Government Shutdown

It seems this weekend as if anyone not preoccupied with riots in the Middle East or Midwest is focusing on the budget and the potential for a government shutdown following an Obama veto. So let me tell you all how it's going to play out, and then you can thank me later for saving you valuable time and eye power. It will get leaked that the White House is in "negotiations" with Republican leadership to reach a compromise bill. After much starting and stopping and many additional leaks expressing the anger and frustration of the various factions, voila said compromise will be reached. The new bill will closely mirror the initial Republican proposal save for a few changes designed to appease the ignorant public. Such is pragmatism in a one, I mean two, party system. Nothing to see here. Move along.

In Honor of the Grammys

October 19, 2006

This was the night of Game 7 of the 2006 NLCS between the Mets and Cardinals at Shea Stadium. Oliver Perez with his 3-13 record and 6.55 ERA got the start for the injury-depleted Mets. Jeff Suppan was on the mound for the Cards. It was the top of the sixth inning and the score was 1-1; each starter managed to get through two lineups full of nervous players. Perez was due to face the Cardinals' 4-5-6 hitters. Juan Encarnacion (quite a cleanup hitter, right?) grounded out 5-3 on just 4 pitches. Jim Edmonds was due next. Perez walked Edmonds after a 7-pitch at bat. Manager Willie Randolph surprisingly left in Perez - who had given the Mets more innings than they could have asked for. Next up was Scott Rolen at about 10:03pm. The third baseman was sitting on a fastball and swung on the first pitch. He launched a towering fly ball to deep left field. Back went Endy Chavez, who was in the game because of an achilles injury to Cliff Floyd. Chavez lept over the wall and snow coned a certain 2-run home run. Chavez even had the awareness to double off Edmonds at first base. At the time this seemed like the greatest catch in MLB playoff history. Shea Stadium was shaking and the fans couldn't stop chanting "ENDY CHAVEZ, ENDY CHAVEZ." But what happened in the ninth inning certainly caused some of us Mets fans to forget how close they were to greatness. Looking back to another catch that happened three years ago last night, can you imagine if the New York Giants didn't end up beating the New England Patriots after David Tyree made the Helmet Catch? That amazing play would certainly be forgotten.

In retrospect it is oddly amusing that Endy caught that ball over an AIG advertisement that read "The Strength To Be There." Since then the Mets collapsed twice and wasted 2 seasons in their new stadium. In addition to several embarrassing off-the-field incidents, they fired two managers (Randolph and Manuel) and cleaned out the front office. Will the 2011 Mets have new ownership? Probably not, but I sure hope they will. In the meantime, I will try to remember the catch that made me believe for a moment I was witnessing something special.

"The Gloves are Off"

The Madoff Mess is about to get very interesting. After settlement talks stalled because of a series of media leaks, both the Mets ownership and Irving Picard, the Madoff estate trustee, wrote today to the federal bankruptcy judge overseeing the case telling him that settlement talks had ended and urged him to unseal the lawsuit. Several media outlets filed a motion to unseal the suit and a hearing had been scheduled on that matter for February 9th. It's possible the seal could be addressed sooner. Stand by...

Madoff Mess - Part 2

So I went to WSJ.com and noticed these two advertisements. Earth to Xerox, the Mets are an embarrassment.

Madoff Mess - Part 1 of Many

Looking back to my blog post in November welcoming new GM Sandy Alderson, I discussed one of the most recent stories about how the Mets mismanaged resources. They deferred $5.9 mm of Bobby Bonilla's salary in 1999 at a rate of 8%. Now Bobby is back on the payroll for the next 25 years. I scratched my head over this high accrual rate. It is common to defer salary so the ownership can lower the present value of a large contract. They typically reserve that cash and/or invest in a low-risk security. In some cases they can earn a return on that money higher than the salary's deferral rate. For example, Johan Santana defers $5 mm annually at 1.25%; Carlos Beltran deferred $22 mm of salary at 1.72%. If ownership put that money into tax exempt municipal bonds or medium-term treasuries, they would earn a return higher than the deferral rate. But 8% for Bobby Bonilla's salary? That is crazy. Yes, rates were especially high in 1999, but that deal should have raised many red flags.

A report in the New York Times this week discusses how Bernard Madoff had a significant role in Mets finances - more than 500 accounts can be tied to the Wilpon family and Saul Katz. The Mets even placed deferred salary into Madoff accounts. The article quotes a former Mets employee who claims Bernie returned 18% each year to the Wilpons/Katz. No wonder they put Bobby's deferred salary into a Madoff account - they leveraged off of their own players to put more money in their pockets.

Let's also not forget how the Wilpons handled retirement savings for their employees at Sterling Securities, one of their real estate investment businesses - they put 92% of a 401(k) plan into Madoff accounts. The widow of an employee who lost his entire savings is currently in litigation with Fred Wilpon, the trustee of the plan.

Now that Fred Wilpon announced that he is seeking a limited partner of about 25%, the floodgates have opened. But who would do business with these guys without receiving control of the team and having to deal with legal risks? Besides the control issues, there cannot be much equity value in the team, which according to Forbes is worth roughly $845 mm. Keep in mind the team has $375 mm of debt and the stadium has $695 mm of debt. Also, attendance is way down and the team's brand has been crushed by poor play on the field and ownership's financial woes. The only value is in the team's 60% stake in SNY, the regional cable network that broadcasts Mets games. SNY, which is owned jointly with Comcast and Time Warner, is rumored to be worth $1.3 bb and brings in $150 mm of subscriber fees annually. This is a much sturdier asset and could receive significant interest from value investors.

The offices of Baker Hostetler, the firm tasked with untangling the Madoff mess, share a floor with me. I often have the pleasure of hearing lead counsel and partner David Sheehan shitting his brains out in the men's restroom. A colleague of mine has heard from a Baker lawyer that this is just the tip of the iceberg (no pun intended). I know that the suit against the Wilpons was filed in bankruptcy court, but I wouldn't be surprised if the Department of Justice is working on a criminal case. In the meantime, Let's Go Mets!!