Mets case could expose MLB books
The Bernie Madoff investigation has affected some of America’s most influential investors and banks while recouping more than $6 billion in claims on behalf of victims.
An exposure of Major League Baseball financial information could come next.
Litigation against owners of the New York Mets in connection with the Madoff Ponzi scheme may result in the subpoenaing of financial documents from MLB’s central office, legal experts and industry observers said this week in interviews with FOXSports.com.
Irving H. Picard, the trustee in the Madoff bankruptcy proceedings, is seeking $1 billion from Mets owners Fred Wilpon and Saul Katz in a lawsuit alleging that they ignored warnings that Madoff was a fraud. Given the nature of the case, Picard has considerable latitude in the discovery process, experts say.
Because of the many connections among the MLB office and the 30 major-league clubs, Picard may be able to argue successfully that he should have access to some of the league’s financial data. Baseball officials generally work hard to keep their books closed to the public.
“If the trustee is able to trace funds from the Madoff scheme to any accounts of the Mets, he’s going to be able to open up the books and follow that money in the discovery process,” said G. Marcus Cole, a Stanford Law School professor and expert on bankruptcy law. “That’s for certain.”
Said one former club president: “This is bad news for the Mets and everyone in baseball. Because of revenue sharing, everybody’s a partner of everyone else in a greater way than ever before. The discovery process and document searches aren’t going to be confined only to the Mets. This will get back to MLB.”
The executive added that the league’s business partners — such as networks, corporate sponsors, and other advertisers — could conceivably become aware of financial information that wasn’t previously available to them. Armed with this data, those entities may be able to negotiate contracts on terms less favorable to MLB and its clubs. (FOX is a broadcast partner of MLB under an agreement through the 2013 season.)
Rob Manfred, a Major League Baseball executive vice president and chief labor lawyer, declined comment when reached Friday by FOXSports.com.
David Skeel, an author and corporate law professor at the University of Pennsylvania Law School, said the federal bankruptcy court would only allow MLB documents to be subpoenaed if they are necessary to determine the flow of funds. And that may be the case here. Picard wrote in a complaint unsealed last week that the Mets held 16 Madoff-related accounts from which Sterling Equities — the team’s parent company — “withdrew over $90 million in fictitious profits.”
Much of that money, Picard claims, was used to fund the Mets’ day-to-day operations.
Picard, as the representative for those who were defrauded by Madoff, is entitled to discover “anything that might reveal relevant information” about the whereabouts of the fund proceeds, according to Cole, the Stanford professor. So if Picard establishes that the Mets cut a check from a Madoff-funded account in order to satisfy an obligation to baseball — the revenue-sharing plan, for example — he could ask MLB to tell him where the money went.
Through that process, MLB financial information could enter the case file. Observers anticipate that MLB attorneys would file motions to keep the data under seal, on the grounds that it could compromise negotiations between the league and its business partners.
Even if such a motion was successful in the short term, a trial would result in the relevant evidence becoming public knowledge. That is one of the many reasons why MLB commissioner Bud Selig is said to a favor a settlement.
“If this proceeds to litigation, it’s going to be difficult for MLB to keep that information out of the public record,” Cole said. “That puts another interesting twist on this. It might be worth Major League Baseball’s while to enter into a settlement agreement where they contributed something to the victims.”
The chances of a settlement already may be higher than they were earlier this week, after the appointment of former New York Gov. Mario Cuomo as a mediator in the case. One longtime baseball executive sees Cuomo’s appointment as a sign that the sides will settle before the trial phase.
Baseball officials express little concern about the possible release of MLB financial information, even with its labor agreement expiring at the end of the season. The players’ union receives annual financial breakdowns of each club, a practice that began in 1980, according to one former team executive.
However, fallout from the Chicago Bulls’ lawsuit against the NBA in the early 1990s provides an example of the potential damage that could occur.
Bulls owner Jerry Reinsdorf — who also owns baseball’s Chicago White Sox — sued the NBA in 1990 for trying to limit the number of Bulls broadcasts on superstation WGN. The two sides settled in 1996, but not before evidence from the case helped the NBA Players’ Association to realize that some owners were underreporting revenues that determined the salary cap.
Baseball, past and present executives say, has nothing of that nature to hide.
“It’s possible there might be some curiosities unearthed in a widespread discovery,” one executive said, “but nothing of great importance.”
And while MLB financial records could become involved in the Madoff case, baseball officials say it’s extremely unlikely that any of the other 29 teams could be roped in.
Under baseball’s revenue-sharing system, which began in 1997, teams with net local revenues below the league average receive money from the wealthier clubs. One baseball executive said 19 clubs received revenue-sharing proceeds last year.
The Mets have been a “payer” club in every year of the revenue-sharing system, the executive said. However, payments aren’t made on a club-to-club basis. Rather, the contributions are pooled together and disbursed to the “payee” clubs.
So, even if the Mets’ revenue-sharing contributions originated from Madoff-funded accounts, the money would be diluted by the time a team such as the Kansas City Royals received it. Thus, the Royals and similar clubs would not be subject to inquiry.