David Einhorn, the hedge-fund manager who said yesterday he would spend $200 million to buy a minority stake in the New York Mets, isn’t afraid of a fight.
On the eve of the announcement, Einhorn, who heads New York’s $7.8 billion Greenlight Capital Inc., told an investment conference crowd of 1,800 that software giant Microsoft Corp.’s board should oust Chief Executive Officer Steve Ballmer.
“It’s time for Microsoft’s board to tell Steve Ballmer, ‘All right, we see what you can do, let’s give so-and-so a chance,’” Einhorn, 42, said at the Ira Sohn Investment Conference in New York.
Einhorn has never been shy. Four months before Lehman Brothers Holdings Inc. went bankrupt, he publicly questioned the firm’s accounting, and for years he fought lender Allied Capital over how it valued assets. The outspoken Einhorn’s next challenge is partnering with Fred Wilpon, the Mets majority owner who is trying to turn around his money-losing team and resolve a $1 billion lawsuit brought by the trustee representing victims of Bernard Madoff’s Ponzi scheme.
Einhorn is adamant that he will remain a passive owner of a Major League Baseball franchise that’s made the playoffs once in the past decade and last won a World Series title in 1986.
“Management isn’t going to change,” Einhorn said yesterday in a conference call with reporters. “I’m optimistic that the team’s financials will improve.”
Einhorn said he expects his minority interest in the Mets to be a “very rewarding investment” that he will hold for a “very, very long time.” He declined to comment on whether he’s interested in owning a larger share of the team.
$427 Million Debt
Wilpon has said he won’t sell a controlling interest in the club he bought with co-owner Saul Katz in 2002 for $391 million. The Mets, after getting an emergency loan of $25 million last year, carry $427 million in debt and may lose as much as $70 million this year, Wilpon told Sports Illustrated this month.
Irving Picard, the trustee who is liquidating Madoff’s business, is seeking to recover $295 million in alleged phony profits made by Sterling Equities Inc., the team ownership group Wilpon and Katz set up, and as much as $700 million in principal. Wilpon and Katz have said they were duped by Madoff.
The team was valued at $747 million when Forbes magazine released its annual list of franchises in March. That’s a drop of 13 percent from last year’s valuation by Forbes, which said the Mets had negative operating income of $6.2 million in 2010.
Even if Wilpon and Katz settle out of court with Picard, they may be forced to sell their majority interest in the Mets because Einhorn’s $200 million cash infusion has been earmarked to pay off debt including last year’s loan from Major League Baseball, said Wayne McDonnell, an associate professor of sports management at New York University.
“It’s like putting a Band-Aid on a gunshot wound,” he said in a telephone interview.
Einhorn probably has an agreement with the Mets that would give him the first chance at majority ownership in the future, according to McDonnell.
“No smart businessman in his right mind would invest $200 million without having some kind of language written in that he would have right of first refusal if the Wilpons have to sell their controlling interest,” McDonnell said.
Einhorn was a Mets fan since he lived in New Jersey as a child. At age 6, he wore a homemade Mets jersey for Halloween, and he remained a fan of the Amazin’s, as the team is known, for several years after moving to Milwaukee. He eventually changed allegiances and rooted for the Brewers.
“I’ve followed baseball since my childhood,” Einhorn said in the press call, adding that he now coaches his daughter’s Little League team. “I’ve watched thousands of games. This will be a fantastic life experience.”
19% Annual Gains
Einhorn’s hedge fund has climbed an average of almost 19 percent a year since it was started in September 1996. While most of the money he’s made is from buying stocks, he’s best known for his bearish calls.
He began questioning Allied Capital’s valuations in 2002, setting off a feud that triggered regulatory probes and civil lawsuits. Einhorn was investigated by the U.S. Securities and Exchange Commission for possible stock manipulation before the regulator set its sights on Allied Capital, whose shares plummeted more than 80 percent in the ensuing eight years.
Alliance Capital in 2007 settled the SEC’s probe into its valuation practices without admitting or denying allegations.
Einhorn presented his views on Lehman Brothers’ accounting in May 2008 at the same charity-based investor conference he spoke at this week. In follow-up television interviews, he said the bank was undercapitalized and wasn’t valuing its commercial mortgage-related assets based on market prices. Lehman Brothers filed for bankruptcy protection on Sept. 15 that year.
Fantasy Baseball Strategy
More recently he’s been wagering on a decline in St. Joe Co., the money-losing landowner based in Watersound, Florida, saying the company sold its best waterfront land and is left with rural acreage that reduces its true value to $10 a share. St. Joe fell 16 cents, or 0.7 percent, to $21.71 yesterday in New York Stock Exchange composite trading.
Einhorn, in a 2006 interview, likened his investment approach to the strategy he uses to play fantasy baseball, a game won by assembling a team of players that compile the best statistics in a variety of categories.
It may help explain how he would run the Mets if he gets the chance. Einhorn said he’s usually reluctant to spend more than $30 on individual players in fantasy baseball because he’s limited to $260 for the whole roster.
Wilpon, in a New Yorker interview published this week, criticized former General Manager Omar Minaya’s decision to sign Carlos Beltran to a seven-year, $119 million contract following the 2004 season, when the outfielder hit .435 with eight home runs and 14 runs batted in over 12 playoff games for the Houston Astros.
He also took aim at himself.
“We had some schmuck in New York who paid him based on that one series,” Wilpon was quoted as saying. Beltran is “65 to 70 percent of what he was,” the owner said.
The Mets fired Minaya after last season and replaced him with Sandy Alderson, an Ivy League-educated ex-Marine who built a World Series-winning team with the Oakland Athletics and previously worked as a top executive for Major League Baseball.
Einhorn has “no qualms” about the Mets’ leadership, he said on yesterday’s call. He said he’s met Alderson and is confident he will turn the club around.
“If he wasn’t running a baseball team, I could think of a lot of other companies I’d rather have him manage,” Einhorn said. “As long as we stay under his leadership and direction, the Mets are going to point into a very good direction.”