Tom Brennan: Competitive Tax Thoughts; GREAT SCOTT! And More…

 

LUXURY DOESN'T COME CHEAP

 

Prior to Steve Cohen, the Mets were owned by Real Estate magnates named the Wilpons. Maybe you heard of them.

Unlike Mr. Cohen, who is a multi billionaire, the Wilpons needed strong ongoing cash flow to fund not only the baseball team, but also their real estate projects.

Having to pay a baseball competitive balance tax in any given season meant less money being available for real estate projects. Compounding that was the fact that the Wilpons invested quite a bit of money with Jerry Madoff, hold off one of the largest frauds in the nation‘s history until, perhaps the current Somalian fraud. 

My cousin Kevin Bell, whom I haven’t spoken to in a number of years, was an attorney for SIPC and he and his team were instrumental in massive recoveries related this fraud far beyond early estimates. 

A recent SIPC directive noted that cumulative recoveries to aggrieved former investors total $14.67 billion, with still more to come. It probably allowed the Wilpons to hold onto their team as long as they did, assuming they did in fact receive distributions.   

Joe Nocera in Investor Perspectives (in conjunction with Bloomberg) wrote the following in 2020:

“The revelation that Madoff had been running a decades-long fraud was a disaster for Messrs. Wilpon and Katz. The $500 million was gone, of course. 

“And in 2011, the trustee, Irving Picard, sued the two men, demanding that they turn over $1 billion — $300 million in so-called fictitious profits and $700 million in principal, an amount the trustee said they had pulled out of Madoff’s firm since 2002. 

“The trustee argued that the two men either knew that Madoff was a crook or should have known, given all the red flags. After a long, public — and, for the two men, humiliating — battle, Wilpon and Katz settled with the trustee in March 2012, agreeing to pay $162 million.

“Wilpon insisted that the money lost to Madoff’s Ponzi scheme wouldn’t have any effect on the Mets. But that wasn’t remotely true. The Mets had enormous debts: It had to pay NYC millions of dollars in interest on the bonds that had been sold to build its new ballpark, Citi Field. The team itself regularly lost $50 million to $75 million a year, according to someone who has seen its books. Wilpon owned the SportsNet New York (SNY) regional sports network, which was profitable but also carried a hefty debt load.

“To stay afloat, the Mets took an emergency $25 million loan from MLB in 2010. The following year, the team borrowed $40 million from Bank of America. To repay those loans, and to generate some cash, Wilpon sold 4% stakes to 12 limited partners in 2012 for $20 million each. Even so, the team and the TV network still carried a combined debt load of some $500 million, according to the Wall Street Journal.

“Did the team’s troubled finances affect its performance on the field? Of course they did. 

“In 2008, the year the Madoff fraud was exposed, the Mets had the second-highest payroll in baseball. By 2013, the Mets payroll ranked 23rd and was less than a third of their crosstown rivals, the Yankees. (By 2020, the Mets payroll had climbed back to fifth place.) Time and again, the team failed to bid for prominent — and expensive — free agents.

“The Mets had one terrific season, 2015, when they lost in the World Series. But overall, the team had a miserable decade. Since 2009 through 2020, the Mets have had only three winning seasons and two post-season appearances. In the pandemic-shortened 2020 season, the Mets came in last place in their division.

“Today, the Mets’s finances are as precarious as they have ever been. The team is likely to lose $200 million — yes, $200 million — on the 2020 season. It has dipped heavily into a $250 million revolving loan from JPMorgan Chase. And the team owes $45 million in Citi Field bond payments.

“You would think that when a seller of an asset is in such dire straits, potential buyers would try to pick it up on the cheap. But that’s not happening. Cohen’s winning bid is reported to be an astonishing $2.45 billion — which, if Major League Baseball approves the sale, would be the largest amount ever paid for a sports franchise in the U.S. And that doesn’t include SNY, which Wilpon has kept out of the sale.

“So let’s recap: A man who should have known better stupidly uses a Ponzi schemer as his banker. When the Ponzi schemer gets caught, the man’s businesses, including his baseball team, lose gobs of money. In most subsequent seasons, he mostly fails to field a competitive team. The team loses money year after year. Debt piles up. Yet this team that was worth $400 million when he took control 18 years earlier is going to be sold for $2.45 billion.

“Is there any other business on earth where an owner can be as incompetent as Wilpon and come away richer than ever? As a plaything for the 1%, nothing compares to a sports franchise — and when a franchise becomes available, price becomes no object.  

Anyway, let me briefly get back to the CBT. I had long thought that the Mets had paid no luxury tax ever under the Wilpon era. 

I was slightly wrong..I saw this in Wikipedia:

“The 1994 MLB season was cut short due to the Major League Baseball strike. A primary source of conflict leading up to the strike was the tremendous power club owners had over the salaries of players on their respective teams. Small market teams felt handcuffed by their relatively anemic budgets while players from larger market teams were unwilling to accept the substantial pay cuts that a salary cap would likely have imposed. This resulted in a compromise in the 1996 collective bargaining agreement, which imposed MLB’s first luxury tax.

“The first agreement stated that the top five salary teams in each year would pay a 34% fine on each dollar a team spent beyond halfway between the salaries of the fifth and sixth teams. For example, if the fifth-highest salary team had a payroll of $100 million and the sixth-highest salary team had a payroll of $98 million, the top five teams would pay 34% on each dollar they spent over $99 million.”

This calculation hit the Wilpon-led Mets for a modest 1999 CBT totaling $1.138 million. 

Over the remaining 20+ years that the Wilpons or man owners of the team, they paid not a nickel in CBT, as the tax calculation formula changed and was easier to avoid by simply not spending too much on salaries.

Mr. Cohen, the subsequent main franchise owner, has been levied     SO MUCH CBT. In 2022-2025, the CBT totaled a whopping $320 million:

New York Mets

$30,773,938

$100,781,932

$97,115,609

$91,637,501

So there you have it. Lot of CBT money, wouldn’t you say?  

Nearly 300 times as much CBT as the Wilpons ever incurred.

Well, that is likely ALMOST true since Wilpons’ Sterling Equities entity still owns 5% of the team. At 5% of $320 million, their share would be $16 million.

GREAT SCOTT!!

That would have been Perry White’s reaction if he saw Christian Scott pitch against the Israeli squad on Wednesday.

You remember George Reeves’ buddy Perry White, don’t you, from Superman?

Well, Scott on Wednesday? He was SUPER, MAN!

Two reasons:

1) 80% (40) of his pitches were for strikes, as he fanned 5 in 2.2 IP.

2) Scott threw 50 (count ‘em, 50) pitches. Durable?  Uhh, ya!!!!!

Great news about the prospects of our post-TJS Great Scott.

THE CRUSHER

I SAW THIS IN THE NY POST ON SATURDAY - AND SMILED:

 “Luis Robert Jr. homered in a minor league game on a back field in Port St. Lucie. Carlos Mendoza said Robert “continues to crush pitching” and will play center in minor league games every other day through Wednesday’s off day as he slowly preps for the regular season after being plagued by lower-body injuries with the White Sox.”

I DO LOOK FORWARD TO THE SLOWLY PREPPING CRUSHER BECOMING A DAILY CRUSHER. MAYBE HE CAN CRUSH 40 FOR US THIS YEAR.

“I SAY, HOLMES, OLD CHAP”

Clay Holmes dazzled against not-so-great Britain, hurling 3 scoreless frames and fanning 6.