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Are the Mets in bigger financial trouble than we assumed?

Feb 17, 2011, 10:00 AM EDT

Fred Wilpon, Jeff Wilpon

I don’t pretend to understand high finance that well — and I tend not to get my business news from the New York Post — so someone who knows more about this stuff than me tell if this is really a bad sign or if it’s much ado about nothing:

Banks that provided roughly $400 million in loans to the New York Mets are starting to unload some of that debt at a discount, a sign that creditors are getting nervous about the team’s finances, The Post has learned.

Potential buyers are bidding around 90 cents on the dollar for the debt, sources said. At least one creditor has bought a debt slice at a discount with the approval of Major League Baseball, which must sign off on any buyer of the team’s loans, said one source.

“This tells me the original lenders are scared,” a source close to the situation said.

Is it possible that lenders — freaked out about their returns — could start to panic and a chain reaction could happen that would force the Mets into bankruptcy like the Rangers were?  I’m not trying to be alarmist here: unlike Tom Hicks, who had been in the papers for silly finances for some time before the Rangers went into bankruptcy, I really don’t know enough about the Mets’ situation to say anything too intelligent yet.  I’m really curious to know.

For now, though, I can at least say that that stuff doesn’t sound good.

  1. yankeesfanlen - Feb 17, 2011 at 10:23 AM

    Economic situations are different today than when the Wilpons came into power. They got themselves into what looks like a highly leveraged position with the Metropolitans and then have this Madoff mess to contend with. They may escape unscathed from massive penalities, but I doubt that the bankers are re-assured by such conjecture.
    Plus, the quality of the product has gone down considerably due to executive mis-management, reflected by a 17% decrease in attendance in a new ballpark. Roughly the equivalent of a blockbuster movie opening at $50M first week, $7M the next week because of poor word-of-mouth.
    Conclusion: Bankers will take what they can get while they can get it. Risk assessment, not a science or an art but a reaction, could bring the house of cards down quicker than Tom Hicks, particularly in the financial capital of the world.

  2. PanchoHerreraFanClub - Feb 17, 2011 at 10:27 AM

    It is not a good sign. By selling the loans at a discount, the banks are basically giving the purchasers a higher return on their money. HIgher interest rate = riskier loan. So, the financial markets are signaling that holding the Mets debt is riskier. The real impact (the Mets don’t pay any more interest, the banks just lose the money) is that Mets will have to pay more to borrow money in the future and probably on their continuing lines of credit.

  3. Jeremiah Graves - Feb 17, 2011 at 10:29 AM

    Also, they’ll finish in fourth place…

  4. JD - Feb 17, 2011 at 10:34 AM

    It’s not that surprising that the debt is now selling at a discount because Moody’s recently lowered their rating to Ba+, the highest junk rating that they have. Not a good sign, but not unexpected.

  5. sknut - Feb 17, 2011 at 10:57 AM

    I went to a baseball site and economics broke out. Who knew you had to have a law and economics degree to read the sports pages these days.

    • paperlions - Feb 17, 2011 at 10:59 AM

      You don’t have to have either degree to skip topics about which you have no interest, another topic will be along shortly.

      • bigxrob - Feb 17, 2011 at 11:49 AM

        You also don’t have to have either degree to read the posts and learn something new about a topic you aren’t that familiar with.
        Plus, economic implications for the owners is a “baseball” story, just ask Pujols.

  6. corporatescum - Feb 17, 2011 at 11:10 AM

    It’s not as bad as it sounds, though certainly not great. This is really just the credit market pricing in what we already know about the Mets risk.

    It will certainly hurt them in the form of increased borrowing costs. How much it hurts depends on how much more they need to borrow in the short term.

    That said, a price of 90 implies heightened risk, it’s far from distressed or expected default. Generally speaking, really bad would be 75 or less, which would signal the market knows something worse than what’s public, is anticipating bankruptcy, and would not lend any further.

    In some sense it’s actually slightly positive under the circumstances, in so far as it indicates that the Mets still have access to new credit if they need it, albeit at higher interest rates. (Selling at 90 means someone bought at 90, which means someone at least, is still willing to lend money to the Mets).

    • okobojicat - Feb 17, 2011 at 12:12 PM

      This is spot on.

      The Mets aren’t in terrible trouble, but their life is slightly more difficult. If this is true, then they are much more likely to have to sell the team I also believe that if the debt was selling at say, .75 on the dollar, or .50 on the dollar, MLB would’ve stepped in, provided the necessary cash (as they did with Tom Hicks, who couldn’t get any more loans) in order to run a selling process.

      They have access to capital to sustain day-to-day operations. They might even get away with not having to sell the Mets. But I think they will have to eventually simply because the other MLB teams won’t support them for that much cash. Also, other MLB teams (such as the Yankees) won’t be cool with the Mets in the future taking cash out of operations being used to pay back debts incurred by the Wilpons mismanagement.

      The Mets will be sold, the Wilpons will use the sale to pay off their debts and they’ll maintain minority ownership stakes. Who’s the biggest NY Real Estate Magnet right now who seems bored? There’s your future Mets owner.

      • corporatescum - Feb 17, 2011 at 12:51 PM

        I was with you all the way up to the last two sentences, assuming you are talking about Trump.

        Three reasons that ain’t gonna happen:

        1) Trump, I believe, still has some casino investments (although he had a nasty split with the Trump itself.) Unless he’s gotten rid of these, that automatically disqualifies him from owning a team.

        2) If MLB finds the idea of outsized personality and extremely wealthy loudmouth Mark Cuban owning a team anathema, why would they even consider outsized personality and occasionally wealthy loudmouth Donald Trump for ownership? Remember, the only reason Cuban was even able to bid on the Rangers was because of the involvement of the Bankruptcy court, which eliminated MLB’s ability to pick and choose bidders as they normally do.

        3) Mr. Trump has a history of saying absolutely anything to get attention in the media. Not only is he “very interested in persuing a controlling stake in the Mets”, but he also happens to be “weighing a bid for the Republican nomination for the Presidency in 2012”. Is it most likely that he is seriously persuing A) the presidency, B) the Mets, or C) publicity for season 48 of the Apprentice, and whatever the latest Trump brand product is?

      • spudchukar - Feb 17, 2011 at 1:01 PM

        He also does not have enough money.

      • okobojicat - Feb 17, 2011 at 2:09 PM

        I was not at all talking about Trump. I meant “someone else I’ve never heard of” who’s rich. Trump doesn’t have enough money. The casinos are easy to divest.

      • corporatescum - Feb 17, 2011 at 2:34 PM

        Ah, yeah, sorry, wasn’t sure. Soooo…… does anyone know if Barbara Corcoran likes baseball?

  7. Old Gator - Feb 17, 2011 at 1:03 PM

    The way I look at it, if you make a dollar and spend $1.01, you’re broke. Paying Leo Bloom to make it look like something else will only make you broke-er. Ergo, for every dollar I make I spend .99. Those extra pennies eventually financed my retirement. Why complicate everything?

    • The Rabbit - Feb 17, 2011 at 5:06 PM

      Gator, you’ve summed it up beautifully.
      The problem is that the firm of Bialystock and Bloom has been the esteemed consultant to CEO’s and major corps everywhere. Enron, Worldcom, and Trump (when he had Janney Montgomery’s stock analyst, Marvin Roffman fired for reporting that the Donald wouldn’t earn enough to cover his casino debt. Trump did declare bankruptcy on that debt.) immediately come to mind.

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