Ownership deal highlights difference between Wilpon, McCourt

Mostly it means that calls for Commissioner Selig to step in with the Mets the same way he has with the Dodgers, or accusing him of having a double standard with his good friend Fred Wilpon have mostly been premature. The Mets and the Wilpons might be in financial trouble, but for the most part they’ve gone about trying to shore up their short-term issues in a responsible way by seeking to sell a stake in the team. They’ve done that now, and not only is this a great deal for Einhorn, it’s a great deal for MLB and the Mets franchise. I can only assume this will alleviate most of the Mets’ cash flow problems in the short run, while insulating the franchise itself from associate risk in the long run.

Why? Because Wilpon is putting the risk on himself. If things don’t go as planned and the Wilpons aren’t able to return Einhorn’s investment, then Wilpon simply has to sell more of his stake to Einhorn and lose his majority owner status. But the franchise itself will go on with business as usual with core operations and major revenue streams safe. It’s a great deal for everyone, and there’s virtually no risk for any of the parties other than Wilpon. Heck, if you’re in to moralistic judgments of these things, you might even say Wilpon is doing the commendable thing here.

The situation in Chavez Ravine is nothing like this. Frank McCourt is unlikely to be able to retain ownership of the Dodgers even in the best case scenario for himself, and to that end he’s pursuing a strategy of leveraging the franchise’s financial future in a desperation attempt to fix his short-term problems. Rather than attempt to sell a stake of the franchise as Wilpon is doing, the already highly leveraged McCourt is trying to take on even more debt, putting the stability of the Dodgers on the line is a way Wilpon has not done with the Mets. The most notable instance of this was his attempt to secure a $200 million loan from Fox with the Dodgers’ television rights as collateral, a move Selig wisely rejected. Now he may be giving Fox a hefty long-term discount on a new broadcast agreement in exchange for short-term cash, although MLB has yet to approve the deal.

The difference between this situation and the Wilpon mess is that, if McCourt fails to salvage his finances, the Dodgers franchise will be left paying the price, in the form of a bad deal with Fox to broadcast their games, potentially costing the team millions of dollars in the long-run and damaging the value of the franchise itself. And considering the importance of the L.A. market and the prestige of the Dodgers, that potential for lost revenue is obviously something the rest of baseball has every reason to be concerned about as well.

Mets fans might not like Fred Wilpon and may want an ownership change to come sooner rather than later, but if there’s one nice thing you can say about the guy, it’s that he’s not Frank McCourt.

Born in Southwestern Ohio and currently residing on the Chesapeake Bay, Brien is a former editor-in-chief of IIATMS who now spends most of his time sitting on his deck watching his tomatoes ripen and consuming far more MLB Network programming than is safe for one's health or sanity.

9 thoughts on “Ownership deal highlights difference between Wilpon, McCourt

  1. Was just about to post about this, thanks Brien. This is 100% risk free arbitrage. As I tweeted as soon as I heard that Einhorn was taking a share of the Mets:

    David Einhorn took down Allied Capital and Lehman Bros and is now attacking MSFT. The Mets are inviting a shark to dinner.

    http://twitter.com/#!/Jason_IIATMS/status/7373617

  2. JEnotJEJE

    "Rather than attempt to sell a stake of the franchise as Wilpon is doing, the highly leveraged Wilpon* is trying to take on even more debt, putting the stability of the Dodgers on the line is a way Wilpon has not done with the Mets."

    * McCourt

    • BrienJackson

      Whoops, thank you.

  3. I can't get over this deal. It's the best thing ever. If the value of the Mets goes up and the Wilpons don't want to sell, Einhorn has 33% of the team (at the higher valuation) with essentially zero basis/risk. If the value falls and the Wilpons sell to Einhorn, he'll be buying at a discount to his current 33% levels, or averaging down.

    Just astounding.

    • BrienJackson

      Ayup, but I guess that's what happens when you're desperate. Since having a minority share in a baseball team isn't really *that* valuable in its own right, we knew the Wilpons were going to have to offer potential investors a pretty good deal. This doesn't seem like a horrible deal for them either, really, given the limited options they have in their position. I guess it could be bad if you imagine Einhorn screwing with their finances or something from the inside to engineer an eventual take over, but the league office isn't going to take kindly to that.

    • David

      Jason — I was thinking the same thing. I've been telling my gf for the last week how I couldn't understand how ANYONE would take a minority-ownership deal since not a single human being believes if the deal wasn't taken, Wilpon wouldn't be forced to sell the whole team to make ends meet. This deal is one of the single, best-constructed win-win deals I've ever seen at this level with the "feel good factor" of Einhorn's Mets-love thrown in for good measure.

      I sort of imagine Wilpon sitting down exhausted in a giant chair after getting this deal done and saying, a la C-3P0: "I didn't think I had it in me…"

  4. LarryAtIIATMS

    Wow. Brien, this may work out to the same thing as McCourt and the Dodgers.

    There are three ways of looking at the deal, depending on how the options are exercised. (1) Einhorn bought a 33% share of the Mets for $200 million, a bargain purchase based on the latest Forbes' Mets valuation of $700 million, but probably a reasonable deal all the way around and certainly good for the Mets, (2) Einhorn just bought 60% of the Mets on the installment plan, 33% now and the remainder later for some undisclosed price, or (3) Einhorn just bought 33% of the Mets in exchange for a loan of $200 million to the Mets. It's the third possibility that ought to disturb us, and disturb Mets' fans in particular. Since I don't see how the Mets can make $200 million in profits over the next three years when they're projected to lose $70 million this year, then additional team debt is the only realistic prospect for paying back Einhorn.

    My quick and fast read is that option (3) will probably never come to pass, since MLB will block the Mets from taking on that additional $200 million in debt.

    • BrienJackson

      The only way I see (3) working is if Wilpon "loans" the Mets money from SNY in the event the financial base of the team is shored up but he doesn't have that much available in the franchise up front. Otherwise I imagine Einhorn would look for a way to fight it, and as you say I don't think MLB would look kindly on a team taking out that much debt in order for the majority owner to pay off a minority partner to keep control of the team.

      My knee-jerk guess is that Wilpon's days as majority owner of the team are numbered now, but that he really didn't have many other options sort of just selling the team now, and this deal is structured as a win-win for everyone, most definitely the franchise itself, which is bearing no obvious risk in the long run.

      • LarryAtIIATMS

        Agreed 99% because I don't think the Einhorn buyout is going to come to pass. But if Wilpon does want to buy out Einhorn in 3 years, it's important that the Mets not be saddled with any extra debt as a result, and this will require the kind of MLB monitoring that (sadly) we haven't seen with the Dodgers or with the recent sale of the Astros. I plan to post something on McCourt and the Dodgers in the next couple of days, but even McCourt waited a couple of years before he stuck the Dodgers with all of the remaining debt he incurred when he bought the team.

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