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Already reeling from a lawsuit from the Madoff trustee seeking to recover as much as $1 billion, the New York Mets have now been hit on Friday with a downgrade by Moody’s Investors Service on the team’s stadium debt.
The new stadium, known as Citi Field, was built with debt issued by the New York City Industrial Development Authority. That, of course, has nothing to do with Bernard Madoff’s $65 billion Ponzi scheme. However, Irving Picard, trustee in the Madoff case, sued the owners of the Mets with having “consciously disregarded” danger signals about Madoff’s operation. The suit was filed under seal in December of 2010, and was only made public on Feb. 4 after settlement talks failed.
Picard said in a 365-page complaint that partners at Sterling Equities, the company of Fred Wilpon, Mets chairman, had 483 accounts with Madoff’s company. He added that the baseball team had 16 accounts with Madoff as well, from which more than $90 million was taken to finance the team’s day-to-day operations.
In part, the complaint said, "The Sterling partners were simply in too deep—having substantially supported their businesses with Madoff money—to do anything but ignore the gathering clouds."
It went on to add, "Despite being on notice and having every resource at their disposal to investigate the litany of legitimate questions surrounding Madoff, the Sterling partners chose to do nothing."
While Madoff’s scheme hit the news Dec. 11, 2008, Picard said the Mets defendants were aware of signs that should have tipped them off much earlier. The suit identified an instance in 2003 in which a consultant advised Saul Katz, Wilpon’s brother-in-law and cofounder of the firm, that Madoff's returns made no sense, and that he "couldn't make Bernie's math work."
The complaint seeks to recover fictitious profits from Sterling partners, family members and affiliates; principal withdrawn in the 90 days prior to the collapse of Madoff's firm; and other "fraudulent" transfers. Wilpon and other owners have said they may try to sell a minority interest in the team as a result of the suit. Wilpon and Katz characterized the suit as "an outrageous strong-arm effort" to push a settlement; they also claimed it was aimed at ruining their businesses and their reputations.
In a statement, they said, "Not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme." They added, "We thought that Madoff was a friend for 25 years. That is why his betrayal was so painful. We should not be made victims twice over—the first time by Madoff, and again by the trustee's actions."
Moody’s action was taken, it said, because the suit could hurt the team’s performance, leading to lower gate receipts and thus less money available to repay the stadium debt. In a statement, Moody’s said, "While the ultimate outcome of the litigation and the timeframe for final resolution are unknown at the present time, the negative outlook acknowledges the close connection between the health and performance of the Mets baseball team and the long-term credit quality of the stadium project." A Moody's spokesman said the revised outlook applies to $695 million of debt rated Ba1; that is Moody's highest junk grade.
The Mets have one of the biggest payrolls in major league baseball, although they’ve had two straight losing seasons and attendance at Citi Field in the stadium’s second year fell 19%.