X Factor: Mets Cash Flow

As much as the Mets owners and upper management consistently deny it, the team’s financial struggles have affected the organization’s overall performance, and will continue to do so in the foreseeable future.

Because the team could not secure a line of credit via traditional means (i.e., banks), they required a secret, private loan from MLB just to cover operating expenses. When they burn through that dough, they will be broke again and out of options — they can’t dip into Bud Selig’s coffers again. The Wilpons’ only recourse is to sell off a part of the team for a cash infusion. Yet, they refuse to offer more than a minority stake, which makes a sale difficult — who wants to invest in something that is hemorrhaging money and further, not have a say in decision-making?

Complicating the possibility of a sale is the recent valuation by Forbes magazine, which sets the Mets at $747M — a hefty sum, for sure, but down 13% compared to last year’s valuation. The team sold 600,000 less tickets in 2010 compared to 2009, resulting in a 25% drop in gate receipts, 13% reduction in overall revenue (13 seems to be an unlucky number, eh?), and an operating loss of over $6M before interest, taxes, depreciation and amortization.

Forbes’ valuation is more than 25% less than the cool one billion bucks that the Wilpons are claiming the team is worth — based on the theory that the team can sell 3 million tickets in a season. However, that 3M figure appears to be a pipe dream, if it’s true that the team has sold only 600,000 tickets to date.

Compounding these value issues is the fact that the team is reportedly $450M in debt (including $50M per year payback for municipal bonds issued for the construction of Citi Field), and SNY — of which they own 68% — is another $1 billion in the red (though, sources say that SNY would not be part of a sale).

All of these problems need to be dealt with BEFORE the conversation moves to the Madoff situation — which could add on anywhere from $200M to $1 billion more to the mounting pile of debt.

Despite all of these financial woes, the Wilpons steadfastly insist that the team on the field will be unaffected. Actions speak louder than words, and there has been questionable activity going back at least two years that suggest money problems have influenced personnel decisions.

Rewind to the tail end of 2009, when Billy Wagner returned from Tommy John surgery, proved to be healthy, and was traded to the Red Sox for Eddie Lora and a PTBNL (who eventually became Chris Carter). Something didn’t smell right about the deal then, nor now, considering that the Mets could have held on to Wagner, offered him arbitration, and received two first-round picks in the 2010 June draft when he signed with another team. But by dumping Wagner, the team saved $3.7M in money owed to the lefty closer and whatever bonuses the two first-rounders might have commanded. At the time, that was the thinking of a conspiracy theorist, but afforded hindsight, it looks more possible — particularly when you consider that only a few months later, the team gave away the rights to their Rule 5 draft slot for cash.

One might point out that the Mets signed Jason Bay to a $66M deal that same winter. Indeed they did, but that doesn’t mean they didn’t have financial issues at that time — it’s not as though they had to pay Bay the entire $66M right then and there (though, he did get a $8.5M signing bonus). Obviously we have no access to the Mets’ monthly financial statements, but isn’t it possible that the team had swings of both positive and negative cash flow, and had to address those negative swings with financially motivated moves? Remember also that the team had Carlos Delgado’s $12M coming off the books as of October; the Wagner deal occurred in August, and Bay was signed in December. Clever accounting could have allowed for the Bay signing to happen despite temporary cash-flow issues — especially if combined with a dip into their Madoff funds.

And that’s where this train wreck runs off the track: over the past decade or so, the Wilpons regularly pulled money out of those remarkably performing investments to cover losses and pay salaries — which is probably part of the reason the Wilpon family is caught in the mess. There’s even evidence that big contracts included investing in Madoff funds. With that well dry, the bills mounting, and a cash infusion unlikely to happen anytime soon, it is impossible for the team to continue operating without a) cutting costs at every turn; and b) making decisions based on short-term profits, such as immediate ticket sales.

I touched on this issue briefly in a post on ESPN about two weeks ago, suggesting that short-term financial returns could be behind the Mets’ decisions to push Carlos Beltran and Johan Santana back on the field. Because of their financial woes, the Mets are desperate to sell tickets RIGHT NOW, and must do anything and everything possible to do so. Obviously, a quick start out of the gate is imperative toward that end, and may have influenced the team’s decision to roll the dice with numerous pitchers coming off surgery, such as Chris Young, Chris Capuano, Boof Bonser, Taylor Tankersley, Taylor Buchholz, and Blaine Boyer. Young, in particular, is unlikely to pitch in more than 15-20 games (if recent history with chronic back and shoulder problems is any indicator), but the Mets need him to take the mound and be great from April-June in particular, to help the team get off to a fast start, raise postseason hopes, and encourage second-half ticket sales. There’s a good chance that Jason Isringhausen makes the team more because he’s a good story (and in turn, perhaps sell some tickets and Izzy jerseys) than that he’s proven to be better than other bullpen candidates. Sandy Alderson admitted that the release of Luis Castillo was at least partly influenced by the fanbase’s almost universal antipathy for the second baseman. Additionally, the presence of 30-something utilitymen Willie Harris and Scott Hairston on the 25-man roster seems strange for a team that should be rebuilding — but, with a little luck and a hot streak at the plate, those veterans could help create the illusion that the team has postseason potential.

Perhaps the most significant, financially motivated move made by the Mets was the hiring of GM Sandy Alderson (if it was indeed a “hiring” by the Mets; some surmise it was a directive by Bud Selig — but that’s can of worms for another day). Billy Beane’s Moneyball mentor came out of semi-retirement to stretch the few dollars available in the Mets’ limited budget. Yes, their $140M+ payroll is enormous when compared to small-market clubs such as Kansas City and Minnesota, but since when does a New York team have limits? Why should it? Part of the reason for operating in the media capital of the world and center of the financial universe is one is supposed to have the ability to outspend mistakes. The team’s payroll was still below those in Boston, Philadelphia, and Chicago, and Alderson has publicly stated that the budget could further decrease in 2011 and 2012. Toward that end, he’s already hinted that Jose Reyes — in his walk year — is unlikely to be signed to an extension and therefore could be traded by the end of July. The Mets’ decisions to acquire defensive specialist Chin-Ling Hu and install youngster Ruben Tejada (who played 2B in 2010) as starting shortstop in AAA Buffalo seem to support that possibility.

July, in fact, could be a pivotal point in the season for the Mets — with an all-out fire sale a distinct possibility. I can easily see the team shed the contracts of Reyes, Beltran, Francisco Rodriguez, and Young in a sell-off that would eclipse the “Midnight Massacre” of June 15, 1977 (when Tom Seaver and Dave Kingman, were traded at the deadline).

Like all teams, the Mets’ goal is to win in 2011 — and much of that goal is ultimately financially motivated. But in the Mets’ case, there is a desperation for revenue that transcends winning. Nearly every decision the Mets make will be influenced in some capacity by short-term finances and the need for positive cash flow, as a means of survival. Those decisions may or may not be in the best interests — long-term — for the club and the individual players.