What Does Today's Mets Ruling Mean Exactly?

Earlier today, a settlement between trustee Irving Picard and the Wilpon family was announced. The first details were hard to parse -- both sides were spinning the $162 million agreement as a win. The trustee's spokesman emphasized the fact that his clients had just had a large sum returned to them after being defrauded by Bernie Madoff. The team chose to talk about the team's "solid" financial footing now that all payments had been postponed at least three years.

Douglas Furth, partner and bankruptcy specialist at Golenbock, Eiseman, Assor, Bell & Peskoe LLP was kind enough to help us figure out exactly what just happened.

First of all, there might have been a winner in this -- the Wilpons. They have taken the worst-case scenario off the table and replaced it with a fixed, $162 million worst-case scenario that seems much more manageable.

"There's room for Picard to claim that it was a win," Furth pointed out. "This settlement represents the six-year amount" when it comes to Wilpon-controlled entities and their profits from Madoff accounts. The fact that the court recognized the six-year window could be "important to Picard as he negotiates with people down the line."

But 162 is nothing like the one-billion-dollar number that was first floated. "The Mets were a winner in this thing," felt Furth fairly emphatically.

If, as it seems from the publicly-stated court documents, the $83 million was the profit that the Wilpons' many accounts saw in two years, and the $162 million was the profit those same accounts saw in six years, what is the $178 million number?

Supposedly the Mets will begin to pay out the $162 million settlement starting in three years. And then they'll get in line with the rest of the Madoff claimants that are a part of the Picard client list, in order to get some relief for their $178 million in losses. Why didn't they just offset those two numbers and part ways?

It's tricky. There were many different accounts with the Madoffs, and some of those accounts were net winners, and some were net losers. The $178 million represents the accounts that were owned in some way by a Wilpon-controlled entity that were net losers.

According to Furth, Picard's publicly-held view had always been that the Mets couldn't "set off net winner accounts against net winners accounts" before the reckoning. Picard felt that the Mets should "pay back the net winner money from net winner accounts, and pay first," before being able to then get money back for net loser accounts. This deal cements that process by making the Madoffs agree to pay the net-winner account profits first, before getting in line to get their $178 million back.

So, will they get a hearty portion of their $178 million back?

According to Furth, the answer is yes. He points out that "net loser claims today are trending somewhat north of 50 cents on the dollar" in public markets -- which means that "people who have studied this closer think that this is a good investment." Someone paying more than fifty cents on the dollar for a Wilpon claim in 2012 believes that, by the time he is able to cash in that claim, that debt will return him enough money to make an investment of present-day cash make sense.

So this is why the settlement was such a win. Not only is the worst worst-case scenario now off the table, but even the current worst-case scenario is likely to be mitigated by at least half.

This result was most likely born of the difficulty of proving 'willful blindness.' According to Furth, this unusual facet of the Madoff case is "one of those things that's in the eye of the beholder." What is willful blindness to one judge might be incompetency to another. "What Picard was going to do was show evidence of a variety of red flags that he believes were called to the Wilpons' attention. He would believe, from the totality of these red flags that you would have to be willfully blind to not notice red flags," Furth summarized.

It would have been difficult to prove that the Wilpons were willfully blind, Furth agreed. And the trustee probably saw that, even if he was able to win a trial against the Wilpons, an appeal would have been in his future, and his claimants would not have seen money for years.

So that's how you end up with the trustee and the Wilpons on the same team -- now the Mets owners will be rooting for Picard to get much of their $178 million back, so that they can more easily pay the $162 million they owe him.

With the massive amount of debt coming to term on the team, the network, and the ballpark -- as well as some portion of this $162 million -- the Wilpons are not out of the woods yet. The team is still losing money, and the owners still have many debt collectors lining up that want to get paid in the next two-to-three years.

The worst worst-case scenario is off the table for the Mets' owners. There are still many more worst-case scenarios to conquer.