Rapid Reaction: Wilpons settle for $162M
March, 19, 2012
By Adam Rubin | ESPNNewYork.com
WHAT HAPPENED: The owners of the New York Mets have settled with trustee Irving Picard for $162 million, their alleged profit from certain Ponzi scheme funds in the six years before Bernard Madoff's arrest.
In reality, Fred Wilpon and family will be on the hook for only a fraction of that amount -- and will not be required to make any payments until 2016 and 2017.
That's because, as part of the settlement, the Wilpons will be able to apply to the trustee to be reimbursed for $178 million in losses from certain funds. Obviously, like any victims of Madoff's Ponzi scheme, they won't recover every dollar. But they will get a certain percentage based on how much the trustee collects overall from net winners -- likely 50 percent or more.
As a result, the Wilpons' actual payment to Picard -- once the Wilpons' loser funds are reimbursed like other victims -- should be a fraction of the actual $162 million settlement.
Say if Picard pays to victims 50 cents on the dollars they lost. That means the Wilpons could be credited $89 million (half of $178 million) toward their $162 million owed as a result of the settlement. That's a net of only $73 million remaining to pay Picard to satisfy the settlement.
Any disbursements owed by Picard to Wilpon loser funds over the next three years will be deducted from the $162 million owed by the Wilpons to Picard in the settlement. The Wilpons then will owe the remaining amount in equal installments in four and five years.
The lawsuit sought to recover $386 million. Judge Jed S. Rakoff previously had decided that Picard likely was entitled to at least $83.3 million in profits from the two years before Madoff's arrest.
The original suit was for $1 billion, but it was reduced by Rakoff, who decided that Picard could only recover money from the Wilpons from the immediate two years before Madoff's arrest, not the six years Picard advocated. The settlement, while not overturning Rakoff's decision, does establish for the trustee six years as an acceptable period to recover profits.
The settlement talks were brokered by former New York governor Mario Cuomo.
WHAT IT MEANS: It's unlikely the Wilpons would have settled unless they felt they could withstand that financial obligation without jeopardizing their ownership of the team.
Still, the Wilpons are not out of the woods yet as owners.
Remember, the Mets still have a ton of debt unrelated to the lawsuit. Among the more immediate obligations are a $40 million bridge loan from Bank of America and $25 million emergency loan from Major League Baseball. UPDATE: The Mets have paid those immediate loan obligations thanks for a $240 million equity infusion from minority investors, many of which had existing ties to the ballclub.
You can read about the extent of the debt in Part 1 and Part 2 of the financial series from ESPNNewYork.com from late January.
WHAT'S NEXT: Back to baseball, hopefully.
Actually, it's going to still be the Mets on austerity for a while, because of the financial obligations mentioned above. That means the Wilpons will be utterly dependent upon fan attendance revenue in order to maintain ownership.
The Mets eventually hope to sell 10 to 12 minority shares of the team at $20 million apiece, although a good deal of that appears to be shifting around money among Mets-related entities. For instance, two of those shares are going to Jeff Wilpon and Saul Katz, who is Fred Wilpon's brother-in-law and Mets president. Another four will go to SportsNet New York, the regional sports channel primarily owned by the Wilpons/Mets.
There is only one known minority buyer without direct connection to the Wilpons or Mets. And that's Steve Cohen, who reportedly is the front-runner for majority ownership of the Los Angeles Dodgers, which would eliminate him as a Mets candidate.
Read the ESPNNewYork.com news story here.