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December 7, 2010 10-11 Offseason Joe Janish

Mets Made Money with Madoff ?

According to an article posted today by The Wall Street Journal, the trustee recovering money on behalf of victims of Bernard Madoff’s fraud sued New York Mets principal owner Fred Wilpon and his real-estate investment firm, Sterling Equities Associates.

From the article:

Sterling Equities and its partners are among the so-called “net winners” whom Mr. Picard claims withdrew more than they originally invested with Mr. Madoff.

In a court filing last year, Mr. Picard alleged a partnership associated with the baseball team, Mets LP, gained a net $48 million through its investments with Mr. Madoff.

The partnership deposited about $523 million over the years with Mr. Madoff, a longtime friend of Mr. Wilpon’s, and withdrew about $571 million, Mr. Picard said at the time.

So while many rumors circulated that the Wilpons lost a significant amount of money as a result of the Madoff scam, the truth could be the opposite — if these allegations are proven.

Though, I imagine it’s possible that some of Sterling Equities’ assets may have been frozen as a result of the investigation. If there are any financial types out there who can provide some insight, please do so in the comments.

For what it’s worth, Sterling Equities has issued a statement:

“Regardless of the outcome of these discussions, we want to emphasize that the New York Mets will have all the necessary financial and operational resources to fully compete and win,” Sterling Equities said. “That is our commitment to our fans and to New York.”

The Mets’ payroll for players is already nearing $140M, so I don’t think this news significantly affects the current state of affairs; it’s not as though the team was looking to spend far beyond the current budget.

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Joe Janish began MetsToday in 2005 to provide the unique perspective of a high-level player and coach -- he earned NCAA D-1 All-American honors as a catcher and coached several players who went on to play pro ball. As a result his posts often include mechanical evaluations, scout-like analysis, and opinions that go beyond the numbers. Follow Joe's baseball tips on Twitter at @onbaseball and at the On Baseball Google Plus page.
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  1. Matt T. December 7, 2010 at 5:53 pm
    Joe — I’m not a financial type, but I am a lawyer. It is very unlikely that anyone with a claim against Sterling (whether it be a Trustee in bankruptcy, private litigant, or state or federal regulator or enforcement agency) could obtain an order freezing Sterling’s assets in advance of a judgment against Sterling. I would wager that Sterling and its partners are just anticipating lots of legal fees, or a potential settlement or judgment and are planning accordingly.
    • Joe Janish December 7, 2010 at 9:52 pm
      Matt, thanks for the info.

      I thought maybe the assets would have been frozen due to the Madoff case, not in advance of this most recent claim.

      Either way, your wager makes sense.

      Thanks again.

  2. Kenny December 7, 2010 at 6:25 pm
    MLB is running the Mets. Whether as part of a bailout because they LOST money in the Madoff scandal or (more likely) because this mess isn’t over and Fred wanted to make sure the team stays in his family’s hands if he is led off to jail. Bringing in Alderson in exchange for some MLB-backed security might turn out to be the best decision Fred ever made. Let’s Go M… What’s the point?
    • Joe Janish December 7, 2010 at 10:01 pm
      Actually that sounds like a legitimate possibility — it all fits too well. Mets are in trouble — financially, with the law, and with their team — and Bud Selig is in a position to help them with all three issues.

      I wonder if there is a journalist sniffing this out? Citi Field may be a modern-day Elsinore, Flushing an unweeded garden, and you may be Marcellus.

    • Jon December 8, 2010 at 10:19 am
      Ok, but where was the criminal indictment? This is a lawsuit in bankruptcy court, and the only issue at stake is money. It’s possible that prosecutors somewhere are assembling criminal charges, but I don’t think I’ve heard a suggestion in the two years since the Madoff fraud broke that the Wilpons or Sterling Equities were criminally involved with Bernie.

      What’s interesting is the amount of money is at stake. The news articles suggest that the trustee is only going after the ~$48 million withdrawn from the Mets accounts that was above the amount deposited (and potentially punitive damages). Unfortunately, the complaint was filed under seal. While significant money, in the larger scheme of the Mets it doesn’t seem like much — maybe an Oliver Perez contract? They’re probably hurting from the “paper” losses of accounts they maintained with Madoff, but if litigation damages are in the tens of millions — and the Mets still have sufficient finances outside the Madoff money — then it doesn’t seem like this suit will signficantly affect the Wilpons’ ownership of the team. I’m curious to see what writers / commenters familiar with sports finance will say.

      • Jon December 8, 2010 at 10:24 am
        … in other words, I agree with your thoughts in the original post about the amount of money involved.
  3. wohjr December 8, 2010 at 1:56 pm
    What’s going on here is the bankruptcy trustee is going after profits that Sterling Equities reaped from the Madoff scheme so that it can be distributed amongst other investors. This is called “clawback”. I don’t think there is any suggestion of criminal liability here– an old friend of Madoff who had been invested since the 50’s just agreed to turn over several hundred million dollars. It has been reported however that Sterling Equities was not the only exposure the Wilpons had to Bernie– if they had money with him personally as well they could be in more dire straights than might appear.

    It just fits so well into the way they have run this team for them to be on the edge of bankruptcy… all the moves over the last 2.5 years designed not to build a winner, but to sell those ticket packs so people come to Citi and buy Czechvars so the Wilpons can keep the lights on. As someone said above, this GM transition really does FEEL like some sort of MLB-receivership….

    • wohjr December 9, 2010 at 2:05 pm
      Alderson, yesterday: ““Look, I don’t have any understanding about what the payroll will be or can’t be going forward ”

      Does that sound like a team in hunky dory financial shape?

      • Joe Janish December 10, 2010 at 12:45 am
        I feel like we’re getting hints on something big, like the aforementioned MLB bailout theory. Again, is there a journalist digging?
  4. Rob December 8, 2010 at 4:42 pm
    Not to get too technical, but it sounds like the bankruptcy trustee for the Madoff bankruptcy estate has filed a suit to recover either a preferential payment (a payment made by bankrupt debtor Madoff to the Mets entity, a creditor, that essentially gave them more then the creditor would have received had it not gotten the payment and waited for a distribution in bankruptcy) or a fraudulent conveyance/transfer (a payment made in exchange for less than reasonably equivalent value) or both. If the trustee is only seeking to recover the gain from the “investment”, then it sounds more likely that he’s pursuing a fraudulent conveyance theory, since there is consideration for repayment of that portion of the repayment that constitute the amount of the principal investment money, but no consideration for that portion of the repayment that constitutes the profit (because the investment was a ponzi/pyramid scheme). These types of suits have been filed in other bankruptcy cases involving ponzi schemes, but this represents the largest such case in history.
    • Joe Janish December 10, 2010 at 12:47 am
      Rob, please, we are happy with the technical! Thanks very much for providing your perspective.
  5. Rob December 8, 2010 at 4:47 pm
    And for those suggesting criminal liability, I’m not sure that investors in a ponzi scheme are criminally liable, unless they actively and with knowledge of the criminal activity recruited others to the investment scheme. So no jail time is likely for the Wilpons. Leave it to disgruntled Mets fans to suggest otherwise. One of these days, Joe, can you devote a post to why everyone thinks that the Wilpons are guilty of incompetence. If their incompetence stems from hiring the knuckleheads who run the team, then it will be a short post, but if the incompetence extends further…or rises to some kind of active interference and meddling with the direction of the club, I’d be interested in knowing examples.

    Thanks and keep up the great work!

    • jae December 8, 2010 at 10:20 pm
      ur assuming they were only investors. this rabbit hole might go much deeper than that.
    • Joe Janish December 10, 2010 at 1:09 am
      Rob, again, thanks for your contribution to the conversation.

      Devote a post to the Wilpons’ incompetence in running their baseball team? That’s pretty much the running theme of the blog!

      The performance of every organization — in every industry — is dependent upon the plan set forth by its leadership, and the reaction (or inaction) by leadership to internal and external changes as the plan moves forward.

      So the question of whether or not the Wilpons “meddle” is moot. What matters is how they run the franchise, and if the franchise is successful, and how “success” is defined.

      For example, it can be argued that George Steinbrenner meddled with the baseball operations of the Yankees in the 1970s — and from 1976-1978 they won 3 pennants and 2 World Series as a result. Who cares that he meddled, as long as what he was doing was ultimately worked toward the goal of winning? In contrast, George stopped meddling and let Brian Cashman et al do their thing in the 1990s, and the result has been the longest run of success in MLB history. Meddling or not meddling doesn’t matter; what matters is making the decisions that lead to the fate of the franchise.

      As for the Wilpons and the Mets, perhaps “success” is/was defined as profit, in which case the team performed well in terms of that goal from 2004-2008 — and likely the reason Omar Minaya was rewarded with a handsome contract extension. And if indeed success = profit, why would “meddling” matter one way or the other?

      In short, everything starts at the top. The people who own the business have the final say in everything — even if that “say” is silent.

  6. gary s. December 8, 2010 at 9:57 pm
    How can a purported big market team like the mets say they have 3-5 million to spend in the offseason and not be in money trouble?They need starting pitching, relief pitching, a 2nd baseman, a backup ss, and bench players.3-5 million will not address these needs.So the Mets basically are doing nothing to improve what was for a the whole 2nd half of the season an unwatchable team and they want fans to pay big money for seats.Help me out here folks..
    • Joe Janish December 10, 2010 at 1:12 am
      Who said Flushing was a “big market” ?

      Flushing is what happens when you push down the handle of a toilet bowl. It’s also what happens when you spend $60M on Ollie Perez and Luis Castillo.