Fred Wilpon and his brother-in-law, Saul Katz, made their first investment with Bernie Madoff in 1985. The amount was $3 million, which came from revenue from their real estate company, Sterling Equities. The next year, Wilpon, who was a minority shareholder in the New York Mets, raised his stake to 50% of the team. Then in 2002, he paid the Mets’s longtime owner, Nelson Doubleday, $135 million for the other 50% (along with the assumption of the team’s debt). The deal gave the team a valuation of $400 million. As Wilpon prepares to sell the team to hedge fund mogul Steve Cohen, keep that number in mind.
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By the time Wilpon took control of the Mets, Sterling Equities had been putting money with Madoff for 17 years, and Bernard L. Madoff Investment Securities had become central to its business model. Wilpon did the same thing with the Mets. When money came in from preseason ticket sales, it was handed over to Madoff. He held the money Mets employees put in their 401(k)s. “Cash flow for day-to-day Mets operations was paid out of Madoff accounts,” the Forward wrote in 2015.
Because Madoff’s returns were so steady, year in and year out, Wilpon and Katz came to view him as akin to a bank: They would park money with him and pull some out whenever they needed cash. In 2008, when the Ponzi scheme was revealed, Wilpon and Katz had more than $500 million in their various Madoff accounts, according to the trustee for the Madoff bankruptcy.
The revelation that Madoff had been running a decades-long fraud was a disaster for Wilpon and Katz. The $500 million was gone, of course. And in 2011, the trustee, Irving Picard, sued the two men, demanding that they turn over $1 billion — $300 million in so-called fictitious profits and $700 million in principal, an amount the trustee said they had pulled out of Madoff’s firm since 2002. The trustee argued that the two men either knew that Madoff was a crook or should have known, given all the red flags. After a long, public — and, for the two men, humiliating — battle, Wilpon and Katz settled with the trustee in March 2012, agreeing to pay $162 million.
Wilpon insisted that the money lost to Madoff’s Ponzi scheme wouldn’t have any effect on the Mets. But that wasn’t remotely true. The Mets had enormous debts: It had to pay the city of New York millions of dollars in interest on the bonds that had been sold to build its new ballpark, Citi Field. The team itself regularly lost $50 million to $75 million a year, according to someone who has seen its books. Wilpon owned the SportsNet New York (SNY) regional sports network, which was profitable but also carried a hefty debt load.
To stay afloat, the Mets took an emergency $25 million loan from Major League Baseball in 2010. The following year, the team borrowed $40 million from Bank of America. To repay those loans, and to generate some cash, Wilpon sold 4% stakes to 12 limited partners in 2012 for $20 million each. Even so, the team and the TV network still carried a combined debt load of some $500 million, according to the Wall Street Journal.
Read the full article here by Joe Nocera, Advisor Perspectives
