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.

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.
  1. Matthew Cerrone March 28, 2011 at 7:38 am
    I don’t know one way or another, because I don’t get to see their balance sheet, but, “if financial struggles have affected the organization’s overall performance,” why do they have the highest payroll in team history this season?
    • Matthew Cerrone March 28, 2011 at 7:58 am
      By the way, I’m not saying you’re wrong. You could be right. You might be right. But, I’m always curious how people square that circle?
      • Izzy March 28, 2011 at 9:54 am
        For a guy with as much access to the team as you should have, your query seems quite naive and simplistic. From all the articles written in the Times and WSJ and Forbes it seems that the Mets used the ponzi scheme to ehlp fund the baseball team and SNY. Therefire the Wilpons had no objections to Minaya’s wheeling and dealing of lng term contract. Now that the well has run dry the Wilpons are stuck with contracts that are unsheddable leaving the Mets with this highest payroll that people like you like to brag about wiothout looking deeper. What are the Mets in the process of doing? Well, they are working on reducing that largest payroll. Most of the big contracts expire after this year. Are the Mets going to buy new guys? Of course not. The new GM speaks often and readily about Reyes not being his kind of player to warrant a mega deal. He gone. He talks about developing the farm and keeping all his rule 5 picks. Message is clear. That “biggest payroll” you love to throw in the naysayers faces will be gone ASAP. What line will you use next year with that middle of the pack payroll?
      • Joe Janish March 28, 2011 at 9:56 am
        Matt, thanks for the feedback.

        Having the highest payroll in team history is irrelevant when it’s still less than the Red Sox, Cubs, and Phillies. You could say the same thing about the KC Royals — they have the highest payroll in their history as well, but it’s still not enough for them to field a competitive ballclub.

        The financial mess the Mets are in didn’t happen overnight, and we began seeing evidence that they were headed for trouble in late 2009. The current payroll wasn’t created this winter and didn’t expand because the Mets were adding higher- and higher-priced players each of the last three years — it increased because of back-loaded contracts that were likely “insured” by the fantasy funds managed by Madoff.

        In any case, the payroll’s actual figure is not necessarily the issue for the present and the future of the club, which is what this post addresses. Fred Wilpon and Saul Katz bit off more than they could chew because they thought they had a bottomless well of funny money. Now that Madoff’s carriage has turned into a pumpkin, they’re scrambling to pay bills. I get your argument that spending more on payroll might not necessarily result in a better team, and that poor decisions made in the past created this debacle. But those are moot points now. It’s like the people who went beyond their means to buy overpriced houses in 2005 with the help of low-interest ARMs. Does it matter that they’re spending more now on a home than they ever did in their life, because the bubble burst on those loans? No, what matters is they went beyond their means and now they’re unable to keep up on maintenance and repairs, make improvements, etc. If you want to keep up with the Joneses, you have to spend like the Joneses — in good times and bad.

        Curious — do you believe that the Mets’ current financial crisis has had no bearing on the personnel moves they have made in the past two years, and will continue to have no affect on their decisions going forward?

        • Matthew Cerrone March 28, 2011 at 1:52 pm
          I don’t know what to believe. I mean, based on circumstantial evidence, it sure seems logical to conclude the team’s legal issues must impact on-field personnel, which is why I never said you were wrong. Because that’s the thing, I don’t know factual one way or the other. At the same time, like I pointed out, it’s not like (in the wake of being sued) the team freaked, dumped contracts and clipped payroll. Instead, they’re about to charge forward spending more money than at any point in team history. But, perhaps that is temporary, who knows?
        • Joe Janish March 28, 2011 at 3:44 pm
          But to point out the fact that they’re spending more money is a misrepresentation of what’s really happening, because, again, the payroll is high due to decisions made in the past rather than in planning for 2011 specifically. For all intents and purposes, the money for this year’s payroll was already spent 2-4 years ago. Those gambles they made on Santana, Krod, Beltran, Perez, Castillo, etc did not result in a playoff appearance. So that means they should stop spending? Or outspend the mistakes? If in Kansas City, then the former, but if in NYC, and charging premium prices for tickets in a new stadium, then the latter.
        • Matthew Cerrone March 28, 2011 at 6:36 pm
          I don’t disagree. My only issue – seriously, the one one – is you stating like it’s fact that one thing means the other, and you just can’t know that factually. That’s all. Otherwise, I’m not at all saying you’re wrong to assume this.
        • Joe Janish March 28, 2011 at 10:19 pm
          Fair enough, but as you know that’s my style. :-) It gets me in trouble sometimes (oftentimes?) but a strong opinion usually leads to more intense and interesting debate — and for me, the fun is in the conversation that results from the post, as much as writing the post itself. And I don’t mind looking stupid or being wrong, so long as the conversation is stimulating — after all, people generally don’t come here for facts, they come for the discussion.
        • Ryan March 29, 2011 at 4:41 pm
          Fact shmact, this is a damn fine analysis. Ozanian on Forbes and YES does the same shtick with the same quality, it doesn’t have to be a fact if the language in the article says “it’s speculation”, which Joe clearly does. This is a thinking man’s blog, a digital stoop or virtual lunch table if you will, it’s not for the melonhead dropping a quarter on a paper daily who doesn’t believe anything the paper in front of him doesn’t print in black and white.
  2. Steve S. March 28, 2011 at 8:37 am
    Good column, Joe. I always wondered about the Mets’ deal of Wagner to Boston, and the money it saved.

    That being said, the Mets’ win total this year could very well be 85 or more, with them having a shot at a playoff spot at the mid-year point. If that happens, the pressure would be on to make a deal to improve the team, as well as keeping Reyes. If he’s dealt then, ticket sales would nosedive, with a fan boycott occurring.

    • Joe Janish March 28, 2011 at 10:21 am
      Steve, you bring up a good point, and Alderson suggested that Reyes could stay through the end of the season if he was doing well and the team was in the hunt.

      But, what if Reyes is doing well and the team is not? What if Reyes accomplishes the magical .400 OBP that Alderson wants to see? Will the team extend his contract or re-sign him? Considering their financial crisis, I don’t see how it’s possible.

      • Steve S. March 28, 2011 at 11:11 am
        Good point on Reyes by you, Joe. If he’s doing well (OBP way up, say, to .365) and the team is out of it at mid-season, they could trade him, although they’ll take a big hit (even a fan boycott) at the box office that will go into 2012. Alderson could very well sign him for Bay money, with Beltran, et al. coming off the books soon, but not go wild on other free-agent signings.

        On the other hand, I’m hoping the Wilpons will be forced to sell the team, and we’ll start spending like Philly and Boston.

  3. NormE March 28, 2011 at 11:35 am
    Good points by Joe and Steve S.
    It’s hard to find a Met fan who doesn’t want the Wilpons removed from Met ownership. The only problem is that there is no guarantee that new owners will be an improvement (Dolan, Lauria are examples of ownership that you don’t want running the Mets).
    I can see a situation where MLB has to step in and force a sale because of the bad image created by a cut-rate NY ownership.
    • Joe Janish March 28, 2011 at 12:08 pm
      The old “devil you know may be better than the devil you don’t” is a valid point to consider.

      As for MLB stepping in, hasn’t that happened already? ;-)

      • murph March 28, 2011 at 12:43 pm
        Ha ha!
        When MLB took over the Montreal Expos, who did they put in charge? Omar Minaya!

        How about this for a conspiracy theory:
        The MLB take-over of the Mets was already started in 2004-2005 when they brought back Minaya.

  4. gary s. March 28, 2011 at 6:41 pm
    When little Jeffie Wilnot starts giving press conferences in his skivvies, i guess we will know the end is near.Btw, Joe, Jose Reyes will never have the plate discipline to come near a .400 oba.Of course, if he plays every day, puts up a .350 oba with 60 steals and a .285 plus b.a why would any sane organization let him go??
    • Joe Janish March 28, 2011 at 10:37 pm
      Agreed: Reyes likely will never reach a .400 OBP — which is exactly why Alderson threw out that figure. Exactly three NL players had a .400 OBP in 2010 — Votto, Pujols, and Fielder — so it’s a rarity in this post-PEDs world. What I don’t understand is what the statheads don’t place more value on runs scored — which ultimately is what wins games. When Reyes had “only” a .350 OBP in ’06 and ’07, he scored 120 runs per season. Didn’t his speed and ability to run around the bases have something to do with that? Why is the value of not making outs trump the ability to cross home plate? If you can get on base but not score, who cares that you got on base? Mike Hargrove was a perennial on-base machine back in the day, but he never once scored as many as 100 runs in a season (he averaged about 75 a year).

      Believe me, I get the value of OBP, and always have — even before Billy Beane made it trendy to discuss. But geez Louise, if a guy can score 120 times with an OBP in the .350 range, why do you need him to increase his on-base rate by another 14%? Will it make that much of a difference?

      • Izzy March 29, 2011 at 8:51 am
        Votto, Pujols and Fielder at .400 OBP, and how many of those walks which put them there were unintentional intentional walks that didn’t help their teams one bit? And amazing Alderson wants, demands that Jose do something that not one lead off man could do last year. Don’t worry Jose, there will be plenty of takers for your services. soon enough. Think ticket sales are bad now Fred/Sandy!!! Wait till you lose Jose.
  5. Midwestern Met March 28, 2011 at 9:34 pm
    Wish they’d just sell the whole team…but who would buy? Just last week Mark Cuban said he’s interested in buying an MLB team, but said he wasn’t interested in the Mets. You know you’re in bad shape when even Mark Cuban says “no.”

    By the way, I’ve got my own Mets blog, if you’re interested in checking it out. Just go midwesternmet.blogspot.com