Mets’ Sale To Steve Cohen Is Biggest in MLB Historyon September 17, 2020 at 5:55 pm

Mets’ Sale To Steve Cohen Is Biggest in MLB History

After a deal with Steve Cohen to purchase the New York Mets was nixed last year due to issues of continued team control, the Wilpons looked for other suitors only to end up back with the hedge fund billionaire. According to Sportico, the deal values the Mets at $2.42 billion. Cohen will assume 95% ownership of the team, increasing his stake from 8%; the Wilpon family will retain control of the remaining 5%. The transaction will not include the Mets’ regional sports network SNY, a cash cow currently controlled by the Wilpons’ Sterling Equity with a 65% share.

The sale is the largest in MLB history, and given the franchise’s $391 million value at the time of the Wilpons’ purchase in 2002, it’s also the most profitable in terms of total dollar amount. Here are MLB franchise purchase price valuations since 1988 in chronological order:

And here’s profitability compared to the previous valuation:

In terms of annual profits based on the valuation of the franchise when it was bought and sold, the Mets’ deal is a little closer to the middle at around 9%. There’s an argument that being only a little bit above average isn’t great, though being above-average on a debt-laden team in the middle of a pandemic looks to be a pretty positive outcome. Here’s where the Mets’ sale stacks up in terms of its annual increase in value after inflation:

Before we get to Cohen, let’s take a look back at the Wilpons and how we got here.

From Initial Investment to Full Control

Fred Wilpon reportedly originally bought 5% of the Mets in 1980 when Doubleday & Co. purchased the team for $21.1 million. Six years later, Nelson Doubleday and Wilpon joined forces to purchase the club at a value of around $80 million. It wasn’t until 16 years after that that Wilpon and his family gained full control of the club, though the purchase was not without controversy. The sale price valuing the club at $391 million was set by an appraiser and initially contested by Doubleday. He argued against the price due to a number of factors ranging from:

Wilpon being “in cahoots” with baseball to force him to accept less-than-market value for his 50 percent of the Mets to baseball “manufacturing phantom operating losses” as part of its labor strategy.

Doubleday relented on his claims after the Wilpons agreed to quadruple the money owed at the time of sale from $28 million to $100 million. In the end, the Wilpons paid just $135 million to purchase the other half of the club from Doubleday due to team debt that was subtracted from the purchase. For about $1 million in 1980, $40 million in 1986, and $135 million in 2002, the Wilpon family gained full control of the Mets.

The Madoff Disaster and Selloff

After the Wilpons gained complete control of the team in 2002, the club was relatively stable for a few years, seeing a run of four straight winning seasons from 2005 to 2008, including a 2006 season where the club was a game away from the World Series. The Mets maintained a top-five payroll and in 2006, they formed the SNY network, with the Wilpons owning 65% of the network and Time Warner Cable and Comcast owning the rest. The Mets agreed to a long-term deal with SNY that would end up vastly underpaying the club as local tv deals would skyrocket in the coming years. With the Wilpons owning 65% of the network and any profits to the network shielded from revenue sharing, that underpayment wasn’t really a negative for the Mets’ owners.

Then, about half a billion dollars the Wilpons thought they had invested with Bernie Madoff vanished. The fallout saw them slash payroll, take out nearly $1 billion in debt against the team and SNY, fight claims that they needed to return previous Madoff profits, eventually receive $65 million in loans from MLB and Bank of America, and prepare to sell a minority interest in the team. After attempting to find investors to buy large stakes of the team, they eventually opted to sell 12 stakes of 4% each for a total of $240 million. Considering inflation, that total wasn’t even an increase from the $391 million valuation from 2002, though it was about an 8% annual increase after inflation from the purchase in 1986. It was also about $100 million more than the Wilpons paid in 2002 to gain full control of the team.

Of the $240 million, $65 million was used to pay down debts to MLB and Bank of America. Some went to a Madoff-related settlement; though the initial 2012 settlement involved a $161 million payout to the Madoff trust (trustee Irving Picard had initially sought as much as $1 billion), the Wilpon family ended up paying considerably less. The settlement was later reduced by around $100 million; the Wilpon family made a $16 million payment in 2016 and annual payments of a little over $10 million beginning in 2017 and ending this year. Lastly, arpund $110 million of the $240 million sale went to pay down a $430 million debt against the team, a fraction of the total $880 million in loans taken out against the club and SNY. The Wilpons refinanced the loans multiple times, including a $700 million refinancing back in 2015. These loan paybacks, combined with the roughly $40 million per year payments on Citi Field, meant the team was making debt payments matching a small-market team’s payroll.

Status of Ownership Ahead of Sale

Those 12 shares of 4%, based on a $2.42 billion purchase price, are now worth around $97 million each. That’s about a 23% annual rate of return after inflation, and a really good return on that investment. So who benefits? Two of those shares went to Steve Cohen, who will retain them, though one of those might have been purchased later. Two were purchased by Wilpon family members. Four were purchased by SNY, owned by the Wilpons, Charter, and Comcast. (It’s also possible that those purchases were contingent on a five year contract extension through 2030 between the Mets and SNY at terms favorable to SNY.) In any event, three of the four SNY shares were repurchased by the Wilpons from Comcast and Charter for $60 million each a year ago, with the Wilpons presumably retaining the fourth share. One year later, that $180 million investment by the Wilpons is worth $290.4 million. While the other four shares weren’t immediately disclosed, among the investors were Anthony Scaramucci, James McCann of 1-800-Flowers, and Bill Maher.

With 52% of the team remaining after the 2012 selloff, it would appear 8% actually remained with the family, plus another 4% in the form of one of SNY’s share. With 64% of the club already in the family in some way, shape, or form, the added 12% from last year’s purchase meant the Wilpons owned roughly 76% of the club. With 8% owned by Cohen, there’s another 16% with other investors who are not fully disclosed, and may or may not be related to the Wilpon family. With Cohen buying all but 5% of the club, all the other investors appear to be cashing out after they nearly quintupled their investment in just eight years.

The Mets’ Situation with Cohen as Owner

Earlier this year it was reported that the Wilpons had about $350 million in debt associated with the team as well as $450 million associated with SNY. The debt on the Mets will likely lower the amount of cash Cohen needs to come up with in order to complete the transaction, and though Cohen’s net worth, which reportedly approaches $15 billion, means he doesn’t have to take on any more financing to purchase the Mets, he probably could if he needed to.

As the owner of the Mets, Cohen will still need to make debt payments on the team’s loans, as well as the payments for Citi Field. He’ll take over a club with considerable uncertainty regarding 2021 revenue, and he’ll be saddled with a vastly under-market local TV deal for the next decade. That television deal will continue to enrich the Wilpons, as the network provides well over $100 million in profits annually and a majority of that money goes to the soon-to-be-former Mets’ owners. The Wilpons will also be in charge of developing Willets Point, the formerly industrial land around the Mets’ stadium where prior development had stalled. Cohen will also receive a piece of that development, per the Wall Street Journal.

Regarding payroll, the Mets have little in the form of long-term obligations with only Robinson Cano and Jacob deGrom‘s contracts running past this season; they combine for $60 million per year through 2023. Even accounting for considerable raises in arbitration for the vast majority of the team, the Mets would need to spend about $50 million in 2021 payroll money to rise to this year’s projected payroll pre-pandemic. Cohen could make a splash in free agency without even raising payroll, which was set to be in the top 10 for the first time since the Madoff scandal. Considering the debt currently facing the Mets, combined with the below-market local TV deal without any ownership stake in SNY, whether to spend is going to be a decision based more on Cohen’s desire to win than cash flows going to the club.

Regarding ownership approval, Andy Martino lists three potential issues with Cohen:

Cohen and the fund he once ran, SAC Capital Advisors, was investigated and fined for insider trading (Cohen himself was never charged). His current fund, Point72 Asset Management, has been accused of fostering a toxic work culture and one of unequal pay for women employees. Also, Cohen’s previous bid for the Mets last year ended up ruffling some feathers around the league.

Martino notes that there were similar issues with Drayton McClane when he bought the Astros, but that the large price tag is ultimately likely to win out. That the alternative to Cohen is an Alex Rodriguez-led bid could also be at play in the minds of owners, as could the prospect of putting the Mets on the market for a third time in less than a year. The purchase is a big one for the Wilpons and MLB. It is a big one for Cohen. How big it will be for the fans remains to be seen, but the spending picture for the club should be rosier than it has been in a decade.

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