Two and Twenty

Of course a hedge fund manager is buying a minority stake in the Mets -- they're the definition of a distressed asset. The core fundamentals are strong because they're a baseball franchise in New York, which is a perennially valuable asset. Everything else is awry, though: the expensive and sparsely filled ballpark; the consecutive years of poor management; the routinely underwhelming performance of the players, despite the team's outsized payroll; the historically comical brand. This is a high-risk, opportunistic play. What hedge fund investor wouldn't want to make it?

The New Yorker's piece on Fred Wilpon, the patriarch of the Mets' majority owner, captured lots of attention for his ridiculously harsh comments about the team and its star players. Otherwise, though, the article was quite complimentary, portraying him as one of the city's few honest and likable real estate developers who was duped by Bernard Madoff out of about $500 million because their sons happened to be childhood friends on Long Island. The author, Jeffrey Toobin, essentially argues that Irving Picard's pursuit of as much as $1 billion of the Wilpons' fortune (which is essentially all of the family fortune) and related litigation is misguided, overly aggressive and unlikely to hold up in court.

Also poking through the story, though, is the sense that Wilpon is done. His friends describe him as stressed; he doesn't look healthy in the photo; and he doesn't seem to have much of an idea about how to turn things around because all he can do for now is cling to the franchise. (Wilpon probably still controls the Mets only because he hasn't taken money out of them as Frank McCourt has done with the Dodgers to fund his posh lifestyle and divorce. MLB gets what it deserves, I suppose, when you allow a developer to trade some of the Northeast's most expensive parking lots for a baseball team, as McCourt did with the Dodgers.)

This leaves open the question of what happens when the hedge fund manager, David Einhorn, does what hedge funds do when their investments underperform. The Times describes him as a value investor, who finds assets he thinks are underestimated, invests in them for the long term and then earns a profit. He doesn't rattle the boardroom as Carl Icahn or William Ackman most infamously do, though Einhorn presciently called bluff on Lehman Brothers and has offered some tough opinions on the U.S. macroeconomy and the financial industry's reform. Nonetheless, the Mets' payroll is ripe to be cut by at least 40 percent, with several expensive contracts expiring in the next couple of years, providing a chance to restructure just as private equity investors often do. And then, Einhorn has the option in three years to acquire a majority stake. The Mets' institutional future is certainly cloudy.

This post's title refers to the fee structure hedge funds use to manage money -- 2 percent of the principal and 20 percent of the profits -- not a baseball stat, like David Wright having two years of barely passing 20 home runs because of Citi Field.