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The Sterling partners were so trusting of Madoff that they ran much of the Mets' operational money through BLMIS accounts; about 80% of their deposits were made in the off-season and 75% of the withdrawals in-season. Every winter, Wilpon says, the Mets would collect about $45 million in ticket sales. "Instead of putting [the money] in J.P. Morgan or Citi or another bank," he says, "[we] put it to Bernie. And as we needed money throughout the year to pay off expenses, we'd take the money out. But the money, instead of earning two percent, is earning eight percent, whatever, 10 percent. We felt totally secure with that."
A high-level front office meeting in December 1999 also showed the degree of confidence the Mets had in Madoff. The club wanted to be rid of outfielder Bobby Bonilla, a malcontent who had hit .160 the previous season in a second unhappy tour of duty with the franchise. To release Bonilla, however, would cost the Mets the $5.9 million he was owed for the 2000 season. The Mets came up with a buyout plan: Beginning on July 1, 2011, they would pay Bonilla $1,193,248.20 per year for 25 years, or $29.8 million. The payment was based on the return Bonilla would've received had he invested the $5.9 million at an interest rate of 8% (which was just below the 8.5% prime rate at the time).
Why would the Mets make such a deal? The Bonilla money would be invested with Madoff, from whom the Mets expected the usual 10 to 12% return, or two to four percentage points above the rate they guaranteed Bonilla. "We were going to make money on Bobby Bo's $30 million," says one official who was at the meeting. "I remember the chuckling in the room."
By deferring the money to Bonilla, the Mets freed cash to fortify their roster for the 2000 season. On Dec. 23, 1999, they traded for pitcher Mike Hampton and outfielder Derek Bell in a deal that added $8.1 million to the payroll. Eleven days later they officially released Bonilla. The 2000 Mets would win the NL pennant. The Madoff fund made the roster moves possible.
The Mets, Wilpon says, used Madoff investments to fund deferred payments "several times," making them to pitchers Bret Saberhagen and Tom Glavine, among others. "You can fault us for that," he says. "The judgment, in retrospect, was not good. We trusted a man who turned out not to be trustworthy."
Wilpon says that his trust in Madoff was so complete that he asked only cursory questions of his friend when he and Katz would meet him, once a year, for a casual lunch. "I don't remember talking business with Bernie any other time," Wilpon says.
At one of those annual meetings—around 2001 or '02—Katz asked Madoff, then in his mid-60s, "Bernie, you're getting on. What do you do when you get tired of doing this?"
Replied Madoff, "I'll send you your money back, and you'll put it in U.S. Trust."
"I'll never forget," Wilpon says, "going down the elevator. Saul looked at me and I looked at him, and he said, 'We've got to have an alternative.'"
In June 2002 the Wilpon-Katz group partnered with financier Peter Stamos to start their own hedge fund, Sterling Stamos. ("That," Wilpon says, "was the diversification for our liquidity.") Over the next six years the Sterling partners split their investments between Madoff and Stamos. At the time of Madoff's arrest, they held $550 million with Madoff and $400 million with Stamos.