Mets Borrowed 25 Million from MLB

Honestly, I thought we could go a week without another off-field bombshell … but unfortunately, the latest news that the New York Mets borrowed money from the MLB coffers as recently as December cannot be ignored.

Major League Baseball provided $25 million to the owners of the Mets as they struggled to deal with a cash shortfall last fall and a looming lawsuit seeking hundreds of millions of dollars for victims of Bernard L. Madoff’s vast Ponzi scheme, according to two people briefed on the arrangement.

The direct intervention of Commissioner Bud Selig to help sustain the operations of the franchise — confirmed by the Mets on Friday — is perhaps the most striking evidence yet of the financial distress that for many months has plagued the team’s owners, Fred Wilpon and Saul Katz.

So it’s not bad enough that the Mets are in the middle of the Madoff scandal — they’re also in dire financial straits. Hmm … dire straits … money for nothing … oh me and my silly puns …

Seriously, this information would explain the Mets’ sudden need to obsess over payroll, after years of spending freely. You can talk all you want about the payroll budget being too high and it not being necessary to field a winning team, but that was never the point. The point was that the Mets, over the past few years, repeatedly claimed that the payroll was flexible, and in fact said there was still room after signing Jason Bay last winter. That tune changed swiftly this past fall.

The Mets have exhausted baseball’s standard bank line of credit, tens of millions of dollars that Mr. Selig and the sport’s owners make available to teams for a variety of reasons in the course of a year. The owners also have more than $400 million in debt on the team. Thus, the additional money provided by Mr. Selig — done in secret last November — might have been crucial in keeping the club functioning.

Is it a coincidence that the Mets took this “secret loan” from Selig at around the same time Sandy Alderson — who was recommended by Selig — was named the Mets GM?

By the way, Fred Wilpon is not denying that there was a loan — but the rest of MLB didn’t know about it until recently:

“We said in October that we expected to have a short-term liquidity issue. To address this, we did receive a loan from Major League Baseball in November. Beyond that, we will not discuss the matter any further.”

One team executive in baseball said that the Mets had not yet repaid the loan, and that Mr. Selig had informed baseball’s executive committee of the loan only last month.

Sooo … the Mets owe some $400M to banks for various debts and another $25M to MLB. That said, selling a 25% stake in the team — about $200M or so — isn’t going to cover even HALF of their total debt. It appears that the Wilpons will need to sell a much more substantial piece of the team. Add in the fact that it also appears that the team currently has trouble getting money via traditional avenues and you realize that the Wilpons have very little leverage in making a sale.

“The fact that the loan is coming from baseball would be a jarring event because, as with the Texas Rangers, the league is effectively a lender of last resort,” said Marc Ganis, a sports industry consultant. “It would indicate the team cannot get loans from normal commercial sources, which could be taken as a sign of very significant problems.”

There’s one more fly in the ointment that isn’t going to please the banks and won’t help the Mets’ line of credit:

Baseball, in involving itself with struggling franchises, enjoys a powerful status. In the event of a bankruptcy, it gets its loans repaid first — ahead of banks, and perhaps even Mr. Picard, the Madoff trustee.

I would imagine that a baseball team is similar to any other privately funded business, in that its ability to acquire loans and have “good credit” is critical to keeping things going and in future success — particularly in distressed economic times, when revenues are lower. These factors certainly play into a prospective buyer’s decision process as well as at the negotiating table during a purchase. Which would explain why there has been so little interest in finding buyers for the team.

One last quote from that NYT article:

According to one person briefed on baseball’s involvement with the troubles of the Mets, the club has faced cash shortfall issues for at least a year.

If that’s true, it suggest that the team is having trouble generating revenue even after opening one of the newest, most expensive, fully featured ballparks in the largest market in the country. Again, not a piece of info that attracts potential buyers.

This team is in deep financial doo-doo, independent of the Madoff suit. And things won’t change until new ownership takes over the team.

2011 Spring Training

About the Author

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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