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…i think this is important, and i have not seen anyone talk about it…
Fred Wilpon’s Sterling Equities didn’t lose money 
to Bernie Madoff, according to a report in Newsday, instead, “it was able to withdraw about $50 million over what it invested.”
In short, the report describes Sterling as being ‘net winners,’ as it pertains to the Madoff situation, “because it withdrew or transferred out more money than it had deposited, according to court records filed in the bankruptcy case.”
…two weeks ago, on MetsBlog.com, here, i wrote:
…i heard from two people this week, neither of whom know one another, one with the team, one in the business community, and both said Bernie Madoff may have paid the Wilpons back roughly half the money they initially invested… which may explain the difference in reports suggesting they lost $700 million, while some say they lost $300 million…
…i wonder if the Newsday report is what these two people were referring to… i will not pretend to understand the Newsday report in full… i have a hard enough time balancing my own checkbook… but, it seems to me, he is saying that wilpon may not have taken as bad of a hit as some people have portrayed, which is what the team has been saying all along…
In a nutshell, Sterling invested 300MM. After a number of years, they were told their balance had grown to 700MM. When everything went down, they had to that point withdrew 350MM.
The trustees are seeing this as a 50MM gain, where as Sterling is seeing it as a 350MM loss.
Let’s face it … if one day someone told you that the money in your bank account was actually half of what you thought it was, you would feel loss too.
If in any way Sterling was dependent upon this 300MM and had used it as leverage, they got hurt. If it was pure extra profit sitting in an account, it’s frustrating, but not as painful.
it’s irrelevant because they could just as well used that $350mio or $700mio they lost as leverage, too.
the bottom line is that one morning in december the wilpons woke up to find their net worth cut by several hundred million bucks. regardless of whether this was “pure profit” or not.
The accounting for this kind of thing can be exceptionally complicated and take a very, very long time to work out. So the conflicting reports may very well be due to the fact that no one really knows for sure what damage was really done yet.
the hit, whether real or “on paper,” was still huge. you’re drawing a line between real and “paper” assets which in practice does not exist. even if the wilpons started investing in madoff 20 years ago and their investment appreciated (or so they thought) so much that they withdrew all their initial principal and still had $700mio on account, they still took that massive hit to their net worth once the fraud was exposed.
mets PR is spinning this as if “paper” wealth has no real value. which is false. the real story here is that the wilpons/sterling will be denied $500K SIPC relief and any claim on the madoff estate which is yet another financial slap in the face.
You are reading it entirely wrong. If this is accurate the only money lost was the perception of what they had gained on their initial investment. Yes it is still a paper loss, but their business was not running on the investment it would seem.
Frankly they profited.
How about this, though…
The Mets have continuously said that this loss of money doesn’t effect the baseball organization. Why do we all assume they’re lying.
If the Wilpons personally lost money, why is that any of our business?
I guess there were a few frugal things the Mets did over the past year that raised some eyebrows, like:
1) Not signing Dunn during the offseason when he was going at a relatively bargain price
2) Not doing anything before the trade deadline (though to be fair they would have been negotiating from a position of weakness)
3) Releasing Livan just before his bonus kicked in based on innings pitched
That said, I’d like to see the Wilpons spend wisely this winter and not like a drunken sailor just to prove they can spend on the Mets.
These are good points, but consider some things in response to your points:
1) I truly believe they felt Dunn was a double-edged sword. They were afraid his defense and strikeout rates would embarrass the franchise. I do think they feel now they missed the boat on this one, but at the time, I feel it was not as much a monetary decision as a baseball one.
2) I feel the lack of trade deadline moves was more an attempt at all cost to preserve prospects (the franchise has recently been ridiculed to no end about lacking depth there). I don’t think this was monetary.
3) In regards to Livan, let’s remember that the Wilpons are not running the day to day finances. They have accountants and managers that do this, and these managers are trying to show at a micro level that they can handle their jobs. If this means showing the bosses that by axing Livan they can save some cash with no loss, then so be it. I don’t think the Wilpons personally were losing sleep about Livan’s option. I think some guy who makes a mediocre salary to find these gaps was.
I agreewith racemccloud and have made this point all along. The Mets – and Sterling-whatever they call it – are a self-sustaining business entity. Everyone who has ever had any business from a paper route to a major corporation knows you don’t mix personal assets with business assets…ever.
Now, maybe the Wilpons could have taken profits from the Mets to replenish their personal accounts, which does affect their operation of the team…but the idea that the “Mets” lost money to Bernie Madoff never made sense. Even the Wilpons aren’t stupid enough to invest working business capital into a hedge fund…I hope.
I agree with OB’s take on this. It’s bad but not as bad as some made it out to be and depends on what — if anything — the Wilpons were using the money for. It’s paper profit they lost.
Bottom line for Mets fans is that the Wilpons’ claim the loss doesn’t affect team operations may be very accurate. And that author and her source who claimed the loss was huge and the Wilpons would have to sell soon are a bunch of bunk.
All that really matters is whether or not they lost enough of their net worth where it would impact baseball decisions.
In the grand scheme of things, most baseball franchises are run like businesses, and they have their own budgets. As an example, considering what the Wilpons lost, it probably makes no sense for them to try to shave 10MM off of payroll. 10MM isn’t going to resolve their Madoff situation. I don’t really think the Wilpons plan to use the Madoff situation as an excuse … they will continue to operate as they always have:
They will try to spend as little as possible while maximizing profit. They want to spend just enough to be a playoff caliber baseball team year in and year out, but no more than that. They wont compete with the Yankees because they are not emotionally compromised like George was. They also realize that as a large market team in NYC, they need to have a top payroll to avoid bad PR.
“They wont compete with the Yankees because they are not emotionally compromised like George was.”
OB, I agree with your take on this. But I do believe the Wilpons won’t spend like the Yankees because they also don’t believe in exceeding the luxury tax — more for philosophical reasons than financial. They probably view the Yankees’ spending as insane, fiscally irresponsible, and counter-productive to the health of the sport, much like Boston’s owners do.
If finances are not an issue (still arguable, but perhaps less of an obstacle than originally thought), they do need to spend some money (at the very least have a payroll equal to this year) to improve the team. They will LOSE revenue ultimately if the team is not competitive, and they will substantially GAIN revenue if the team is very successful (like winning the World Series). This is why you need to invest in the team– but you have to do it the right way.
That being said, I would spend roughly $30m (value of expiring contracts plus maybe a few extra, if you factor in salary increases for Wright, Reyes, etc.), and do it as follows (with plan B’s):
-Sign Lackey for 3 yrs (4th as option), $45 m (4th yr $10m); plan B– go hard after Chapman as FA
-Sign DeRosa — 3 yrs, $18m, for 1B; plan B– sign Nick Johnson for 1 yr, $8m with team option
-Trade for OFer– Carlos Lee (he makes $20m per year, so you have to trade some salary there).; plan B– trade for Jermaine Dye
How does that sound?
I really do not like Chapman. If he gets signed, he will not be handed a spot on the rotation. Don’t waist a penny of that $30M on him.
I’m mixed on these. I like the idea of Lackey, he’s an ideal fit. A gamer, healthy, and slots in nicely behind Johan (yet can be an ace often enough).
I’m not sure what the Mark Derosa love affair is all about. Mark Derosa is pretty much at age 34 what Daniel Murphy is now as a rookie. Derosa is a career .275 hitter with 20 HR power and a lifetime .343 OBP. Most of his better years were in parks like Texas and Wrigley, and he strikes out 100+ times per year. Murphy posted better numbers this year (minus a few homeruns) than Derosa and plays better defense. I’m not sure I get this one. Also, Fernando Tatis is a more productive hitter than DeRosa as well if given the same kind of playing time (500+ ABs).
On Carlos Lee … I like the idea of him short term, but his contract is long, and he would be badly exposed in Citi Field defensively. I would probably pass.
The major concern going forward is the fact that the wilpons MADE money off their initial investment and the Government may go after it to disburse it to those who actually lost money. If they haven’t already.
Thankfully, they are only going after the profits and not looking for fines nor interest at this point in the hope that the investors who made money willingly going it all back.
That grace period is due to expire soon, (I can’t remember when, and I’m too busy to look it up now), but that will be a big hit on the investors too stubborn (or unable) to surrender the funds.
I agree that the Mets are a separate independent profit-making business in the Wilpon Family. The real reason why they will need to flatten and/or reduce Mets payroll is that Mets income is way down. I’ve been a season ticket holder for 20 years and they miscalculated the market and therefore had an average 14,000 per game reduction in attendance (2009 vs. 2008). Add that in and consider that the carrying costs (interest, mortgage, etc.) on Citifield vs. the flat rent at Shea and you could understand that the only way they make the equivalent profit is by reducing payroll.
They will also (due to poor on-field performance plus the economy) need to deal with massive falling renewals on season tickets
Your post is highly inaccurate if not just plain wrong.
First off, the Mets drop in average attendance was 12.2 thousand, not 14,000.
Second, the Mets planned for a drop in attendance. The new stadium seats just 42,000. This is 9,000 less than their attendance last year. And 5,500 less than their attendance in 2007. So even if they sold out, attendance would have dropped significantly.
Third, to offset the lower capacity, they planned for greater stadium revenue streams (higher ticket prices, sales of food etc). So a drop in attendance vs. Shea doesn’t automatically mean lower revenue.
Also, do you know the Yankees average attendance dropped 7 thousand this year and only averaged 88% capacity? Despite the fact they are in the playoffs?
My point is, no one knows outside of the Mets front office how much they made or didn’t make with their new stadium this year … or whether revenue is up or down. For someone to say outright that they lost a lot of money this year and will have to slash payroll is baseless. Especially when the Mets already came out and said this is not true. And people wonder why Wilpon, Omar, and Howard went on the FAN? It was in part to dispel misinformation like this, but apparently some just won’t listen. I always wonder what motive people have for making things like this up.
OB’s summary is very good. The important thing about Ponzi schemes is that they DO give money out to investors — but the source of that money is the investment by later investors.
I think the more important issue for the Mets would arise only IF ownership needed to borrow against the value of the club to get $$ for other reasons — that would be at the Wilpon level, not the NYM level (where, IIRC, MLB places restrictions on how much debt clubs can incur). Any such loan would probably be “non-recourse”, i.e., the lender wouldn’t be able to sue Fred/Jeff personally, but would have to sell the collateral (the interest in the club – or the earnings from the club), subject to MLB approval, to get repaid. If they borrow on that basis, they might not have “skin in the game” – and then they’d be more willing to take big risks under the theory that if the club wins, then they pay off the loan, but if it flops, then it’s the lender’s problem…
Unfortunately, stupid decisionmaking like that can take years to undo…
The Wilpons will in all likelihood be out that $50M “profit” that will be subject to the so-called government clawbacks. As well as the opportunity cost of not having invested that $300M in an actual, y’know, investment.
So unless they borrowed a ton of money and used the phantom Madoff profit to secure it, they should be OK, no?
Sorry, here is the link:
Mets On Deck reported this two weeks ago, Matt.
Mets 2010 Payroll To be Cut?
That was written September 25th. Thanks.
If I am not mistaken, those who came out on top from the Madoff ponzi scheme are possibly liable to redistribute those profits among those who took serious losses.
Also, anyone who has taken an economics class understands that although Sterling is up 50 million dollars in accounting profits, they do have a net economic loss of the 350 or so million dollars they lost overnight last December. This is a financial nightmare, however I am confident they have better account managers than to put all their proverbial eggs in one basket (aka the Madoff account).
Also someone should have noticed that doubling your money in this economic climate is ridiculous and likely illegal. Everyone, not just Bernie Madoff, is to blame.