current ownership can block the purchase of this controlling stake by essentially refunding Einhorn his $200 million purchase price, although in such an event Einhorn would retain his approximate one-third stake.  This means that for Sterling LP (the entity through which Wilpon owns the club) to retain majority control of the Mets franchise, Sterling/Wilpon must, in essence, repay Einhorn's interest-free loan, and in that case Einhorn would receive one-third of the team for "free" but having put at risk his "loan" amount of $200 million.

Now do you see how this deal makes sense for Einhorn?

And, do you now see how this deal makes sense for Wilpon, Katz and Sterling LP?  After all, if a meteorite hits the Earth...or you are indicted and expect to plead or be found guilty...will you really care about paying back that loan?   

Do you see now how Wilpon's deal is all about getting cash now and hardly caring about the consequences in a few years...when Freddy gets fingered...? 

Should these reports prove accurate (wait until the actual terms are released), they suggest a strong drop in asserted valuation for the franchise; the purchase price implies a possible total franchise valuation -- if Einhorn's stake approaches 49% -- of somewhere around $400-450 million. This is far below the asserted "ask price" valuation of $800 million given this winter when Wilpon first revealed ownership's interest in selling a minority stake in the club. Then again, remember the Mets are saddled with hundreds of millions of dollars in debt (the Wall Street Journal reports the total debt is about $425 million), are predicted (by Wilpon himself, in his infamous interview in The New Yorker) to lose $70 million in 2011, needed Major League Baseball to make an emergency loan to meet payroll earlier this year and are close (at least) to being insolvent. These are the classic signs of a distress sale, in which Wilpon grabbed what he could before the value declined further (before even more fans mutined and stayed away)...or before some other event?

Wilpon, who may fairly be suspected of being an unindicted co-conspirator of Bernie Madoff, made some horrible strategic blunders by publicly denigrating some of the Mets' top ballplayers. The move reminds one of what deadbeat homeowners do on the eve of eviction: they trash the place, rip out everything of value and leave.

In fact, the public comments seem to indicate that Wilpon was resigned to the fact, not just of losing control of the baseball club, but that he is about to be indicted in connection with the Madoff fraud.

At the very best, Wilpon has hinted he would accept making a nine-figure settlement of the civil case filed by Madoff bankruptcy trustee Irving Picard, with the figure of $300 million as a "go-away" amount being reported. The sale of the Mets may be necessary to fund that settlement. But the real legal consequences for Wilpon may just be unfolding, and those consequences cannot be made to go away by writing a check.

Eric Dixon is a New York lawyer, strategic analyst and business consultant.  Mr. Dixon counsels people undergoing investigation or prosecution how to mentally prepare for the emotional ordeal of trials, investigations and related tribulations.  Mr. Dixon also works with a pre-prison consultant who counsels people on how to survive prison life, readjust to civilian life after prison and avoid returning to a life of crime. He may be reached at edixon@NYBusinessCounsel.com.
 


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