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Madoff Ruling a Setback for Mets Owners

NEW YORK, NY - AUGUST 06:  New York Mets Chief Executive Officer Fred Wilpon  watches batting practice before a Major League Baseball game against the Atlanta Braves at Citi Field on August 6, 2011 in New York City as Collins and Einhorn share a laugh.  (Photo by Paul Bereswill/Getty Images) Fred Wilpon.

Fred Wilpon and Saul Katz suffered a major setback yesterday in the form of a federal appeals court ruling that could cost them $300 million as part of the lawsuit brought against them by Irving Picard, the trustee for the victims of Bernie Madoff. From the Times:

The United States Court of Appeals for the Second Circuit, in a unanimous ruling by the three-judge panel, said the trustee's central formula for deciding how to recoup and redistribute the money that had moved through Madoff's vast Ponzi scheme was appropriate. The trustee, Irving H. Picard, had decided that investors who had taken more money out of their accounts with Madoff than they had put in had to return their "net winnings."

The ruling was a broad decision that didn't mention Wilpon and Katz by name, but that was the formula that Picard used to determine that Wilpon and Katz were "net winners" and arrive at a dollar figure of $300 million. (In theory, Wilpon and Katz could appeal the ruling to the Supreme Court, or they could argue that the figure should be lower, since they also had accounts that wound up as "net losers.") As Hardball Talk noted earlier today, this is a separate issue from whether Wilpon and Katz should have known about Madoff's Ponzi scheme. Picard claims that they should have, and is also seeking some $700 million dollars as a result — an issue that will be taken up at another hearing on Friday.

Yesterday's ruling, of course, is a blow to the Wilpons. But every financial setback to the Wilpons puts David Einhorn in better position to one day own the controlling stake in the Mets. Recall that, according to the most recent report on the terms of Einhorn's deal to buy a piece of the franchise, the Wilpons have up to five years to pay him back his $200 million investment. If they don't, he gets a majority stake for a token sum. And also recall that the Wilpons have to pay back a $500 million loan from JPMorgan Chase by June 2014 — before they have return Einhorn's money. Yesterday's ruling might not have been a death blow for the Wilpons, if their goal is to retain the majority ownership in the club. But, according to the Times, "even settling a portion of the claim may require the owners to sell off additional assets — from their real estate or hedge fund or cable television businesses."

And to think, the ruling came down on a day on which the Mets made headlines for aggressively spending money to sign their draft picks — a departure from how the team operated in recent years, and a promising strategy for a franchise that has (understandably) been pinching pennies thus far during the Sandy Alderson era. They signed nineteen of their top twenty 2011 draft picks by the Monday night deadline, and they went above slot to sign many of them, meaning they gave out signing bonuses in excess of the league's recommendations for a player selected with a certain pick in the draft. For example, they signed their top-pick, outfielder Brandon Nimmo, for $2.1 million. The figure recommended by the league for the  thirteenth overall pick, where Nimmo was selected? $1.656 million.

Alderson and his front office understand the importance of building for the future. But the Wilpons must be wondering these days how much of that future they'll be around for.

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Photo: Paul Bereswill/Getty Images