The finances of major professional sports teams exist largely as the secrets of privately held companies, except for the community-owned Green Bay Packers, who report their profits without a hint of resistance.
But elements of the Mets’ finances have emerged publicly in the last year that show fans and potential investors how unprofitable the Mets are and also how deeply in debt the operation is.
Sports teams do not always make money, and debt is a legitimate way to fuel their growth, as it is in real estate, where Fred Wilpon and Saul Katz, the Mets’ owners, made their money and reputations.
But the Mets worry Major League Baseball enough to be seen as a troubled franchise on a short tether. Their $430 million loan on the team is due in 2014. Their $25 million loan from M.L.B. is past due and repayment has been extended. They recently borrowed $40 million from Bank of America.
Their valuable network, SNY, is also heavily leveraged, to the tune of $450 million, a loan that must be repaid in 2015. And the Mets’ Citi Field bond payments leapt from $19 million last year to $43.7 million.
That is a lot of borrowing for a team that lost $70 million last season and had faltering attendance.
The team’s financial state is serious enough for Wilpon and Katz to be courting minority investors — a hunt for a cash crutch that is nearly a year in the making — to raise $200 million.
All this is happening without the financial grease that once made the Mets’ finances so much easier: profits from Wilpon and Katz’s decades of investing with Bernard L. Madoff. They lost $550 million when Madoff’s Ponzi scheme unraveled three years ago; they face a possible trial next year over claims by the trustee for his victims that they turned a blind eye to signs that Madoff was up to no good, which they deny.
“It seems inconceivable they’re going to hold onto the team for the long term when you look at the incredible hurdles they face in 2014 and 2015,” said Howard Megdal, author of an e-book, “Wilpon’s Folly,” in which he details the financial pressures on the team.
Mets officials declined to speak about the team’s debt or to discuss Megdal. They issued a statement that said, “We do not publicly address specific issues pertaining to our finances including inaccurate, speculative and ongoing fabrications.”
Sports business experts say that the five-year term of the loans on the team and SNY is standard and that the team could refinance and extend them when they are due. But the Mets’ actions — adding debt and seeking investors to buy 10 shares in the Mets for $20 million each — raises questions about whether they can generate enough cash to make all their payments, especially if the team does not rebound on the field.
Robert Leib, a financial consultant to sports teams who has examined numerous balance sheets, said that debt was not necessarily a problem, even if it is to finance operating losses, as long as the value of the team is increasing. At least, then, banks and owners know that loans will be repaid through the sale of the team.
But Leib, who has not seen the Mets’ books, said, “If what you’re doing is taking down debt to handle operating losses with the knowledge that you’re inadequately capitalized from the get-go, then it’s toxic.”
Baseball expects teams to use debt — Commissioner Bud Selig approves all loans — but sometimes, they pile up more than they can bear. M.L.B. also sets limits on borrowings, called the debt service rule, and nine teams were out of compliance with it this year, according to The Los Angeles Times.
Chuck Greenberg, who led a group with Nolan Ryan to buy the Texas Rangers last year, said the debt rules were “fairly stringent,” but there were “creative ways to exploit” them by spinning off entities from the franchise, like ticket or real estate arms, “that are not subject to the debt limits on the team itself.”
For the Mets, a team with a new ballpark, debt should be no more than 12 times its cash flow, according to a formula in the new labor agreement. But with the Mets’ financial records private, there is no way to know for certain if they are breaking the debt rule.
But teams can face breaking points. Too much debt pushed the Rangers into bankruptcy last year. Too little cash sent the debt-ridden Los Angeles Dodgers into bankruptcy last June.
“If all three of your core assets — team, media and stadium — are encumbered with bank debt or bond obligations, it limits your agility and makes problem solving more of a challenge,” Greenberg said.
Despite setting a ceiling on debt, M.L.B. can be selective in how it enforces the rule. Selig found it easy to push Tom Hicks to sell the Rangers because he had defaulted on $525 million in loans to the Rangers and the Dallas Stars. Selig engaged in a long-running battle with the Dodgers’ owner, Frank McCourt, who had engaged in financial and personal conduct Selig judged to be detrimental to the team and to baseball, and cajoled him into agreeing to sell the important franchise.
But he has indulged Wilpon, a friend and ally for 30 years. Unlike McCourt, Wilpon has tried to find minority partners to resolve his continuing cash crunch. So Selig has not installed a monitor to oversee the Mets as he did with McCourt. Selig has in the last few months witnessed the collapse of a deal to sell one-third of the Mets to the hedge-fund wizard David Einhorn, the failure of the Mets to repay baseball’s $25 million loan on time, and the slow pace of the sale of the 10 minority shares.
Selig may never tell Wilpon he has to sell. But Selig could be waiting for banks to grow so concerned that they demand that Wilpon sell the team he has owned, outright since 2002, to recover all they are owed.
“Bud would leave the dirty work to the banks,” said one banker who spoke on the condition of anonymity. “It would be easy for him to ask Fred’s bankers, ‘How’s that loan going?’ ”
What seems hard to understand is where the Mets’ owners will get the money to keep up with their debt payments, finance their losses and pay the Madoff trustee a substantial sum through a settlement or a jury verdict. Next season, with lower ticket prices and the prospect of attendance falling further, revenue may tumble again. And the availability of a free luxury suite to all 10 potential minority owners suggests the team cannot sell premium seating at perhaps $200,000 each.
One source of financing — barring additional bank borrowing — is coming from within Sterling Equities, the parent company of the Mets. Recently, $40 million became available to buy two more of the minority shares. All of it went to offset losses, said two people familiar with the team’s finances.