When we last touched on the terms of the new Mets ownership deal, there was enough information to make fun of the Mets, but a key detail was missing. We knew that David Einhorn had essentially agreed to loan the Wilpons $200 million dollars in exchange for a third of the team until the loan was paid back, a guaranteed one-sixth stake regardless, and the potential to buy a majority stake. What we didn't know was how much more than the $200 million it would take to purchase majority ownership from the Wilpons, and whether the Wilpons would be amenable to the scenario. It seemed as though the most Einhorn-friendly scenario possible was that he would pay for the additional shares at the same scale that he purchased one-third of the team, and get 51 percent control for a total of $350-400 million.
Well, it's lower than that:
If the Wilpon family does not pay back the hedge fund manager's $200 million investment in three years, the hedge fund manager can obtain a 60 percent stake in the team for an additional $1, Forbes reported. So his total investment for control of the team that some have valued at more than $1 billion would be $200,000,001.
Let's say the Mets are worth $747 million. If that and the terms of the deal (denied by the Mets) are true, then Fred Wilpon has taken out a $200 million loan at 62 percent total interest with $324 million worth of collateral (the value of the one-sixth and the additional 43 percent share respectively). The terms are reminiscent of Eddy Curry's $750,000 loan at 85 percent interest.
Why would Wilpon do that, and why wouldn't any entity with $200 million take the deal if he were offering it? The Madoff legal entanglements aren't the issue, as Einhorn is guaranteed protection from them. Here's the most likely scenario as we see it: Wilpon expects to pay Einhorn back; Einhorn does not expect Wilpon to pay him back; and the Mets are worth nowhere near $747 million. As intriguing as a free sixth of the team looks, it can't be that valuable. No part of the deal includes a stake in SNY, the Mets' cable network and the only profitable part of the whole organization. The Mets themselves are going to lose $50 million this year. Combine that with the hundreds of millions of dollars in debt stashed in Citi Field, and a minority share in the team isn't attractive.
But a majority is. There's inherent value in getting to run your own baseball team, and Einhorn presumably has enough confidence in himself to turn the franchise around. That's the real prize here, and the only way he'll get it is if the Wilpons can't pay him back. Einhorn therefore has to think that scenario is a strong possibility.
Wilpon, meanwhile, could likely sell a 60 percent stake in the Mets for north of $200 million, which is an indication that he doesn't think he'll have to hand the team over. Or he's just desperate and wants to hold onto the team as long as possible, risks be damned. Another possibility is that he could borrow again or sell a significant portion of SNY to pay Einhorn back and retain control.
When news of the deal first broke, commentators noted Einhorn's talent and affinity for shorting stocks like Lehman Brothers. They saw his Mets purchase as a break from that trend. But maybe that's the wrong way to look at this. Everything we've learned so far suggests that Einhorn sees a significant chance that the Wilpons will lose a significant amount of money in the Madoff lawsuit. This is just another short, in other words — not on the Mets but on the Wilpons.
Report: Mets deal has twist [ESPN New York]