The Rise of the Wilpon Baseball Empire

The Rise and Rise of the Wilpon Baseball Empire

Over the last 30 years, Fred Wilpon has gone from regular fan, to minority owner, to half owner, to complete owner of the New York Mets.  And it’s going to take more than a run in with Bernard Madoff to unseat him.

In the wake of the Mets involvement in the Bernie Madoff mess, it is poignant to stop and realize how many dramatic and drastic things have happened to the franchise in such a short period of time. One day, it’s a billion dollar lawsuit; the next, the majority of the lawsuit is thrown out by a judge. One week they are entering into a tentative agreement with hedge-fund millionaire David Einhorn to purchase a stake in the team; the next,that deal is no longer on the table.

Most recently, Einhorn had some very interesting comments for the media on his deal falling through. In a statement, Einhorn accused the Mets owners of changing the terms of the deal at the last second, saying that the “extensive nature of changes that were proposed to me at the last minute has made a successful transaction impossible. A week ago I thought this deal was in great shape and would be done very soon.” (link)

It goes without saying that those are some pretty serious allegations from Einhorn. Were his comments the sour grapes from a spurned partner?  Or is there more to the Wilpons, and their negotiating strategies, than meets the eye?

Fred Wilpon is extremely well-regarded, both personally and professionally. His acumen in baseball or in real estate have never been questioned, and his company, Sterling Equities, is considered a star in the industry (excellent business-side writeup here). As the New Yorker explained in its brilliant article on Wilpon and Madoff earlier this year:

“But Fred is in the very next group, with the Rudins, the Resnicks, and the Zuckers.” Wilpon’s reputation transcends the extent of his holdings. “Everybody likes Fred, there is tremendous respect for Fred, people listen to what he has to say, and I don’t know of anybody who has ever had an open fight with him,” Spinola said. “They’d all like to beat each other out, but I have never heard a negative thing said about Fred Wilpon.” William Rudin, the chief executive of Rudin Management, said, “Fred’s reputation in the real-estate community is top tier. He couldn’t be more of a gentleman.” (New Yorker)

Be that as it may, I decided to take a look at the Wilpons involvement with the Mets and learned how they came to power within the organization. The following is some of what I’ve learned, from public sources, about some of the more important occurrences in the history of our franchise. One thing that is clear is that Fred Wilpon’s ascent to power has been a consistent and inexorable march.

In fact, the recent saga with David Einhorn is not even close to being the most interesting ownership saga surrounding the Mets in the last decade.

THE DOUBLEDAY-WILPON SEPARATION

Before blogs were a ubiquitous part of the way we get our sports news – exponentially amplifying the hype and noise and speed with which we get information – the Mets went through a very dramatic ownership battle.  In August of 2002, Doubleday sold his share of the Mets to Wilpon and ended a bitter, fifteen year relationship as co-owners.  The day the agreement was made public, the Times reported:

Nelson Doubleday and Fred Wilpon ended their public feud over how much the Mets were worth yesterday and agreed to a deal in which Wilpon would purchase Doubleday’s half share in the team… The legal dispute between the two men erupted last month when Wilpon filed suit in United States District Court in Islip, N.Y., to force Doubleday to accept the payment terms set out in a $391 million valuation of the Mets. The lawsuit exposed the distrust and acrimony that had simmered between them for years.

In the article, Doubleday is referred to as a “blustery scion of publishing wealth” who claimed that Wilpon was “in cahoots” with Major League Baseball, while Wilpon was described as the “quieter, self-made real estate developer.” So long as the New York Times was concerned, there appeared to be a winner in the court of public opinion. But what really happened there?

THE HISTORY BETWEEN THE TWO MEN

Nelson Doubleday was, at one time, the majority owner of the New York Mets.  In 1980, Doubleday & Co. purchased the Mets from owner Joan Payson. In that purchase, a man named Fred Wilpon was allowed to join as a minority partner owning five-percent (check out the fantastic picture of young Wilpon here.) This dynamic changed drastically, however, in 1986, when Doubleday sold Doubleday & Co., the entity which officially owned the Mets, but wanted to keep personal ownership of the team.  When this happened, Fred Wilpon took full advantage.  The New York Observer, in an article published in 2000, describes how Wilpon made his move:

“At the time, Mr. Doubleday was selling the publishing company that owned the Mets to the German firm Bertelsmann A.G. But Mr. Wilpon had a right of first refusal in the event of any sale of the team, and his lawyers made it clear he was ready to exercise it. In a settlement, the two men agreed to become equal partners, paying Bertelsmann $81 million for the team. It has been said that Mr. Doubleday never forgave Mr. Wilpon.”

According to the Times, Doubleday was actually entirely “unaware of that clause in the contract” allowing Wilpon to make that power-play, and “resented” Wilpon’s status as an equal ever since. According to these reports, Wilpon took advantage of Doubleday’s trust and pounced on this opportunity to force him to sell the team even though Doubleday intended to keep it. A clerical change in ownership proved disastrous for Doubleday, and ultimately, fatal. The Observer explained in 2000:

About the only thing the Mets co-owners share these days, it seems, is their barely concealed distaste for one another. Since they became equal partners in 1986-in a hostile takeover of sorts by Mr. Wilpon-the two men have been engaged in an on-again, off-again struggle for power over the team, dividing the front office into warring camps and fighting proxy battles over hirings, firings and trades.

By the time that late 2001 rolled around, sources say that Wilpon scuttled a deal whereby Doubleday and Wilpon would have sold 80% of the team to Cablevision in a deal valuing the Mets at $500 million. Wilpon, of course, wanted to retain control of the team. [2].  Instead, Wilpon and Doubleday negotiated with one another so that Doubleday could sell.

When the possible sale of the team to Cablevision was being negotiated two years ago, the price was said to be $400 million for 80 percent ownership, with Wilpon and Doubleday each retaining a 10 percent share. Two months ago, Forbes magazine valued the Mets at $454 million. The potential deal with Cablevision fell through because Wilpon decided he wanted to retain control of the club and eventually turn it over to his son, Jeff.  Times, June 22, 2001

With no resolution in sight, Doubleday chose to invoke a clause in his contract requiring Fred Wilpon to buy out Doubleday’s half of the team [3].  The price for said buyout would be determined not by the Cablevision offer, or the Forbes valuation, or by the market, but by a neutral arbitrator — and that, as they say, is where the plot thickens.

THE APPRAISAL, THE LAWSUITS, AND THE FINGERPRINTS

The arbitrator appointed to decide the value of the Mets franchise was a man named Robert Starkey. Mr. Starkey’s valuation did not please Doubleday:

Doubleday initiated the process that sent the sale to an appraiser, but when that appraiser, Bob Starkey, came back with his supposedly binding decision that the club was worth $391 million, Doubleday was furious. Last month he threatened to sue, suggesting that Major League Baseball and Wilpon had conspired to deflate the value of the club.  (Daily News, July 25, 2002)

Starkey’s “independent” appraisal came in over $100 million less than the valuation actually offered by Cablevision. When Doubleday balked at the price, Fred Wilpon sued him to compel him sell his share of the team in accordance with the terms of the contract. The New York Times reported:

”Now that the appraisal has been performed, Doubleday, unhappy with the result, seeks to renege on his contractual obligation,” Wilpon’s seven-page complaint contends, ”and has indicated his intention not to abide by the appraisal and not to transfer his interest in the team.” (NY Times, July 12, 2002)

Doubleday counter-sued, challenging the independence of the appraiser and calling the entire process a “sham.”

As an observer reading this in 2011, there should be no surprise that Bud Selig’s was an important figure in this deal. Today, Fred Wilpon has been called “Selig’s closest friend among the baseball owners,” no surprise to anyone who has followed the Mets over the last few years (Daily News, Feb. 5, 2011).  But back in 2002, a potential conflict was not quite so apparent.

Doubleday contended that Starkey, who was recommended by Commissioner Bud Selig, was not so independent. With that in mind, the Times continues:

Doubleday contends that the appraisal by Starkey, who is under contract to Major League Baseball and has done work for the Minnesota Twins and the Milwaukee Brewers, deflated the Mets’ value with faulty methodology.  He has indicated to others that Starkey’s independence was suspect because of his ties to Commissioner Bud Selig, the former owner of the Brewers. It was Selig who recommended Starkey for the job.

The New York Post, of all news organizations, may have connected all the dots for us back on August 7, 2002, when they took a look at what the Wilpon v. Doubleday suit could do to Bud Selig and to baseball, which was currently in the midst of a labor dispute.  In their abstract [5] they explain:

If the court rules in favor of Doubleday, [Bud Selig]’s credibility will be shot from coast to coast… Many in baseball shook their heads in disbelief that Doubleday agreed to [MLB mediator Richard] Starkey, knowing his relationship with Selig and knowing that in the year of labor strife, Doubleday was playing with fire…

Not only would a low valuation for the Mets help Wilpon defeat Doubleday, it would also help Bud Selig and all of the MLB owners. The lower the value of franchises, as established by an “independent” accountant, the more leverage that the Commissioner’s Office would have in suppressing player salaries.

THE VALUE OF THE NEW YORK METS FRANCHISE

Doubleday was right about the Mets’ valuation being too low. The definitive source for franchise valuations in the last twenty years has been the yearly list published by Forbes Magazine. Each year, Forbes releases a list of Franchise Values, a comprehensive measure which looks at factors such as location, fan loyalty, and capital investments (e.g. stadiums).

The value of the Mets franchise, even excluding the enormously valuable TV network SNY, was a whopping $912 million on the Forbes Magagine list back in 2009.  But what does this have to do with Nelson Doubleday? At first glance, the $391 million valuation that Starkey arrived at for the Mets may not have appeared to have been enormously out of line.    Compared to other baseball franchise sales in the early 2000’s, the Mets valuation seemed plausible.

  • 2002: Mets $391 million
  • 2002: Red Sox $700 million (*included 80% stake in NESN)
  • 2002: Marlins $158 million
  • 2002: Expos $120 million (purchased by Major League Baseball)

(source, UPenn Wharton Research)

However, even back in 2002, the Mets were valued by Forbes at a healthy $482 million, about a hundred million dollars more than the figure suggested by Starkey.  It is also almost identical to the the figure suggested by Doubleday and allegedly offered by Cablevision to purchase the team. Skewing those numbers even further is that the late 90’s were a strange time for these kinds of franchise valuations.  In fact, a look at the top five franchises that year, the New York Yankees, Cleveland Indians, Atlanta Braves, Baltimore Orioles, and Colorado Rockies — indicates that there was a healthy hysteria about revenue sharing.  If the value Forbes came up with for the Mets was wrong, the odds are that it was too low in light of these concerns.

Wilpon, of course, strongly supported Starkey’s low valuation at the time. But, surprise, surprise — his view of the value of the franchise today is much more bullish.  In the now-infamous article written by Jeffrey Toobin for the New Yorker (the one in which he said Wright was “not a superstar,” among other things), Wilpon had the following to say about the value of his franchise:

Today, as Wilpon negotiates with possible investors, he says it’s clear that the team is worth more than a billion dollars. “There’s one National League franchise in New York,” he said. “Fifty years from now, there’s going to be one National League franchise in New York. That’s a very valuable thing.”  New Yorker, May 30, 2011

One person who would certainly agree that the Mets are healthy and valuable would be Fred Wilpon’s close friend Bud Selig.  But it doesn’t require too thorough of an examination to appreciate how drastically both men’s characterizations as to the financial health of the franchise has changed over the last decade, even in the face of a nation-wide recession

LABOR STRIFE AFFECTED THE SALE OF THE METS

As mentioned above, back in 2001 when Wilpon and Doubleday were in the midst of their ownership battle, there were some questions about the financial strength of the league. It was Selig’s contention at that time – as baseball’s labor agreement was expiring —  that baseball was broke.  Flat broke.  You may recall that in the winter of 2001, baseball owners voted in favor of contracting two teams from the league.  Selig’s words were even more dire:

Commissioner Bud Selig recently told the Los Angeles Times that without major changes in Major League Baseball’s economic structure, “I would say six to eight [teams] can’t exist another year, another year and a half. We’re talking about the immediate future. There’s a lot of clubs that simply can’t survive the status quo.”  (Source: ESPN)

This statement appeared absurd in 2002.  It is even more absurd today. But not everyone agreed with Selig’s assessment of the league.  Doug Pappas, the chairman of SABR’s Business of Baseball Committee [6] and writer for Baseball Prospectus had this to say in an article published in December of 2001:

According to the commissioner, MLB somehow managed to lose $519 million in 2001 despite record revenues of more than $3.5 billion. This claim was met with derision by virtually all independent observers. They note that franchise values have not fallen, and that even the owners of “failing” teams like the Expos and Marlins won’t sell out unless they can remain in baseball with some other team.

Pappas continues, in April of 2002, in outlining the inexplicable gap between Selig’s valuations and the ones developed by Forbes.

Add Forbes to the ever-growing list of those who don’t believe MLB’s cries of poverty… While MLB claims operating losses of $232 million in 2001, Forbes estimates that the 30 teams turned a collective profit of $76.7 million… This bears repeating: an independent expert analyst, with no stake in the results of its analysis, concluded that MLB’s 2001 operating profits were $300 million higher than reported by Commissioner Selig, and that MLB’s franchises are worth a collective $1.5 billion more than suggested by the Commissioner’s valuation formula.  (Baseball Prospectus, April 3, 2002)

I definitely recommend that you click through and read the archive that Baseball Prospectus’s made public on the topic.  But the point made by Pappas, Forbes, Congress and others at the time is crystal clear – baseball was MUCH healthier than Selig and the rest of the Commissioner’s Office was letting on.

Perhaps Nelson Doubleday’s claims that baseball conspired with Starkey to “manufacture phantom operating losses” and that the Commissioner’s office was “in cahoots” with Wilpon were not so far off after all.

THE HEALTH OF MLB TODAY

If you’re not convinced by the above independent appraisals, how about Fred Wilpon’s position that the Mets are a BILLION dollar franchise today?  And don’t just take my word or Fred Wilpon’s word for it – but how about Bud Selig, the same man who tried to convince the world that baseball was bankrupt? Selig recently stated “the game has never been more popular.  There isn’t any doubt about that, any criteria you want to use, it’s more popular than ever.  But it’s impact is great than it’s ever been and there is no question about that.”  [New York Post, October 29, 2011]

Forbes agreed. In the preface to their most recent list of Most Valuable Teams, they wrote:

Baseball has emerged from the recession with a big bang.  The average MLB franchise is now worth $523 million, an all-time high and 7% more than last year. All of the league’s teams rose in value except for three… Strong attendance and local television ratings boosted the values for [many] teams … [while] 73 million fans showed up at the ballpark last summer, which was the sixth highest total of all-time and down just 0.4% from [the year before].

So long as Bud Selig is commissioner of baseball, it is appears that the Wilpon family will remain in full control of the Mets for as long as they like.  Selig is no stranger to bending the rules, benefiting his friends, or doing anything within his power to rid baseball of his enemies.

Selig’s leniency with the Mets stands in stark contrast to the hard-like he took with Frank McCourt and the Dodgers, to whom Selig would not even approve a new television deal which may have saved the Dodgers from bankruptcy.  The Wall Street Journal opined that Selig “pulled nearly every lever within his power to force” McCourt to sell the organization. The Dodgers filed for Chapter 11 protection on June 27, and Frank McCourt agreed in late October to sell the team at auction.  In an article called “Selig Bends Rules to Fit”, Marc Ganis puts it in a nutshell for us: “MLB gave so much power to Selig that some perceive a system with a lot of subjectivity and playing favorites.” (Bloomberg)

As far as our Mets go, the Wilpons must be confident, as the recent news out of Mets camp is that they are seeking a new kind of minority investor.  The Mets have been seeking multiple, smaller, minority investors to purchase chunks of $20 to $30 million to try and replace the $200 million investment that they shunned from Einhorn.  However, the investment comes with significant strings attached, as there is “no path to ownership.” (Hardball Talk at NBC).

THE FUTURE OF METS’ OWNERSHIP

Ultimately, the story of the Wilpon ascent to power as owners of the New York Mets franchise is a dramatic one, with one big loser: Nelson Doubleday.

The Doubleday-Mets story may turn out to be one of the greatest tragedies never told. Doubleday was forced to make Wilpon a 50/50 partner when Wilpon threatened a lawsuit over a clerical transfer in ownership. Doubleday was forced to leave the organization when Wilpon threatened (and brought) a lawsuit over a sham valuation of the team by his best friend’s “independent” arbitrator.

Doubleday was a great owner who loved baseball and loved the Mets. It was Doubleday who hired GM Frank Cashen, who led the Mets to their 1986 World Series title. It was Doubleday who insisted that GM Steve Phillips acquire future Hall of Famer Mike Piazza (New York Times, May 31, 1998). In the decade since Doubleday sold the team, the Mets have had the same number of playoff appearances, sexual discrimination lawsuits against Jeff Wilpon, and Ponzi schemes: one each.

If you are interested in some additional reading, it is alleged that the Madoff-Wilpon relationship extended beyond simply the returns on their investments.  According to an interesting article by the New York Times in March of this year (NY Times) it is alleged in the Madoff lawsuit that Madoff may have actually loaned the Wilpons the money they needed when making large capital investments in the early 2000’s. If not for help from Madoff, the Wilpons might never have had enough money to even try to purchase Doubleday’s half.

Not everyone is optimistic about the Wilpons’ fortunes moving forward.  One of my favorite Mets writers, Howard Megdal, outlines some of the hard realities:

[The Mets] still owe $430 million against the team, with the principal of that loan due in June 2014, and another $450 million against SNY, with the principal of that loan due in June 2015 [in addition to the Madoff lawsuit] . . . [further], the Mets have a revenue-sharing payment due to Major League Baseball by the end of November of between $15-20 million, and owe around $26 million in their twice-annual debt payments on Citi Field to the city of New York on December 15. (Capital New York, November 2011).

However, despite all of the above troubles, I wouldn’t bet on the Wilpons ceding control of the franchise any time soon.  They were smart enough to gain control of the Mets in the first place, they have a very good friend in the highest of places, and they are confident about their financial situation.  With Fred’s long stated goal being turning over the team to his son, Jeff, I expect that we will not be seeing any wholesale changes for a long time.

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Brian Mangan is an attorney who lives in New York.  He is a lifelong Mets fan and a former (and hopefully future) Mets season ticket holder.

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[1]  It’s worth noting that Einhorn, though spurned by the Mets, still has baseball on his mind.  Courtesy of the The Wall Street Journal:

“Baseball was clearly still on Mr. Einhorn’s mind on Monday, when he joked that he missed watching one of his favorite teams, the Milwaukee Brewers, take on the St. Louis Cardinals for the National League Championship to work on his presentation on “the other kind of brewers,” Green Mountain.  “The bulls believe the Green Mountain growth story is still in the early innings,” he said, noting investors’ confidence in the company’s surging revenues.”

[2]  Last year, Mr. Doubleday was ready to sell 80 percent of the team to Cablevision for $400 million-a deal that could have shielded his children, who are uninvolved in the Mets’ affairs, from huge estate taxes. But Mr. Wilpon scuttled the deal, out of a concern that, as a minority partner once again, there would be no assurance that he would still run the team.  (New York Observer, October 30, 2000)

[3] Source:  Daily News

[4]  Two of the people who talked about Wilpon’s pending purchase said Wilpon was expected to pay Doubleday about $200 million and would give him an additional $25 million if the Mets moved into a new stadium. Times, June 22, 2001

[5] Full access to the article is not available for free.  Link.

[6] Tragically, Mr. Pappas passed away in 2004 at the age of 42.

[7]  Another of Selig’s contentions is that baseball, aside from being broke, was a broken system because

“During the past decade, Baseball has experienced a terribly disturbing trend. To put it simply, an increasing number of our Clubs have become unable to successfully compete for their respective Division Championships — thereby making post-season appearances — let alone post-season success — an impossibility.”  In November 2000, Commissioner Bud Selig solemnly advised Congress, “At the start of spring training, there no longer exists hope and faith for the fans of more than half of our 30 clubs.”

(Congressional testimony, 11/21/00)  Unfortunately, that fact is no less true today than when he first stated it. (Chart here)

[8]  There is one entity, aside from MLB itself, over whom no controvery exists as to whether they are succeeding or failing:  Bud Selig.  I did not know this until I looked up the numbers over at Cot’s Contracts, but over the last twenty years that he has been Commissioner, Bud Selig has seen his own personal salary skyrocket.  From a lofty and generous salary of $1 million back in 1993, to an outsized yet perhaps justifiable $2.5 million in 1998, Bud Selig’s salary in the last publicly available season was $17.5 million dollars.  That’s a number that, although absurd on its face, also dwarfs those of the commissioners of other major sports (link: http://www.sportsbusinessdaily.com/Journal/Issues/2009/02/20090202/This-Weeks-News/Seligs-Pay-Climbs-Past-$18-Million.aspx). Baseball is healthy indeed.  (source: Cot’s Contracts)