02 February 2011

Thoughts on the Mets and Bernie Madoff

Perhaps I'm the exception, but I learned from a young age to always keep track of my money, and always keep it in more than one place. This as true when it comes to a billion-dollar enterprise as it is with your 401k or your piggy bank.

Moreover, one assumption I've always held regarding capitalist success stories: maybe they made it to the top through hard work, maybe luck, maybe help from family and friends, and probably a little of all three, but one characteristic all corporate titans share is an unwillingness to play stupid with their money.

Not so with Fred Wilpon, majority shareholder in the New York Metropolitans baseball club.

You may already have read that the Mets' dealings with Bernie Madoff turned a lot of their black ink to red. As more information leaks out, we're discovering that Mets were far more tied up in Madoff money than had previously been expected.

Now, let's ignore that these new revelations raise the (yet unsubstantiated) possibility that Wilpon's close ties to Madoff make him culpable as a willing co-conspirator. At what point did the New York Mets decide to put a significant number of their many, many piggy banks in the trust of one man?
Bernie was part of the business plan for the Mets
The above quote, from the same NYT article linked in the previous paragraph, doesn't betray to what degree "Bernie" was a part of the business plan. No matter, we already know the degree: Wilpon has put a minority stake in the team up for sale to cover losses, and there's talk he may have to surrender his majority control. The point is that no one man, or organization, should ever represent a significant fraction of a one's financial planning.

This is as true for the hedge fund manager as it is for the household manager, but at least in terms of the head of household or the small business, the costs of diversification are often prohibitive. The truly egregious stupidity lies in the fact that a corporation so valuable and revenue-rich as the New York Mets could easily have absorbed the entry costs that come with diversification.

So, parents, when it comes time to talk to your children about money, spare them the parable of the Ant and the Grasshopper. Instead, tell them the story about the Baseball Team and the Incompetent Owner.

It goes like this: while the Baseball Team was busy reaping the benefits of the world's largest market, a loyal customer base and a publicly subsidized cathedral of a stadium, the Incompetent Owner was busy giving all that money away to his friend, Ponzi. It didn't matter to him that Ponzi couldn't explain his outrageous success, he trusted Ponzi and kept handing over all that money. But when winter came, Ponzi went to jail and the Incompetent Owner lost all of the Baseball Team's money.

I think we all know how the story ends: the Baseball Team finds other majority friends to play with, since Incompetent Owner can't afford to play anymore. It's hard to feel sorry for Incompetent Owner. He might lose his team, but he'll still have millions to fall back on. On the other hand, he'll always be a one-time owner of the Mets.

I guess it does all even out in the end.

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