SBJ/November 7-13, 2011/Franchises

Mets want to sell equity stakes, raise $240M

The New York Mets want to raise $240 million from selling 12 slices of equity at $20 million each, according to prospectuses the team has sent to wealthy individuals and described by market sources.

The move follows the collapse two months ago of the money-losing team’s agreement to sell part of the club for $200 million to hedge fund executive David Einhorn, triggering the new approach of trying to raise cash in smaller amounts.

Mets owners Saul Katz (left) and Fred Wilpon face financial pressure from a potential judgment stemming from the Bernard Madoff Ponzi scheme.
Photo by: GETTY IMAGES
The mini-equity deals allow the purchaser to put — or, sell back the shares to the team — within five years at a 3 percent return and guarantees no capital calls for six years, the sources said. That means the current owners would cover any funding shortfalls at the team through at least 2017. Those provisions, observers said, gives this equity push a better chance than the prior one.

“The mini-units could sell,” said sports business consultant Marc Ganis of SportsCorp Ltd. “The put option is a very interesting component. … That is very important because they can get out of it if things are not going well.”

One of the sources projected the share sale could be completed during the offseason.

Steve Greenberg, the Allen & Co. investment banker handling the equity sale, declined to comment.

The team is facing financial pressure, reportedly losing about $70 million annually, though earnings from SNY, the team’s regional sports network, likely offset a healthy share of the red ink. Also pressing is a potential judgment against club owners Fred Wilpon and Saul Katz stemming from a lawsuit brought by the trustee for the victims of the Bernard Madoff Ponzi scheme.

Katz and Wilpon did, however, win a significant court victory in September, when a judge reduced the amount of money they might have to pay. The trustee sought $1 billion, but the judge limited that to no more than $386 million. Katz and Wilpon, who are accused of knowingly profiting from the Madoff scheme, deny the charges.

When the lawsuit first emerged last year, many presumed Wilpon and Katz would need to sell the team. Indeed, the sale to Einhorn in part foundered over whether he would gain control of the team at some point.

Whether the $240 million, if raised, is enough to save Wilpon and Katz’s ownership is unclear, but it also likely depends at least in part on the Mets turning around their declining attendance at Citi Field. The team has struggled at the gate the past two years while the Mets have underperformed on the field.

Many teams have small equity partners, though usually those partners are part of an original buying group. Jim Crane, for example, who is seeking to buy the Houston Astros (see story) has dozens of small investors in his group, sources said. Wilpon and Katz, in a sense, are seeking to replicate that model.

Smaller investors have little say in the running of a team and commonly buy in for business, family and friendship reasons. The Mets stakes, of course, would provide tickets as well as close access to the team. The new partners also would be given their own advisory board, from which one or two members would sit on the team’s board of directors, sources said.

Snapshot: N.Y. Mets

December 2008: Bernard Madoff is arrested on securities fraud charges for an alleged Ponzi scheme. Mets owners Fred Wilpon and Saul Katz are among those parties identified as having invested money with Madoff.

January 2011: The Mets announce that they are actively considering the addition of minority investors to the club.

May 2011: The Mets enter exclusive negotiations with Greenlight Capital President David Einhorn to purchase a minority, non-operating investment in the team for $200 million.

September 2011: Negotiations between Einhorn and the Mets break down. The Mets say the team instead will aim to sell smaller stakes to several people.

September 2011: A federal judge dismisses most counts of a $1 billion lawsuit against the owners of the Mets that stemmed from the club’s Madoff involvement. Wilpon and Katz will be forced to pay no more than $386 million to resolve claims by Madoff trustee Irving Picard that they were aware to some degree of Madoff’s actions prior to his arrest.

October 2011: The Mets announce a widespread season-ticket price reduction for 2012, seeking to reverse the team’s declining annual attendance at Citi Field.

— Compiled by Kristen Heimstead
Source: SportsBusiness Daily archives


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