Economics 101: The Met Financial Situation

An article by posted on September 12, 2011

There is a great deal of discussion about the Met and Wilpon financial situation. Unfortunately most of the discussion is uninformed and based on erroneous supposition.  Let’s get those facts out of the way!

1 – The Wilpons and other Sterling family members claim that they had about 500Mil still invested in the Madoff fund under PERSONAL accounts (not the Mets or Sterling but maybe a few sterling employees). This number claimed is probably debatable as it might be based on what the account said they had in it (What Bernie claimed was their balance) and not their actual investment in those accounts. This is PERSONAL wealth not company wealth which I will discuss next. Has nothing to do with the Mets!

2 – Sterling Enterprises (who owns the Mets) never lost a penny to Madoff, in fact it made 300 Million it should not have by cashing out before the Law got to Bernie and it is that 300Mil that they will likely be forced to return to their fellow Victims (Which by rights some of which will come back to their PERSONAL Accounts based on their Victim share.)

3 – SNY is a completely separate entity from the NY Mets and has its own ownership group that consists of the Wilpons (Sterling) and Time Warner. Money made by SNY can not be used to pay Met Bills with the exception of an increase in the charge for the rights to broadcast baseball games. If the Wilpons have controlling interest in SNY then it is reasonable they could agree to pay themselves more for those rights, but it is not clear and highly unlikely that the Wilpons actually have controlling interest in SNY since that’s not usually how TV deals work. Wilpon and Time Warner are probably equal partners in SNY which means the Wilpons can’t really borrow from Peter to pay Paul!

4 – The financial difficulties we currently face is truly all about the lack of attendance at the games. At the start of the season it was projected that the Mets would lose around 70Mil this year based on the payroll and operating
expenses at the start of the season and projected attendance. In July they adjusted the projection to only 50Mil based on the increased attendance they got when the team was hot and winning ballgames. If one hot streak and interest in the CURRENT team can knock off 20 Mil in losses in a month or two then some minor improvement could knock another 20 Mil off leaving them with only a 30 Mil shortfall based on a 140Mil payroll. Bottom-line is the more we win the more they can spend. If we don’t spend until they win then they can’t spend to win without
losing money. Vicious cycle to say the least!

If you have a Deli that loses money due to lack of sales then you either have to use cheaper ingredients (to save money) or lose money to keep the good stuff hoping to generate more interest and hoping it maintains consistent long enough to make your initial investment back! It’s a paradox that is hard to deal with without customer loyalty!

Now how do those realities affect the team’s ability to build and buy a winning team? Well for one they no longer have the EASY MONEY investment return from Madoff that they used to have available to them  to make money WITH money (from attendance),  that was used to subsidize the amount made via attendance and help pay those high priced FA players. As a result they were forced to pare down that payroll by trading off and cutting players that were not part of the solution to attendance and reduce the amount needed to subsidize. The end goal to get the payroll down to a number where the team is at break even or at a minor deficit while they find new ways of increasing that attendance.  (The cheaper cuts of meat approach!)

This is where Sandy’s $110 Million Payroll number comes from. And it’s easy to prove it as they were due to lose 70 Mil (currently revised to 50 Mil) with an 140 Million dollar payroll, minus the Payroll they shed this year (19 Mil
Beltran, 12 Mil K-Rod, 12 Mil Perez, 8 Mil Castillo) Total savings = 51 Million for next year. That would put them somewhere in the 90Mil mark of payroll (right now) for ONLY those players that are currently wearing a Met uniform. 

But let’s look at that 90 Mil (somewhere in the high 80’s actual) current player number for a second. That’s the number that is the most important as it is the starting point here. That number will go DOWN for every player we lose this offseason including the $11 Mil Reyes currently makes, the 3.9 Mil Pelfrey is making, the 3.5 Mil of Pagan plus the expiration of contracts for Young (1.1M),  Capuano (1.5M), Hairston (1.1M), Harris (8K), Byrdak (9K), etc… Total money that could be shed in the Offseason (just for those mentioned) is 23.8 Mil. Subtract that from the 90 Mil and the Payroll is in the 66 Mil area. $66 Million Folks! That leaves close to $44 Million for Sandy to buy and spend this offseason before he hits that $110 Million target number. PLENTY of money to re-sign Reyes and with almost 20-30 Million left to fill all those other positions either by resigning some of those guys or filling in with minor league players currently ready to be promoted and tested.

So most of the doom and gloom regarding Met finances really does NOT exist. They can re-sign Jose and STILL have more than they spent last season on free agents to fill around them and with the emergence of the kids like Turner, Tejada, Gee, Duda and Murphy they already have cheap alternatives to play for guys they might lose in the offseason that will not increase the amount needed to fill out the starting lineup. Are those guys HOF material? Hardly but then again neither is Polanco or Jason Werth and they were players GOOD ENOUGH to help the Phillies win a WS!

Now to many here that simply is not enough. I call it Yankee Envy but that’s just me. And while you CAN WIN doing it the way the Yankees do it they have something we don’t have to work with, A packed house! And the problem with buying a team is there has to be someone out there worth buying. Does that player actually exist? Not really other than Reyes, Beltran and possibly K-Rod who are likely to be the best FAs available or among the top 10 targets this year (Reyes will definitely be #1) Everyone agrees our biggest holes are in the pitching and mostly pen arms. Aside from the closer (which normally commands high dollars) the most expensive pen arm we currently have is Carrasco at 1.2 Mil. That’s about what a Bullpen arm gets at most (2.5Mil tops) when you’re not the closer.  You could buy an entire bullpen (if you could find enough players) for the measly sum of around 6 or 7
Mil (sans Closer). And that’s buying all the BEST Pen arms available and paying top dollar!

More likely with a mix of FA and MiL candidates we will spend roughly 3-4 Mil at most on the Pen which leaves 16-17 Mil left to fill other areas like catcher and CF (after Reyes). we could get or re-sign Young and or Capuano for less than 4 Mil ( 12-13 Mil left) and throw in another 4 or 5 Mil for a possible catcher ( 6-7 Mil left with a 110 Mil Payroll target!). And all of this is possible just from a free agent POV, and does not take into consideration that we have a possible logjam at three positions, namely 1B (Evans and Murphy), 2B (Turner, Murphy, Tejada, Valdespin and Havens), SS (Tejada, Turner). All of which could be traded (despite what the baseball America reading clique of doubting Thomas’ will tell you) for other considerations we could use to fill positions with.

In all the team is in quite a good financial situation despite the common belief, because most of our big contracts were due to expire this year and come off those books. Yes they are losing money THIS year but that situation will change drastically if the current attendance is maintained and they don’t go on a buying spree that means spending top dollar for players that are not much better than what they currently have only at 3-30 times the price like Prince Fielder or some Pelfrey like pitcher who is going to get 12 Mil for pretty much the same ERA, IP and Quality Starts.

Throwing money at a problem is not really a solution here, but as I think I have showed we DO have money to spend. Just not as much as the money spenders would like us to spend.

The contending side to the Money spenders is the Moneyballers! They don’t want to spend a penny because they think we are broke and I think I put that notion to rest here. And any penny spent is not worth it to them. This
belief is as naive as the ones who think you have to spend 190 Mil to compete.

If you don’t spend at all you can’t keep the players who will help you have win streaks and you won’t have the attendance to buy your way out of the cellar once you have gotten rid of all big contracts. Your spending will be even MORE limited once you get the payroll down to nothing because you won’t have the flexibility to save any more money at a certain point. All you can do then is hope the K-Mart roster wins enough games (basically praying for a lucky streak) to encourage someone to come see the team so you have the money to improve.

So what are our options? Where is the team right now? DEAD CENTER! We will have before signing anyone this offseason a roughly 66 Million dollar payroll and about 6-10 Roster spots to fill. We could shed Reyes entirely and probably lose more games meaning even less money coming in via attendance to spend in 2013 or we can resign Reyes, start off with a roughly 80 Mil payroll and use the remaining 30 Million to fill in what we lost that the
minor leagues can’t replace on the cheap.

We have enough talent currently without position to make trades, use as bench and insurance against injury or to get the one or two key STARTER positions we feel we need such as CF or Catcher and maybe even a closer.
We have at Minimum two or three potential Starters in the Minors on the verge of being promoted to the starting rotation and the possible re-emergence at dirt cheap prices of Chris Young who might finally get over his shoulder problems now that he has actually had the surgery he should have had two years ago.

Our near .500 Winning ways this season were all without the help from Santana (who is in the same boat as Young), a Missing Wright and Davis (two of our biggest power hitters) and the current loss of Murphy who was batting like a near champion before he got hurt. If that injury issue doesn’t happen again next year just their sustained contribution alone could add 10-15 wins which would put us right in the thick of the Wild card race and if not for our league alignment, leading any division in the NL not named the EAST! That alone should solve the Payroll spending issues many perceive exist and if we spend the remaining 30 Mil (after re-signing Reyes) wisely there will be even more money available to spend towards the 2013 season with all those kids like Harvey, Holt, Mejia and Wheeler ready to join the fray at K-Mart prices.

But any RASH decisions by Sandy such as playing MONEYBALL or MONEYSPEND could derail that train and send it way off the tracks. What is needed now is not a philosophical SYSTEM, what is needed is some rational spending combined with patience, development and FAN SUPPORT!

If you want them to spend before you go then you won’t get what you want. If you don’t believe the team is good enough to go see then they have every right to feel the team isn’t good enough to spend on. If you think they should NOT spend then you either think the team IS good enough or believe there is some trophy for “Price per wins” that doesn’t exist in the MLB. The reality is a WS or NOTHING! You are not actually interested in seeing a
good MLB team just interested in picking lottery tickets you hope will cash out either via trading off the remaining players who get you the wins or the draft you will be picking in the top 10 thanks to all the losses. If Sandy does this he will not be spending anything because he will not be the GM past 2014. And the guy who replaces him won’t have the attendance to be able to fix it by spending at that point unless they find a way to charge crickets admission. What is needed and what I expect from Sandy is RATIONAL thinking, not a Philisophical SYSTEM!
He is GOING to spend because he actually CAN! He’s just not going to be Scott Boras’ patsy or buy the best guy available simply because it looks good on the back page of the news! He will buy what is a good value such as paying Reyes but he’s not going to buy Prince Fielder at 15-18 Mil when he can get almost as much production from Davis at 400K. Is 10 more HRs a season worth paying 30 times what getting 20 costs you? Hardly! So Davis is a much better option than Fielder! That’s not Moneyball, that’s just good business sense. Paying 20K per HR is better than paying 60K per HR no?

Too many people playing Chicken Little here on both sides and I would love it if they just would stop trying to play “Miss Cleo the Fantasy GM” and trash or blow up players based on their philosophical beliefs in what works. Cause the game of life says that BALANCE is the key to success. This year we are balancing the books and next year we have the opportunity to balance the playing field with the NL East and put us in position to again spend when it makes sense to provided we don’t throw off the budget and go to even less games than we go
to see now. The choice is up to US! Their financial flexibility is dependent on our flexibility to spend on going to see these guys play. With a few trades and a few wise signings this team can become players in the NL East and Wildcard. And if we time it right, it will coincide with the good timing of the Phillies needing to pare payroll because they are the team paying top dollar for aging free agents that are no longer producing the way you expected when you signed them for big bucks attendance will no longer support.

The time for EXTREME behavior is past us. The Financial situation is currently close to order. We still have SOME wasted spending in the roster (such as Bay’s money to numbers return) but we are not in a position where we have to be the Pirates or Oakland under Billy Beane. We are not yet in position to pretend to be the Yankees either but we are much closer to the Yankees of 95 and the Phillies of 06 and 07 and with a little luck and success from the Mets prospects waiting in the wings, we are possibly on the verge of becoming the team that can dominate the NL East for a decade. That’s where we are now despite what all the extremist Chicken Little posters and media pundits would tell you and suggest.

The sky is not falling, the grass is not greener someplace else, and you have to spend money to make money. Just not spend it stupidly. Pennywise is often pound foolish and if you want to see a business thrive as a customer you have to bite the bullet and support it. Cause to see inspired baseball it really helps to
have someone in the seats to INSPIRE what is on the field to play better and that also helps pay for replacing the players you think your inspiration doesn’t work on!
So it really is up to us! Sandy has done his part getting the budget in order.

It’s really as simple as that!

This Fan Shot was submitted by Metsie.

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