Archive for the ‘Uncategorized’ Category
The State of the New York Mets
Posted by Jody Eisenman | Filed under Uncategorized
With the markets being driven almost entirely by the news out of Europe, I have decided to devote a column to the financial state of my beloved NY Mets. I first became a Mets fan in 1964, when I was 6 years old. For a long time, the team was the laughing stock of baseball, having finished last or next to last every year of their existence from 1962-1968. However, in 1969, the Mets shocked the baseball world by winning 100 games and taking the World Series over the heavily favored Baltimore Orioles. Although they had some success through the years, the Mets did not win another championship until 1986, when they won 108 games and beat Boston in a thrilling seven game series. In the early part of the new millennium, the Mets were rebuilding, and by 2006, they finally had an excellent team again. However, three straight disappointing seasons left the Mets fans frustrated. Around this time, the current owners decided to build a new stadium (name Citi Field after Citicorp bought the naming rights) which opened in 2010. Unfortunately for the Wilpons (the current owners), they were hit with several financial setbacks. First came the recession, which hurt ticket sales. At the same time, the real estate market fell apart, which severely hurt their principal line of business. However, what really catapulted them into the front pages was the Madoff Ponzi scheme. The Wilpons invested hundreds of millions with Madoff, and apparently directed others to invest with him as well. Currently, they are being sued by trustee Irving Picard for over a billion dollars. In addition, as the team has hit hard times, they are continuing to try and raise money to keep their majority ownership intact. It is believed that the team lost around $70mm this past year. Meanwhile, the Mets are in debt for hundreds of millions of dollars, perhaps as much as $650mm. Although it is believed that the Mets would fetch in excess of a billion in at outright sale, the owners are at least this far refusing to consider this, opting instead to sell small units to various parties. Earlier this year, the Mets had an agreement to sell 1/3 of the team to hedge fund guru David Einhorn, but the deal fell through. This leaves the Mets with mounting losses, an expensive ballpark, and a lousy team.
Compounding the Mets’ problems is that they are trying to shrink their payroll at a time when they have unperformed on the field. In 2010, the Mets spent about $140mm. This year, they are expected to come in around $100m, perhaps even less. However, $57mm is already guaranteed to just three players! One of whom is Johan Santana, who underwent shoulder surgery and may not even to able to pitch. They lost three of the best players (Closer Rodriguez, CF Beltran to trades, and superstar SS Reyes to free agency) and have made little effort to replace them. In addition to the $57mm, they are committed to another $22mm to 6 other players. That leaves the Mets with almost $80mm committed to nine players, which means they have, at most, $20mm to spend on the other 28 guys on their 40 man roster. The team has finished under .500 for the past three years, and attendance has plunged from over $4mm in 2008 to around $2.3mm last year, despite the fact they are in a brand new ballpark. Based on their current roster, its’ a good bet they will finish near the bottom of the league in 2012.
It is incredible to me that the current owners refuse to sell a majority interest in a business that continues to lose money every year. Until the Wilpons sell the team, it looks like a lot more misery for us fans. One can only hope that the mounting losses will eventually cause the owners to sell out and begin a new era.
Contagion, the European Union, and the United States
Posted by Jody Eisenman | Filed under Uncategorized
While US stock markets have now declined for six straight days, all eyes are focusing on Europe. As I wrote a few days ago, the debt problems have begun to spread like a virus all across Europe. On Wednesday, the financial markets were stunned by the news of the German bond auction. Remember, Germany is the main financial arm of the European Central Bank, and has huge control over an eventual bailout. In the bond auction, it is generally accepted that the Finanzagentur (the German debt agency), retains about 10-20% of the auction for themselves. In this case, they were forced to retain 40%. It is now clear that credit is beginning to dry up all over Europe. Without credit, the financial markets freeze up. Everything grinds to a halt, and you will see a slew of bankruptcies. Remember what happened in the United States in 2008? The financial system came very close to a complete meltdown. Multiply this several times, and you have an idea what is going on in Europe. If the strongest country in Europe is having problems selling its’ bonds, what does that say about Italy, Spain and the Netherlands? The future of the Eurozone is on very shaky ground right now.
Meanwhile, comment by Mohammed El-Erian, head of PIMCO (the world’s largest mutual fund) were alarming. El-Erian called US economic conditions “terrifying”, and he believes that the chance of another recession here could be as high as 50%. As the case is in Europe, there is very little movement by the politicians. The debt committee collapsed without any recommendation for a solution. In a nutshell, you cannot continue to spend more than you take in. The longer you do this, the higher your debt gets, and more and more of your expenses must go to pay the interest. If rates start to rise, the interest payments will become almost unmanageable. This is the situation in Europe. In the United States, the debt has still not become catastrophic, as investors are still willing to buy Treasury bonds at very low yields. However, we keep bumping up against debt limits. As long as hard core Democrats will not agree to spending cuts and hard line Republicans will not agree to tax increases, there can be no compromise. Meanwhile, debts continue to increase, and liquidity is drying up. A solution both here and in Europe will need to be found quickly before the situation escalates out of control.
Contagion
Posted by Jody Eisenman | Filed under Uncategorized
It now appears that the crisis in Europe us spreading. As the ECB continues to fiddle, the rest of Europe is beginning to burn. The yields on Spanish bonds have jumped to almost 7% on their last ten year auction, as compared to 5.43% less than a month ago. French and Belgian yields are rising as well. Since the start of the ECB bond-buying program in May 2010, the ECB has purchased €187 billion of government bonds; which still has not prevented Italy and Spain from passing the critical threshold.
As I have written earlier, the issue in a nutshell is that Europe has way too much sovereign debt. The strategy among European countries has been to overspend their revenues, and then borrow more and more to finance it. This strategy has “worked” only because investors were willing to buy their bonds, and rates have remained relatively low. Now, rates are rising, which causes a multitude of problems. In simple terms, it means that even more of their expenses must go to pay the interest on their ever increasing debt. In order to try and keep rates in line, the ECB has been buying bonds. For a variety of reasons, this hasn’t worked. The total losses have been estimated at anywhere between 1 and 5 trillion. Now who owns these bonds? Mostly, European banks, especially those in France. Remember the US bank crisis in 2008? When your bank is allowed to leverage its’ balance sheet at 30 or even 40 to 1, it doesn’t take much of hit to your portfolio before you are bankrupt. This is what happened to Lehman Brothers, and is now possibly happening to several major European banks. The ECB’s method for dealing with this crisis is to quarrel among its’ members. At the end of the day, bailing countries out with billions of additional debt will only postpone the inevitable. In other words, unless countries begin to not only spend within their needs, they must run a surplus in order to gradually reduce their debt. If this does not happen soon, we are going to be looking at a very unpleasant ending.
