May 26, 2011

The Payoff Pitch

How the Mets Were Lost

by Neil deMause

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Was it really only six months ago that Mets fans were hailing the arrival of Sandy Alderson as putting an end to one of the grimmest eras in a team history full of grimmage? Finally, the Omar Minaya epoch was at an end, and with it the days of throwing money at Oliver Perezes and Luis Castillos; from now on, the Mets could spend their cash reserves wisely, and leverage their big media market and their core of young(ish) talent to bring October baseball back to Flushing.

That plan essentially went out the window on the February day when Irving Picard, the trustee for the former clients of Ponzi schemer Bernie Madoff, announced that he was suing Mets owners Fred Wilpon and Saul Katz for $1 billion, on the grounds that they knew—or should have known—that his investment empire was built on fraud. As I wrote at the time, this shouldn't have had much impact on the Mets' finances—the team was still in decent financial shape, after all (even after a big dip in value, still the fifth-most valuable franchise in baseball, according to Forbes, with net profits over the last five years of more than $100 million)—and however the suit is resolved, it shouldn't hamstring the team's finances: Either the Wilpons would successfully fight off Picard's suit, in which case the threat was moot, or they'd lose, in which case they'd inevitably have to sell the team to pay the fine, and the question of whether or not to re-sign Jose Reyes would be a question for Mark Cuban, or a Dolan to be named later.

Except that in baseball ownership, things that shouldn't make a difference invariably do. Which brings us to this week's long New Yorker article on Wilpon, Katz, and their Madoff ties. Written by Jeffrey Toobin, who usually covers legal issues for the magazine, it's an odd article, part Great Man profile, part financial-malfeasance muckraking, part slack-jawed awe at being in the presence of the Grand Old Game. (Something tells me that Roger Angell never would have referred to Mookie Wilson as someone who has "almost never been known by anything but his first name," since he'd have known that that was William.) The result is an odd assortment of revelations, including:

• Fred Wilpon pitched batting practice for the Brooklyn Dodgers, and convinced his pal Sandy Koufax to take up baseball "so we could hang around together." Koufax later invested much of his savings with Wilpon's pal Madoff.
• Wilpon and Katz earned their initial fortune in the '70s by buying up worthless land as a tax shelter, only to find themselves unexpectedly rich when it soared in value as the real estate market recovered.
• The pair bought the Mets in 1979 for $21.1 million, but put in only $650,000 each. The other $19.8 million was financed by Doubleday Publishing, whose owner, Nelson Doubleday, became majority partner. (Toobin doesn't actually explain this, but Wilpon and Katz later bought up half the team in 1986 after Doubleday was sold to German publisher Bertelsmann, and bought out Nelson entirely in 2002—presumably with the aid of Madoff profits.)
• Owning a baseball team has benefits outside the team's bottom line: "You take the chairman of the board of a bank, with his grandson, on the field to meet David Wright, and make that grandfather a hero, and you do business the way we do business, it opens up everything," Katz told Toobin.
• Other real estate barons all love Wilpon. (Whether that's related to the item immediately above is left as an exercise for the reader.)
• Bernie Madoff insists that Wilpon and Katz didn't know enough about finance to understand that they were investing in a Ponzi scheme: "They were not sophisticated enough to evaluate it properly, nor were most of my other individual clients." To Toobin's eyes, this qualifies as "certainly relevant evidence in the question of their knowledge and culpability."
• Wilpon thinks that Jose Reyes is "a racehorse" but won't get "Carl Crawford money" this winter, that David Wright is "a very good player" but "not a superstar," and that Carlos Beltran is "sixty-five to seventy percent of what he once was."

This last item—despite being a set of evaluations that would be seen as, if anything, unremarkable if espoused by a BP writer—was what lit up the reportosphere early this week, with banner headlines in the tabloids, sportswriters (including BP's Jay Jaffe) declaring that this meant Reyes was as good as gone, and Jim Bowden insisting that this meant Wilpon was preparing to trade everything that wasn't nailed down. Wilpon went so far as to apologize personally to Reyes and Beltran (via speakerphone—the Mets were at Wrigley), though Reyes didn't seem to be much fazed by the published remarks, telling the New York Post: " We just need to move on. He can say whatever he wants to—he’s the boss and we are the employees here."

If, in fact, Wilpon's remarks are a signal that he's planning a fire sale, it will mark one of the more remarkable self-destructive acts by a baseball owner since Charlie Finley named an 11-year-old M.C. Hammer as club vice president. First off, as Jaffe noted before the season, the Mets have effectively no hope of coming close to replacing Reyes' production, given the dismal state of the shortstop market. And if it wasn't going to be hard enough getting equal value for an oft-injured player who's four months away from free agency, think how much more difficult things will be when Alderson has to pick up the phone and hear potential trade partners say, "Reyes, huh? You mean that guy who your owner thinks is no Carl Crawford?"

More than that, though, dealing either Reyes or Wright (Beltran, as an aging player shunted to a corner outfield spot, is a slightly separate case) as a budget move would betray a remarkable failure to look at the revenue side of the ledger. Yes, the pair would likely cost upward of $30 million combined next year. But right now, they're also the only thing selling any tickets at all: Take a walk around Citi Field, and 9 out of 10 shirts will have one of those two names on the back. (The tenth will have "Davis." Johan Santana jerseys have been placed in long-term storage for the duration of the unpleasantness.) Cashing in Reyes and/or Wright (or especially Reyes and Wright) for a pile of pre-arb eligible younguns would be a huge risk, not just on the field but at the ticket window—just look at how many Mets fans who'd previously shown no qualms about spending their hard-earned money to watch Marv Throneberry play headed for the exits once the Mets turned Tom Seaver into a pile of prospectless prospects in 1977.

Even if you grant that Wilpon and Katz are bleeding cash, it should be obvious that money not earned is as damaging to your bottom line as money not spent. (Okay, obvious if you're not a House Republican.) That's why it's bizarre for Wilpon to tell Sports Illustrated (in yet another profile this week—suddenly this guy's like an old, male version of Emma Watson) that he wants to keep payroll below $100 million next year: Baseball players should be seen as investments, not mere costs, and ditching a player who'll put fannies in the seats just to keep your headcount down is as short-sighted as laying off employees who generate income for your company just because you're afraid of having to sign their paychecks. Yet while one local reporter insists that Mets management understands this, the general consensus seems to be that the club is ready to say damn any return on investment, full speed ahead.

Of course, not understanding the nature of investments is what got Wilpon in this pickle in the first place. In fact, reading Toobin's article, it's hard to wonder whether Wilpon's kindly-but-daft old baseball uncle persona isn't just the slightest bit calculated: After all, as Toobin writes, Wilpon's best hope of keeping his fortune out of Picard's mitts is to "prove that he was a dupe rather than a crook." (And Toobin says he was convinced.) If there's one takeaway from Toobin's New Yorker article, it's that Wilpon, in publicly dissing his own players to a major magazine without seeming to understand the likely consequences, has made it entirely plausible that he's ignorant enough to have invested his entire life savings in a Ponzi scheme for 23 years without ever noticing it. And if so, that could end up being what saves his assets: not guilty by reason of inanity.

Neil deMause is an author of Baseball Prospectus. 
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