Next month, a jury will hear a lawsuit against Mets owners Fred Wilpon and Saul Katz that seeks to recover as much as $1 billion for the victims of Bernie Madoff's financial scam. In advance of the trial, legal filings and depositions paint a picture of a New York Mets ownership that for nearly a decade was in thrall to Madoff profits, and almost every team decision (including signing Bobby Bonilla through 2035) was made with the expectation that Madoff's free money would forever be rolling in.
After 15 years of at least 10 percent returns on their investments with Madoff, Wilpon and Katz felt they were playing with house money. A "vig," Saul Katz's son David called it, borrowing the gambling term for the fee collected by a bookie on every transaction. Irving Picard, the trustee suing Wilpon and Katz on behalf of Madoff's victims, alleges that the owners were so dependent on their ill-gotten gains from Madoff, that they spent recklessly and should have been in the red.
"In at least 2002, the Mets would not have made a profit but for the Madoff income," Picard said, adding that in multiple seasons, the Mets would not have been able to make payroll without Madoff's returns. "They were so expectant of those steady, 10 to 14 percent returns that they began to budget them into their business plans."
That manifested itself in almost every revenue stream being invested with Madoff, including ticket sales and revenues. But it went further. Sterling Equities, the Katz family company, would take out private loans and immediately invest that money with Madoff. David Katz described the mindset as "You borrow money at 5 percent and you'd make 10 percent."
The Mets chose not to pay their premiums on insurance for injured players, instead putting that money into a Madoff account, and pay players directly from the returns.
And then there's the famous Bobby Bonilla contract. Instead of paying him the $5.9 million owed on the last year of his deal, the Mets bought Bonilla out—and agreed to pay him $1.2 million annually from 2011 to 2035. It's not the only deferred contract the Mets handed out, and now we know why: they were investing that long-term money with Madoff. Wilpon and Katz figured the Madoff money would cover the contracts and make them a tidy profit.
"If you're paying somebody 8 percent of interest and you're able to earn 10, you're going to make 2 percent on the money every year," said Mets controller Len Labita.
What the Mets had going wasn't just an ownership group trying to increase its profits. It was a team wholly dependent on the unrealistic returns offered by Bernie Madoff. Fred Wilpon alone had 17 accounts open with Madoff at the time of his arrest. This was full-blown addiction: the Mets of the last decade could not have function without Madoff's money. And now that Wilpon and Katz have been forced to go cold turkey, it's hard to see how they're going to survive.
Trustee Says Mets Saw Madoff as House Money [New York Times]