Wilpon/Katz Group Won't Have To Pay For 4-5 Years

By Steve Kallas
» More Columns

Before a packed courtroom in federal district court in lower Manhattan this morning, Judge Jed Rakoff announced that the parties had reached a settlement in the case of Picard v. Katz et al.

The crux of the decision is that the Wilpon/Katz defendants agreed to pay the trustee $162 million, but, on the “willful blindness” claim of $303 million that was supposed to be tried beginning today, the Wilpon/Katz group will have to pay nothing.

Any way you look at this, it’s a big win for the defendants.


The answer to the first question is easy: the $162 million is the six-year look-back period for “fictitious profits” that the defendants took out from 2002 until the Madoff bankruptcy in 2008.  Judge Rakoff had ruled that the lookback period was only two years in this case and that the Wilpon/Katz group would have to pay up to $83 million.  With this settlement, the trustee gets to go back six years rather than the two that Judge Rakoff had previously ruled in this case.

But even here there are some good things for the Wilpon/Katz group.  First, the Wilpon/Katz group, with $178 million in “customer claims,” will be able to reduce the $162 million by any amount they recover in the bankruptcy.  For example, if the Wilpon/Katz group recovers $100 million on their customer claims, a possibility, then there remaining liability will be $62 million.  Plus, the Wilpon/Katz group, in the first three years of the agreed-upon five-year payment plan, will have to pay only monies recovered on the customer claims of the defendants to pay down the $162 million.

It won’t be until years four and five that the Wilpon/Katz group will have to pay anything out of pocket.  Taking the example above, the remaining $62 million would be paid by the Wilpon/Katz group in equal parts: $31 million in year four and $31 million in year 5 (less any further customer claims recovered by the Wilpon/Katz defendants).

So the actual number that the Wilpon/Katz group will have to pay is yet to be determined but will probably be much less than the $162 million they settled for today.  Indeed, Judge Rakoff said that, at least in theory, the Wilpon/Katz group could actually make $16 million on the deal (178 customer claims less 162 owed in the settlement), but that’s highly unlikely.  In addition, Fred Wilpon and Saul Katz have agreed to guarantee payment for up $29 million dollars of the $162 million settlement amount if the customer claims don’t cover the settlement amount.


The real win comes with the result of what was supposed to be tried today: the $303 million in principal that was to be tried under a “willful blindness” theory.  Here, the Wilpon/Katz defendants won a complete victory.  Not only will they pay nothing on that claim, the settlement agreement has a specific paragraph in it that states that the trustee has reviewed the evidence “and will not pursue willful blindness claims against the defendants.”

Given that Fred Wilpon and Saul Katz vehemently denied those allegations from day one until today, that’s a complete and utter vindication for them concerning the claims made against them in what had remained in this lawsuit.


Well, there still has to be court approval of the settlement agreement.  Judge Rakoff set April 13, 2012 as a date for the parties to reach some agreements and do some things that shouldn’t be hard to do.  Judge Rakoff told former Governor Cuomo, who has mediated this case, to resolve any disputes.  Once the agreement is finalized, Judge Rakoff will approve it and the five-year payment plan will begin.

While the trustee’s counsel correctly stated that the estate was able to gain an extra $79 million with this settlement, virtually any way you slice this, the big winners today were the Wilpon/Katz defendants.

Is today’s settlement a big victory for Wilpon, Katz and the Mets?  Share your thoughts below…

Comments (5)
  1. Cameron Gibbs says:

    Mr. Kallas,

    I agree that Wilpon and Katz made a tremendous deal with Picard. As you note, “the Wilpon/Katz group could actually make $16 million on the deal,” which is remarkable considering they initially faced a $1 billion lawsuit. You make another excellent point when noting the “real win” is avoiding “willful blindness” charges that would have cost the owners $303 million. Before a settlement was reached, Judge Jed Rakoff said the owners had, “the burden of showing they acted in good faith in receiving money from Madoff’s firm.” Without knowing what evidence Wilpon and Katz had available, I imagine they would have faced a difficult battle in proving their innocence. Not only do those holding the burden of proof face an added challenge in court, but because Wilpon and Katz were involved in a tremendously damaging Ponzi scheme, their burden may too have been heavier than usual.

    Outside of court, however, does anyone connected to the Mets have reason to celebrate? Unless Yankees fans consider themselves “connected,” I do not believe any fan or employee should feel victorious. For one, fan attendance has plummeted 25 percent since 2009. Moreover, the team lost $70 million dollars last season, thereby leading GM Sandy Alderson to slash the 2012 payroll by an unprecedented $50 million. Accounting for these loses, in addition to debt accrued from building a new stadium and launching a regional sports network, I see little cause for the Mets’ community to be optimistic about the future. As someone who covers the organization, what changes do you anticipate for the upcoming season? Based on the massive payroll cut, I predict that Alderson will make drastic personnel downgrades. He may begin to employ the technique used by his understudy, Oakland Athletics GM Billy Beane, whose reliance on sabermetrics allowed him to field a 103-win team in 2002 despite having baseball’s third lowest payroll. This, though, would likely create a roster absent of stars who can attract large crowds. In addition, I anticipate a rise in ticket, concession, and merchandise prices so to increase the 2013 payroll. Doing so, however, might decrease fan attendance. Thus, it is clear to me that while the Mets were victorious last Monday, they undoubtedly face an arduous journey back to prominence.

  2. Earl says:

    Good, Now lets start spending some money on improving the Mets and not just spending money, but on the right players and extend David wrights contract

  3. Cody I. Fisher says:

    seems like the Wilpons got a good deal with this, hopefuly it won’t restrict the budget that they have for the baseball team

  4. dnovack says:

    This is definitely the five run homer that the Mets have been looking for. If the distributions from the bankruptcy trust approach predictions, W&K could walk away with millions, but for the fact that their lawyers probalby took most of that.

  5. bigsportz says:

    Reblogged this on volleyballz and commented:
    Very cool article

Leave a Reply