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The New Financial Story, In Brief
Posted by: Howard Megdal - Posted in Today's Mets headlines on Oct 09, 2012
In case you missed it, Rich Sandomir had a great scoop on how the Mets plan to cobble enough money together to get through the offseason. 2010’s plan, an MLB loan, is apparently no longer available. 2011’s plan, a bridge loan ahead of a minority ownership sale, isn’t available for the simple reason that there aren’t more shares to sell.
So 2012’s plan, according to Sandomir, is to borrow more against SNY. This is theoretically possible, since the Wilpon group has borrowed only $450 million against a 65 percent stake in SNY, and the company is believed to be worth over a billion dollars.
What this will mean, though, is any additional borrowing, and/or time extension on repayment, almost certainly carries with it a higher interest rate. And that will cut into the margin of error the team has for losing money.
But all of this requires a number of entities to sign off on the new debt: the debtholders on the SNY loan, the debtholders on the loan against the team ($320 million, roughly, due in June 2014), Major League Baseball (probably the easiest sell, given Bud Selig’s see-no-debt precedent with this ownership group), and Comcast/Time Warner, the Wilpon partners in SNY. And to sign off, they’ll all want a piece of the money coming in, making the ultimate payoff of the last profit spigot for Sterling that much smaller.
Financially speaking, it’s epic drama. For the Mets to get back on firm financial footing, it’s probably just going to delay things a bit. The higher the ultimate amount of new money the owners squeeze out of this scenario, and that is if they do, the more likely it is to decimate annual profits from SNY to Mets ownership. But if they pull it off, ownership will manage, with few other options, to have grabbed tomorrow’s SNY profits today.
In a sport where salaries appear set to rise exponentially because the other teams around MLB can take profits from local TV deals and put them into new player acquisitions, not financial survival, that’s a bad omen for the Mets, ompetitively. But then, that’s tomorrow’s problem, isn’t it? |
http://mets.lohudblogs.com/2012/10/09/t ... -in-brief/
Sandomir's NYT piece implies, though, that if the Mets do refinance, it will be at an interest rate lower than the current one. Megdal is almost certain that the refinance rate will be higher. |
Megdal's follow-up:
The Mets are building an October tradition, too
By Howard Megdal
10:45 am Oct. 9, 2012
Who says the Mets don't have meaningful Octobers?
While playoff teams struggle simply to raise a flag that will represent success for, at most, one season, the Mets are set to fight a pitched battle for ownership's financial survival, while at the same time, trying to keep the team's most valuable pitcher and everyday player for years to come.
Now those are some high stakes.
The October rush for survival money is becoming a tradition for the Mets, as much a part of the team's fabric these days as the postseason is to the Yankees. In 2010, the Mets addressed it with a loan from Major League Baseball. In 2011, they did so with a Bank of America bridge loan. How they hope to do so in 2012 was laid out by Richard Sandomir in the New York Times on Saturday. He wrote:
"Under one option, SNY, the team’s lucrative cable network, would refinance its existing $450 million loan and borrow still more toward paying off some of the team’s heavy bank debt and toward other possible purposes, like day-to-day operating expenses or the twice-a-year payments on Citi Field’s bonds. The team’s owners, and their SNY partners, could also get cash dividends from the proceeds."
Let's break down exactly what that option would entail.
As it stood in 2012, the New York Mets lost $23 million. Much of that was due to roughly $20 million in interest payment from the approximately $320 million debt against the Mets due back in 2014, and $20 million in interest on a $450 million debt against SNY due back in 2015.
But there were two reasons Fred Wilpon and his partners weren't forced into bankruptcy by the loss.
One: A March infusion of minority owner cash, largely from SNY itself, helped pay down a portion of the team debt, outstanding loans to Major League Baseball and Bank of America, and interest on their large outstanding debts.
Two: SNY earned a profit of $100 million, with Wilpon and his partners owning about 65 percent of SNY. Thus, $65 million in profit. Then, the $43.5 million in stadium debt came out of that chunk of profit, leaving around $21.5 million to go toward the losses of the Mets.
But borrowing more against SNY, if that is ultimately even possible, changes the math. Exactly how much it changes things depends on how much a lender will value the 65 percent interest the Wilpon group have in SNY. If the company is valued at a billion dollars, for instance, that share would presumably be worth $650 million. But not only have the Mets owners already borrowed $450 million against that stake, they also have partners who would stand to be paid off from any dividend raised by additional borrowing, according to Sandomir.
Finding money to pay day-to-day expenses in 2013, and enough money to convince their team debtholder to go along with the deal, and enough money to convince their SNY co-owners to go along with the deal; well, Wilpon and his partners need to make this money go a long way.
The other thing to factor in, if the Mets owners borrow against SNY, is the likely effect it has on the annual payoff from SNY going forward. Banks don't generally give something for nothing; if the Mets borrow even more against SNY, and manage to get that 2015 date pushed back, the lender is almost certainly going to demand a much higher interest rate. More money borrowed, at a higher interest rate, means getting less in profits from SNY in 2013 and the years beyond.
Considering the extent to which SNY's profits helped the owners survive until now, turning off that last Sterling spigot simply to cover day-to-day expenses doesn't seem to add up as a long-term play, unless the Mets can start to make money again.
And about that: 2013 looks pretty grim, given static payroll and the current talent on hand, which just finished 74-88. But the Mets have been making loud noises about retaining David Wright and R.A. Dickey, the two brightest spots in 2012, for the long-term. Both players have options for 2013, and have expressed a desire not to negotiate in-season next year. So the Mets need to either sign them long-term this winter, or risk losing them next winter for nothing, Jose Reyes-style.
Accordingly, a piece appeared in the New York Post the same day the Sandomir piece appeared stating this:
"A baseball source with knowledge of the team’s thinking was more specific yesterday, saying it’s conceivable Wright and Dickey will have new deals in place, at least in principle, by the time the World Series begins later this month."
Sandy Alderson has reportedly yet to reach out to Dickey's agent, and has had preliminary conversations with Wright's agent.
But neither Wright nor Dickey would have much to fear, in terms of getting a bounced paycheck; M.L.B. would step in a guarantee payroll should current ownership falter. Both players have described a winning team as just as important to them as a big payday, however, and the Sandomir story simply reiterates the specifics of what Alderson meant when he said last week that the Mets "will not in the near-future have unlimited funds".
Thus, the knock-on effect: it is up to Alderson to sell the future of the Mets to Wright and Dickey, and signing them would provide some measure of independent validation that someone other than the Wilpons themselves actually believes in the long-term prospects of the Wilpons. Securing them would make the Mets better on the field in 2013, and validate them in a significant way off the field as well.
So they may not be contending for a championship in Flushing next season. But they'll be playing for a lot. |
http://www.capitalnewyork.com/article/s ... dition-too
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