At the end of last year, it looked like the Wilpon family might sell the New York Mets to Steven Cohen for around $2.5 billion. The proposed sale was an unusual one. It did not include SNY, the Mets’ regional sports network, which is owned by the Wilpons; the Wilpons were also set to maintain some degree of control of the team for years after the sale. In what didn’t come as much of a surprise given the deal’s unusual nature, things fell apart and the Mets are once again looking for new owners. Enter Alex Rodriguez and Jennifer Lopez.
As reported by Scott Soshnick in Variety, Rodriguez and Lopez have sought help from JPMorgan Chase to raise funds to purchase the team. The piece notes that A-Rod and J-Lo have a combined net worth of around $700 million, which is obviously well short of what is needed to meet a potential purchase price over $2 billion. While that gap might appear insurmountable, an A-Rod/J-Lo owned Mets team isn’t as far-fetched as it may seem. First, consider that any purchase of this type is going to be financed with a considerable amount of debt. As Tom Ley wrote in his analysis of the Cubs’ previous sale — in the Ricketts’ initial plans to purchase the Cubs, there was talk of financing as much as $750 million of a potential $1.15 billion deal, though in the end, they paid $845 million and financed $450 million — teams are bought with significant amounts of financing:
Ted Lerner purchased the Nationals for $450 million in 2006, and the “Debt Primer Presentation” GSP sent to the Ricketts includes the details of that sale as a case study for how a highly leveraged purchase can work. Lerner took on the maximum amount of debt—$360 million—in order to purchase the team. Jim Crane bought the Houston Astros for $615 million in 2011, reportedly by taking on $300 million in debt; the Dodgers ownership group assumed $412 million in debt when they purchased the team in 2012.
Generally, teams are not allowed to carry debt greater than eight times their earnings before interest, taxes, depreciation, and amortization (EBITDA). That would present a problem for the Mets, but the rules are slightly different for purchases. Under the current CBA, the provision regarding sales essentially indicates the need for a plan subject to approval by the Commissioner:
Sale Transactions. In all transactions involving the sale or transfer of a control interest in a Club, and prior to the approval of any such transaction, the prospective new Club ownership must provide the Commissioner with a Long Term Plan for Debt Service compliance (Long Term Plan). The Long Term Plan shall be supported by specific financial information and shall cover no fewer than two years but no more than five years. The Commissioner will issue written comments on the Long Term Plan prior to the transaction’s approval. In connection with all such transactions, the Commissioner must certify to the Clubs and to the Players Association that the level of debt undertaken in connection with the acquisition or transfer will not create a persistent inability of the Club to comply with the requirements of the Debt Service Rule. As part of that certification, the Commissioner, within 30 days of approval of the transaction, will provide to the Players Association the new Club ownership’s Long Term Plan and the Commissioner’s written comments on the Long Term Plan. Absent material deviations from the Long Term Plan, a Club will be exempt from Section 4 remediation for the duration of the Long Term Plan.
Those plans are how the new owners mentioned above were able to take on so much debt at the time of purchase under prior CBAs. It’s fair to note here that of the clubs mentioned, the Cubs, Astros, and Nationals all ran low payrolls for multiple years following their sales, while the Dodgers have significantly cut spending the last few years. Whether this model is good for the sport is a difficult question to answer.
Are the Dodgers, Cubs, Astros, and Nationals better off competitively and financially since having been sold ? The answer is yes. Does having debt free owners, like the White Sox and Twins do, guarantee more spending? Not really. It all depends on the owner and what they want and what’s important to them. The Wilpon-era Mets have not been known for payroll spending on a level commensurate with being in a big media market like New York in part due to their own debts. It would be fair to assume that a purchase by Rodriguez and Lopez or any other buyers financed by a decent amount of debt would likely result in spending habits in line with the team’s recent history. Financially, the team would be better off with Cohen, but it’s hard to know how that might translate onto the field.
Let’s assume a potential sale figure of $2.4 billion, which is Forbes‘ current valuation of the franchise and slightly less than the amount of the Cohen deal that fell through. We’ll also be very aggressive and cut the cash needed by 60%, putting the money needed at just under $1 billion. We still aren’t even to the net worth of A-Rod and J-Lo as potential buyers, but we don’t even need to get there. Consider the recent purchase of the Marlins by Bruce Sherman. That $1.2 billion sale came with $800 million in cash. Sherman became a 46% controlling owner with under $400 million. With the rest of the group of investors having a 10% or less interest in the team, Sherman partnered with Derek Jeter and his 4% interest to run the franchise. If more than a billion dollars is financed for the Mets, the club would need to be aggressive in both paying down debts and heading towards profitability to make a deal work. It would be incredibly difficult, though not impossible. It’s also why a person with Steven Cohen finances and the ability to pay up more than a billion dollars without significant financing, would make an ideal purchaser. The more help Rodriguez and Lopez can get in terms of cash investors, the stronger their position will be in terms of presenting a plan MLB might approve.
Whether Rodriguez and Lopez can essentially combine the potentially debt-laden Cubs’ deal with the ownership structure in place in Miami is still very much unknown. The New York Post mentioned Ethan Rothbaum as a potential investor, but also indicated he might not be willing to invest without becoming the controlling owner, which might not work for Rodrgiuez and Lopez. But if the pair could put down $400 million or so, with half or more of the franchise purchase done via financing, and they can get a significant number of investors who were willing to own 10% or less of the team, the purchase might be possible, though that’s before we get to the Wilpon’s actual willingness to sell and MLB owners’ willingness to approve the ownership group.
But a couple of big roadblocks Steven Cohen already encountered in his purchase attempt might be instructive here. First, there’s the Wilpon’s willingness (or lack thereof) to actually cede control of the team. Without that framework, it isn’t really clear how a deal gets done. The other drag on a sale is also Wilpon-related and has to do with the family’s ownership of SNY, which they seem unwilling to part with. While estimates vary, the Mets franchise is said to lose money while the network produces massive profits; the New York Post reported the network provided the Wilpon’s with $90 million last year. While we don’t know for sure that the Mets are actually losing money, Forbes reports the club basically broke even in terms of operating income, with depreciation and amortization potentially taking that number into the red. The SNY figures are a little easier to figure out.
The New York Times reported SNY had profits of $150 million last season and generates $20 million per month in subscriber fees from 6.2 million subscribers. Meanwhile SNY (principally owned by the Wilpons), pays the Mets (also owned by the Wilpons) a below-market rate for the television rights, which I have estimated at just over $50 million. Paying the below-market rate shields revenue from baseball’s revenue sharing formula and also allows the Wilpons to take out larger loans on their interest in the network beyond what they would be allowed to do for the Mets due to financing rules in baseball’s Collective Bargaining Agreement. The network is a cash cow for the Wilpons, though the deal runs out in 2030. By keeping the network out of the sale, the Wilpons can maintain a very significant cash flow for another decade while reaping the rewards of selling the team at a high price.
Any buyer purchasing the Mets without SNY needs to be willing to overlook the team’s local television revenue sitting at half (or less) of what it might actually be worth over the next decade. It’s something that Steven Cohen is apparently unwilling to overlook if he were to re-enter the bidding. Trying to sell a team in the middle of a pandemic might not be the easiest task to accomplish. Compare the reports of the Cubs’ sale price, which dropped by more than 25% from a potential $1.15 billion to its actual sale price after the recession hit more than a decade ago. It’s unlikely the Wilpons would sell the Mets if the price were to fall, as they don’t have to sell. It’s not clear that A-Rod and J-Lo would be willing to buy a baseball team the profits for which still mostly accrue to the previous owner, but if they are, the idea of the couple getting enough money together to own the Mets isn’t as far-fetched as it might seem based solely on their net worth.