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The Loan

Posted By Howard Megdal On January 4, 2013 @ 12:44 pm In Business of Baseball | Comments Disabled

So I tackled the news that the Mets have borrowed another $700 million, almost certainly against their SNY ownership stake, here [1].

But I just want to point out exactly why the valuation, and sum that came with, is a worst-case scenario, as I described this morning on Twitter.

The Mets borrow another $700 million or so: that means they can take care of 2013 expenses, the $320 million due against the team in 2014, with a few hundred million left over to fund losses for the next few years. There’s more to it; the profit margin from SNY, their only remaining source of it, may be affected, and servicing this new, $1.1 billion+ debt will probably run more, while there’s an infusion of $50 million in 2014 thanks to the national TV deal taking effect, but that’s basically what we’re dealing with here.

They’d already borrowed $450 million against their SNY stake back in 2010. So getting another $700 million in collateral means they borrowed against a 65 percent stake in a company valued at around $2 billion. That reflects a huge boom in sports television values, most recently reflected in the sale of YES (valuation $3.1 billion) and basically everything financially involving the Los Angeles Dodgers.

Had SNY come in with a value of, say, $3 billion as YES did, the Mets could have presumably borrowed a great deal more than $700 million, providing extra money to be used on players, with the real chance of reversing the downward spiral that extends beyond putting everything on hopes that Sandy Alderson’s farm system can deliver enough talent, that performs well at the same time, before becoming too expensive.

Had SNY maintained close to its estimated value of just over $1 billion, which is where most experts placed it as recently as last year, there wouldn’t have been enough remaining value within it for ownership to borrow against just to pay off that looming 2014 team debt.

An asset doubled in value in a year, essentially, to bail out ownership in the short-term, but insufficiently to allow ownership the financial room to invest in the team.

Now, will that change? Can SNY double in value again in a year? The ability of ownership to find any more money (this was the last asset they had to leverage) depends on it. The value of the team, locked into a sweetheart deal with SNY for a long, long time, is compromised. The ability of the team to use TV money, thus, is similarly compromised.  That boom that has allowed the Dodgers, under new owners, to spend freely, is being directed in New York toward survival of ownership.

The remaining piece of information left: did the new loan include an extension of time beyond the 2015 due date for the old SNY loan? That tells you how much time this move bought ownership.

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