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Thursday, March 10, 2011

Mets had money trouble before lawsuit was filed-NY Times

"When the owners of the Mets said in late January that they would seek buyers for up to 25 percent of the club, they cited “the air of uncertainty” created by the $1 billion lawsuit brought by Irving H. Picard, the trustee representing the victims of Bernard L. Madoff’s Ponzi scheme. But a look at the team’s financial condition — gleaned from public financial documents and numerous interviews — suggests the team
  • may well have needed the proceeds from selling part of the team regardless of the suit.

The reasons in many cases were the result of bad timing and unforeseen circumstances, including an economic downturn that coincided with the opening of the Mets’ new stadium in 2009 and a rash of player injuries that sank the team on the field and disillusioned fans.

For instance, revenue from about 10,600 club seats and suites and from advertising and concessions dedicated to paying off the Mets’ new $800 million home, Citi Field, fell tens of millions of dollars short of forecasts made just two months before the season began in 2009.

  • That was followed by a nearly 20 percent decline in attendance in 2010 and a resulting slide in revenue that was compounded by an increase in stadium bond payments.

Fred Wilpon and Saul Katz, the team’s owners, have not been able to tap into the lucrative accounts they held for decades with Madoff, money that Picard has accused them of having

  • used to fuel day-to-day operations,
  • a financing device that evaporated with Madoff’s arrest in 2008.

In the late summer, as the 2010 season wound down, those pressures moved the owners to quietly start canvassing friendly potential investors, according to people briefed on these discussions. Without any immediate takers and the team in need of cash, the Mets took the step of asking Major League Baseball for a $25 million loan. This was shortly before Picard filed suit and the true dimensions of his attempt to recover money from the team’s owners

  • were fully understood by Wilpon and Katz.

In an interview this week, David Cohen, the chief counsel for the Mets, maintained that the size of the lawsuit was what really motivated the hunt for a partner, not any financial pressures. And while the Mets’ owners were looking for buyers in the days before Picard filed his suit on Dec. 7, going public with their search prompted more potential bidders to step forward.

  • “The decision to seek minority investors was not related to any intermittent fluctuations in revenue,” Cohen said. “You operate a baseball team, you expect the ticket sales to go up and down based on team performance.”

Announcing that the team was seeking investors was “deemed a more effective way to reach a broader number of interested investors.”

But when asked what the owners would do with the money they might make from a sale, Cohen said it would be put into running the team, not pay the owners dividends or be set aside for a possible settlement. “The purpose is to make a positive contribution to the team’s resources,” Cohen said.

When the Mets built Citi Field, mostly with tax-free bonds issued by New York City, they anticipated the new ballpark would generate considerably more revenue than Shea Stadium, which the team leased from the city.

In February 2009, two months before opening day, the team estimated in a financial disclosure document that Citi Field would generate $224 million — mainly from luxury boxes, parking, club seats and advertising — money that would be

  • more than enough to cover their bond payments.

Yet the recession; ticket prices as high as $500, which alienated some longtime fans; and the Mets’ fourth-place finish caused revenue in 2009 to come in well short, at $180.4 million, according to audited team financial statements. The way sponsorships are booked accounted for about $7 million of the difference in revenue,

  • but the gap was still large.

In the Bronx, the picture was brighter. Revenue dedicated by the Yankees to pay for their new stadium — which had more seats and higher prices than Citi Field —

  • fell from $396.9 million in 2009, when they won the World Series,
  • to $383.9 million in 2010, when they had three fewer home playoff games.

Though the figures for 2010 are not yet available, it seems improbable that things went appreciably better for the Mets. They cut ticket prices by as much as 20 percent for the 2010 season, particularly in the highest-priced seats that had been hard to fill, yet wound up

  • drawing nearly 600,000 fewer fans.

For 2011, the team has already cut ticket prices another 14 percent.

At the same time that ticket sales were slipping last year, the Mets’ payments on their tax-free bonds more than doubled, to $43.7 million, from $19.1 million in 2009. Still more is due on $65 million in taxable bonds that had also been used to build the ballpark.

The Mets do have several other sources of revenue, including payments from SNY and nonpremium tickets. But if the Mets start the 2011 season poorly, problems could mount. Last year the Mets refinanced hundreds of millions of dollars in loans on the team and SNY, their cable network,

  • and exhausted a $75 million credit line with M.L.B.

With the regular season closing in, the Mets have to start issuing paychecks to their players on April 15 and pay their stadium bondholders $22 million in June, the first of two semiannual payments.

Moody’s Investors Service downgraded those bonds to junk status last year, and last month the ratings agency cited Picard’s lawsuit as a reason for changing its outlook on the bonds

  • from stable to negative.

As the Mets prepare for the new season, their owners continue to solicit interest from potential bidders. Stepping back from Wilpon’s initial comments, the team’s adviser on the sale, Steve Greenberg, said the Mets would consider selling more than 25 percent as long as the owners retain control. About a dozen investment groups have applied to M.L.B. for permission to see the team’s financial records.

  • Baseball is expected to start approving the groups in the next week.

But many sports investment bankers say bidders are almost certain to want more than a simple minority stake in the club, particularly if the Mets’ finances are in distress, as some bidders suspect. That could lead to protracted negotiations, they said, and delay any financial boost the team hopes to get from the sale."

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