Hedge fund manager David Einhorn is the Miracle Met. He has reached a tentative deal to purchase a minority, non-operating stake in the New York Mets for $200 million, a major victory for the embattled Fred Wilpon and Saul Katz, the Mets’ owners who desperately need the money to hang onto the team.
Overwhelmed by an estimated $450 million of debt, the team will use the money to fund $70 million of projected losses this year and pay back some of the team’s loans, including the $25 million emergency cash injection Major League Baseball extended to the Mets last year. The investment, if it closes, will help the team get through what is shaping up to be a disastrous financial season and vindicate Wilpon, who has maintained for months in the face of much skepticism that he would be successful in raising equity capital to help the Mets deal with the team’s financial problems.
The bottom line is that Wilpon appears to be getting the $200 million he was seeking. He will give up a bigger share in the team than the 25% stake he originally envisioned, but on the surface it appears he is still managing to retain control of the team and securing the amount of cash he feels he needs. “I guarantee you as I am sitting here that we will be able to sell a piece of the New York Mets for a big chunk of change,” Steve Greenbeg, the Allen & Co. banker hired by the Mets to sell part of the team, told FORBES in March.
At the time FORBES estimated the value of the New York Mets had dropped by 13% in one year to $747 million, which was before the team’s projected losses this season ballooned by an extra $10 million. It is unclear how the investment is structured and how much of the team Einhorn is getting for this $200 million, but it appears to be in the range of 49%. It also seems he will not be getting a stake in SNY, the lucrative regional sports network built around the New York Mets. That would imply that Einhorn, one of the smartest money managers around, is paying a 14% premium on the FORBES valuation for a minority stake and that he thinks the Mets are worth something like $850 million.
Einhorn runs Greenlight Capital, a very successful hedge fund that is known for making daring and contrarian investments. By purchasing the Mets, Einhorn may believe the team has reached bottom not only in the baseball standings, but financially as well. The team drew only 2.6 million fans last year and is on track to attract even fewer fans this year, but not long ago the annual attendance was well above 3 million--Einhorn may believe it will be again once the team overcomes its current on-the-field problems. He may also, however, be driven not only by financial considerations, but also by emotional ones. “Having an opportunity to become part of the Mets franchise is exciting beyond my wildest childhood dreams,” Einhorn said today. “I spent my first seven years living in New Jersey and rooting for the Mets. In 1975 I even dressed in a homemade jersey as a Met for Halloween."
The deal also stands to impact the clubby ownership environment championed by Major League Baseball Commissioner Bud Selig, the man who still needs to approve the transaction. Einhorn likes to challenge the establishment. He became famous betting against Lehman Brothers while loudly accusing it of conducting bogus accounting in the months before the investment bank crashed. Hours before his deal for the Mets emerged, Einhorn was trashing Microsoft chief Steve Ballmer, saying at a conference that Microsoft was suffering from "Charlie Brown management" and that Ballmer should be replaced. But Selig is getting something important in this deal, which should help stabilize one of the most important franchises in baseball while another important team, the Los Angeles Dodgers, remains in financial turmoil.
Einhorn's investment will not play a direct role in Wilpon's confrontation with Irving Picard, the court-appointed trustee of Bernard Madoff's investment firm, but it could influence it. Picard has sued Wilpon and Katz for $1 billion, saying the Mets' owners knew or should have known about the Ponzi scheme, seeking $300 million in fictitious profit and $700 million in principal. Wilpon and Katz have denied any knowledge of the Ponzi scheme. The dispute is currently being mediated by Mario Cuomo. It is very possible that resolving the Mets' liquidity problems may make it easier for Wilpon and Katz to reach a deal with Picard.