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Saturday, January 7, 2012

How To Save The New York Mets

Although this is a legal and policy blog and not a sports blog, I do cover topics of major political importance where policy or economics are involved.  The ongoing disaster of the New York Mets baseball club qualifies as being within the scope of this blog.

The Mets are owned by two men, Fred Wilpon and Saul Katz (the latter a relative of Wilpon through marriage, and I refer to them collectively as "the Wilpons" for simplicity's sake), whom I believe are presently considered unindicted co-conspirators of Bernard L. Madoff by virtue at least of their reported recruitment of other investors into Madoff's entities.  (At least one victim was a former Mets ballplayer, Tim Teufel.)  Most attention is on the Wilpons' civil liability from the clawback of illicit profits sought by Madoff trustee Irving Picard, which could seriously hamper the Wilpons at best and, at worst, force both their sale of the Mets (and perhaps all of their other business assets) and even reduce them to personal bankruptcy.  But the criminal exposure -- the prospect of going to jail -- is of far greater import.

At their advanced ages, a jail sentence for the Wilpons would be "effectively life."  Federal prison sentences for financial crimes are generally determined based on the amount of the financial loss, and here, a "conspiracy" charge could tie in the Wilpons to a large chunk -- and potentially all -- of the Madoff fraud losses. 

Some people plead guilty to crimes in the hope of getting leniency from a judge, and a favorable sentencing recommendation from the government (in legal jargon, what's called a "5K1.1" letter).  But Madoff never went to trial; he pleaded guilty and "cooperated" with the government's still-ongoing (and far from done) investigation.  His reward: a 250-year-sentence.  Message to the Wilpons: Your only chance for freedom is to fight like hell and hope to win.

In this context, should my theory (and let's be honest, it is a theory, an educated guess) be correct, this would explain the Wilpons' fanatical defiance.  They have nothing to lose by pulling out all the stops to keep the Mets, on their terms, for as long as possible, even if this hurts the franchise's value and exasperates the fans.  In fact, infuriating the fan base might be part of the strategy -- it might spur a white knight to come in and rescue the team, and pay a higher price. Or so the Wilpons' strategy might go...and it might be dead wrong.

As for the team's future, there is no hope for the club as long as the Wilpons are in charge.  The team is sinking and must reduce its payroll in order to cut its substantial losses (reported by GM Sandy Alderson to be $70 million, although for what time period he did not state).  

There is an equilibrium at which losing will actually no longer result in declining attendance.  There is a core which will see this team, no matter whether they lose 100 or 120 games, although they may be buying tickets at deep discounts from the box office if they can't get them for $5 on StubHub.  On this basis, chopping payroll by 50% -- from $140 million to $70 million, necessitating the trade of two of the three of Jason Bay, David Wright and Johan Santana -- results in a marginally less competitive team but will not cause attendance to decline that much further.  With or without these trades, a reasonable expectation for annual 2012 attendance is about 1.5 million (2011 attendance was just above 2.0 million).  Throw in the trades and assume a 50-60 win team, and perhaps overall ticket-sold attendance drops to about 1.25 million.  (Remember, ten percent of that total will come just from the Subway Series.)  

Think attendance could really drop that much?  Consider my math.  First, the three Yankees games will sell out, accounting for 125,000 tickets sold.  Then take the nine games apiece against the Marlins (with Jose Reyes) and Phillies.  In a worst case scenario, can you see those teams drawing anything less than 25,000 per game?  That Phillies fans won't drive en masse up the New Jersey Turnpike to scarf up prime tickets to see games when they can't grab tickets at perpetually sold-out Citizens One Ballpark in central Philadelphia?  These 18 games should account for 500,000 tickets sold; throw in the Yankees' games and you've got 625,000 tickets sold for 21 games.  (To reach 1.25 million tickets sold, you then need only average 10,000 tickets sold for the remainder of the 60 games on the home schedule.)   Account for special promotions and the home opener; just assume another 150,000 tickets sold for, say, six Sunday afternoon games during the warm months.  Now you've got 775,000 tickets sold for 27 games.  Can you realistically envision the Mets not selling an average of 10,000 tickets for the remaining 54 games?  Even in the all-time low attendance year of 1979 when the total season's attendance was south of 800,000, that was an average crowd of over 10,000.  This should be considered a safe "floor" for attendance assumptions, regardless of the depth of fans' anger.

Such attendance should result in a ticket revenue decline of, say, $35 million, but player payroll reductions (yet to be achieved) of a greater amount can be achieved.  From this point, however, the team can rebound.  Here's how and why.

Mets fans like underdogs.  It is in our DNA.  The replacement, younger Mets will have some prospects and should not be uncompetitive for long.  (As it stands, this team has averaged under 75 wins per season the last three years.)  In fact, it is easy to envision the team quickly becoming interesting, if not necessarily a winning team. In the meantime, payroll for unproductive veterans can and must be cut to restore the franchise to "operating profitability" meaning that its ongoing operations (before accounting for stadium and other debt) are making money.

In fact, when you view the foregoing analysis, you should see why Sandy Alderson's tear-down and rebuild philosophy makes sense, no matter who owns the team.  A perennially-losing $140 million team can just as easily be replaced by a losing $40 million team with hardly a substantial additional dropoff in attendance and revenues.

The "X factor" in this analysis, however, is the depth of Mets' fans' rage at the Wilpons.  Unlike anything ever seen before, Mets fans are now staying away from this team on purpose, in a manner designed to send a message that they will not support a losing team in any way while the Wilpons retain control of the club.  For this reason, the Wilpons need to sell the franchise.  While their crowds and losses may plateau at a low point, the fans' sentiment will mean that instead of a rebirth and gradual improvement, there will only be financial stagnation and continuing (although not worsening) losses.  Once the Wilpons realize there is no light at the end of this tunnel, they may finally concede that their best business option is to do a bankruptcy-aided sale, and to do it sooner than later.

Eric Dixon is a New York corporate lawyer and Mets fan since 1973.

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