Can the Mets Find Investors?

As you probably know, the Mets are in severe financial straits and in dire need of cash. Toward that end, they’re trying to raise about $200M by convincing 10 investors to pony up $20M each, in return for the following:

– 4% interest in the ballclub
– “access” to Mr. Met (but not Mrs. Met)
– free parking space at Citi Field
– access to a luxury box that can’t be otherwise sold
– some kind of a fantasy camp type of “workout”
– chance to throw out first pitch of a ballgame
– discount on Mets merchandise
– an assigned gopher / executive assistant
– one free trip with the team during the season
– a business card that states “owner”
– one free weekend stay in Port St. Lucie during spring training
– unspecified luncheons with unspecified former Mets players
– an offseason luncheon with the Mets GM and manager
– option to cash out your share after 6 years with 3% interest

Does this sound like a good deal?

I have no idea, since I’ve never been in the market for shares of a MLB team. Strangely enough, Sterling Equities — the real estate company owned by the Wilpon family and Saul Katz — has supposedly purchased two of the shares. Huh. Is that to ensure the Wilpons will have at least 8% of the team in the event they need to sell off the club? Again, I’m not qualified to understand why someone would buy shares from themselves, but I’m sure there’s some kind of tax advantage or other protection that involves details way over my head.

Jeff Bradley of the Star-Ledger published interesting angles on this, including quotes from Marvin Goldklang. If you’re not aware, Goldklang is one of the most prolific minor league baseball owners, and purchased a tiny piece of the Yankees back in the late 1970s.

“In my view, the New York Yankees are a unique, iconic brand, so it’s difficult to compare to almost anything else in sports. With the Mets, I still suspect different things will motivate different people. Some may be interested in the economic aspects of it. Others may be more interested in just being a part of something that’s exciting, to be a part-owner of a major-league baseball team in a major market.”

Can Wilpon, Katz and Co. get 10 to a dozen people to take that leap of faith? “My guess is that they should be able to do it,” says Goldklang. “Because I think there enough people in the New York market who for varying reasons would like to be a part of a franchise like the Mets. We tend to look at things from a microscopic perspective. How you did yesterday, a week ago or the past year. But if you look at the Mets franchise over the course of its history, it’s still a very attractive picture. It’s a solid sports franchise.”

It sounds like finding investors could be as easy as locating rabid Mets fans who have $20M burning a hole in their pocket and a desire to have Mr. Met appear at their kid’s birthday party. In regard to the previously mentioned perks of ownership, Goldklang goes on to say this:

“Minority sports ownership is not about perks,” says Goldklang. “It’s about being part of something that’s successful and demands the attention and support of the community. As far as I’m concerned, as far as so-called perks I’ve gotten from the Yankees, there’s nothing that compares with sharing in the ticker-tape parades up Broadway after the world championships. To be even a small part of that. Money can’t buy that.”

Then Goldklang joked: “Of course, we don’t have a mascot like Mr. Met.”

Ouch. That last sentence aside, Goldklang brings up a key point: he values his tiny ownership in the Yankees because it makes him feel part of something special — a world champion. There’s cachet associated with owning the Yankees. Is there any cachet surrounding Mets ownership right now? The team is a laughingstock, with no sign of changing that anytime soon — especially not with the Nationals, Marlins, and Braves all seemingly poised to make a simultaneous run for the Phillies’ aging jugular. Everyone in the NL East is getting stronger while the Mets get weaker.

So if mere association with the Mets is not enough to convince someone to buy a share, what other motivation is there? The 3% return on investment, and/or potential increased value of that share?

First of all, one can do just as well in terms of return by buying T-bonds — though, the government won’t throw in a parking space, a luxury suite, nor lunch with Mr. Met. But let’s put that aside and focus on one very obvious detail here: after the Bernie Madoff scandal, why would anyone invest their money with Fred Wilpon?

It doesn’t matter which side of the Madoff case you stand — either way, investing with the Wilpons and Saul Katz is a bad idea. Because here are the two sides of the story:

1. You believe Bernie Madoff and Fred Wilpon when they say that Wilpon was/is not a sophisticated investor, and had no idea that Madoff was doing something fishy.

2. You think Madoff and Wilpon are lying, and that Wilpon knowingly used an illegal ponzi scheme to make tons of funny money and fleece investors.

Think about this: in case #1, if you sincerely believe that Fred Wilpon was a gullible investor who didn’t know any better, would you trust this man with your $20M? If he’s as unsophisticated as he and Madoff claim — so naive that he didn’t realize that something was wrong with drastically outperforming the market in a down economy — then how can you possibly believe he can figure out a way to pay you back 3% of your investment, and/or turn your share into something more valuable in the future?

In case #2, wouldn’t you be concerned about investing your dough with the Wilpons — though for obviously different reasons?

I would argue that case #2 sounds safer for an investor; one would think that after the Madoff scandal, the Wilpons would be very careful not to be breaking any rules in the future.

Finally, there is the simple practicality of investing in a business that publicly appears to be going bankrupt. The franchise is in deep debt that is growing every month, with attendance and revenues that are plummeting, a dismal public perception, and a “product” on the field that is losing value with no signs of turning around anytime soon. In short, the Mets’ liabilities are much greater than their assets, and the immediate future looks bleak.

So why would anyone invest in the Mets? Please, give me reasons in the comments.

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. NormE December 27, 2011 at 9:18 am
    Unless your investment opens the door to majority ownership at a later time, the investment is all about vanity/ego.
    I agree that the Wilpons do not inspire trust. Thus, I will continue to keep my 20 million in T-bonds.
  2. Tony December 27, 2011 at 10:11 am
    From a business perspective, the number one obstacle in selling these shares (aside from profits) will be the idea that Jeff Wilpon will one day be the principal owner, are minority investors going to want that? Also, Wilpons selling shares now while the possibility of selling the whole franchise is on the table, will limit their ability to maximize value in selling the team outright, unless minority partners pool together at that time. 3% payback will lower the value of sale cause it adds to cost of capital.
  3. gary s. December 27, 2011 at 10:30 am
    The 200 million they want to collect is just the latest Ponzi scheme the Wilpons want to be involved in.Madoff took peoples money with the “cachet” of continued 10 per cent returns.Fred, despite what he says about Madoff learned his lessons well and is trolling for suckers to pay 20 mill for squat to keep him and his crooked family going with the promise of ownership and some worthless perks.You woukd have to be nuts to trust this thief will ever repay you your money when he can’t even repay 25 mill to MLB for the last year
  4. 86mets December 27, 2011 at 11:35 am
    Who wouldn’t want access to Mr. Met, a free mid-week trip down to Houston, and a lunch at the local Subway with Danny Heep or Bruce Berenyi (you leave the tip of course)? C’mon! Those luxuries HAVE to be worth $20 million to SOMEONE, right??? LOL 🙂
  5. John D December 27, 2011 at 12:25 pm
    I initially thought you were kidding about access to Mr. Met. Seriously, what kind of investor would factor something like that into a $20 million investment analysis? I guess it proves that Fred & Jeff are not looking for serious investors, just rich dupes looking for a vanity investment. I’m not sure how many of those are out there. Unless one inherited his or her money, most people didn’t get rich by being stupid. The spectre of bankruptcy on the horizon is also an important consideration. If the Mets declare bankruptcy, a $20M investor would have to rely on the bankruptcy process to get the money back. If the court classifies these investors as unsecured creditors (a creditor with no collateral, basically), their chance of getting a full return on their investment is slim. In most bankruptcies, unsecured creditors receive pennies on the dollar of what they are owed, if anything at all.
    • Joe Janish December 27, 2011 at 10:28 pm
      Re: Mr. Met, you just can’t make this stuff up; fact is often funnier than fiction.
  6. mic December 27, 2011 at 3:30 pm
    The swamp deals are no longer in vogue.

    Why buy at 1995 prices when Citi should be available in a foreclosure sale in about 12 months?

  7. argonbunnies December 27, 2011 at 4:38 pm
    Joe, your caveats make sense to me, but so does Goldklang’s guess that it should be possible to find 10 or so Mets fans in the NY Metro area who are happy to throw away $20 mil so they can claim part ownership of their favorite team.

    Yeah, it’s a horrible business decision, but I’m sure there are folks who won’t look at it as one.

    Being associated with something good may be ideal, but settling for being associated with something famous is probably doable. And unless the media gets bored with the Mets, they ain’t leavin’ fame behind any time soon.

    All that said, a better image for the team would definitely help, especially a stronger sense of hope. I think a Bryce Harper or Stephen Strasburg to drool over would do us more good than any number of wins in 2012.

    I wonder… if you’re gonna lose 90, maybe it’s better to lose 100, so you can get that #1 pick…

  8. Dan B December 27, 2011 at 7:51 pm
    I see investing in the Mets like investing in real estate. We see a team in decline. Investors see it as the worst house in the best neighborhood. As a matter of fact, I see the chance to invest in the Mets as having more upside then any other team in baseball, including the Yankees. If you invest in the Yankees, your return on investment will be lower (though with less risk for captial lost). If you invest in the Pirates, your initial investment is less but your chance for major capital gains is also less. The Mets potentially could be the biggest team in the biggest market. The deciding factor is, always, price. The Wilpons have set the price attractive to entry level investors but they obviously want to retain controling interest. Potential investors with real capital will require at least some if not all controling interesting in the team. It is as if the Wilpons put one of their buildings up for sale at a high price to see what kind of reaction it would get and then they decide on what price to actually sell it.
    The real question is who blinks first — will a major investor (or a series of small investors) agree to buy without controling interest or will the Wilpons agree to give up some or all of controlling interest. My guess is that the Wilpons are hoping enough small investors (with some loyalty to the Wilpons) buy into the Mets so when they finally do sell a significant portion of the Mets to one big investor group, they still have a chance to control the Mets. Steinbrenner, after all, owned less then 50% of the Yankees. I doubt their plan will work. But then again, I am a working stiff who can’t afford a ticket let alone a share.
    • Joe Janish December 27, 2011 at 10:36 pm
      Interesting comparison to real estate. Except, real estate value can increase independent of its ownership based on market cycle / volatility alone. The Mets’ value is near rock-bottom partially because of the economy, but mostly because their ownership / management is awful. To continue with the real estate example, it’s like buying a building owned by a terrible landlord who has not only let the roof cave in but is starting to remove the windows and doors to sell off as scrap metal. The more he dismantles and devalues the building, the less chance he has of attracting people to rent space and generate revenues; ergo, the value of the building continues to decrease — unless the market rebounds dramatically and returns to the insanity we saw in 2003-2007 (which we now know was a house of cards, but that’s a whole ‘nuther can of worms).
  9. BCA December 28, 2011 at 10:22 am
    If I had that kind of money, I would not invest in this team right now at all. I have to think they will have to sell this team soon. They have not made it very attractive for investors. Perhaps the real people in charge are not the Wilpons at all. Alderson is in charge through Selig until the team is sold. So change in coming hopefully soon. That’s what happens when you get involved in corrupt dealings I imagine.
  10. DaveSchneck December 28, 2011 at 10:25 pm
    Joe, Good post albeit a depressing one. Since there is a sucker born every minute, it may be possible to find 10 with a spare $20 mil, but if rumors are true and 2 shares are going to Sterling Equities, this is a huge flag that they can’t find these suckers. As a Met fan since ’73, I don’t know how they can find season ticket buyers no less someone putting $20 mil into a financial shipwreck, vanity or no vanity. Great point as well by Tony above, at least Fred and Saul had some business success. By my acocunt, Jeff has done nothing and while I don’t know him, it appears that he has little respect in the game. As you note in your blog, the best case scdenario is that the Wilpons/Sterling become a minority 8% owner, and sell the majority to someone with enough resources to implement a big market business plan. Stockpiling 2 or 3 prospects will not get this done, not now in this division. Ask the Baltimore Orioles how that is working out.
  11. Andy December 29, 2011 at 5:33 am
    Addressing your question about “buying shares in yourself” — I think the idea is that an investor considering buying one of the 4% pieces is going to want to see the current owners also putting more equity in, thus increasing the amount of “skin” that the Wilpons have in the game. To have the current owner increase its equity stake on the same terms that the new money is coming in provides some comfort to potential new investors that the current owner believes in the valuation that it is trying to sell.

    I’m presuming that the Wilpons or any of their more creditworthy holding companies have not already guaranteed any of the Mets’ obligations, so theoretically they could let the new investors put their money in but do nothing to help the business themselves. If that is the case, then it is pretty meaningful that the Wilpons are willing to take money from their other businesses to put $40 million back into the Mets, on an equal basis (dollar-for-dollar) with $200 million hopefully coming from ten new investors.

    It’s also possible that the Wilpons’ willingness to put in that $40 million is one of the reasons Selig has been so patient with their approach to the Mets’ situation (as compared with the less patient approach taken vis-a-vis the Dodgers). I’m not that familiar but my understanding is that the proposals Selig rejected for funding the Dodgers all involved putting more debt on the team, with not one dollar of new equity coming in.