When Steve Cohen plunked down $2.42 billion for the New York Mets in late 2020, outgoing owner Sterling Equities hung on to 5% of the MLB team.

Cohen’s spending spree will likely mean the Mets will lose about $200 million pretax this season, meaning Sterling Equities, which is controlled by co-founders Fred Wilpon and Saul Katz, will be on the hook for a hefty capital call or face significant ownership dilution.

Hanging on was a bad move by Wilpon, right? Not so fast, thanks to tax arbitrage and the appreciation in the value of the Mets since Cohen’s purchase.

The Mets are now worth $2.9 billion, $480 million more than what Cohen paid for the team. The capital gains tax rate is 20%. But it’s likely that a portion of the gain would be taxed at ordinary income rates since the Mets, like any partnership, probably have some so-called "hot assets," i.e., unrealized receivables, on their tax balance sheet. For example, broadcast contracts and even player contracts, to the extent they are being amortized, would be unrealized receivables. Accordingly, to account for the hot assets, it’s more accruate to apply a "blended rate" of 25% rather than 20% to the $480 million to derive a $360 million gain, of which $18 million (5%) would belong to Wilpon and Katz.

The team’s operating loss is tax deductible at an ordinary income rate of 37%. Thus after tax breaks the Mets loss would be just $126 million with Wilpon and Katz losing $6.3 million (5% of $126 million). In other words, the duo would come out almost $12 million ahead combined even if the Mets lose $200 million this year.

To be fair, for Wilpon and Katz, their share of the operating loss of the Mets would be a "passive activity loss." Thus, their share of the loss would not be deductible immediately, but only later, when the Mets begin operating profitably, or, if later, when the pair dispose of their retained interest in the Mets. So, their share of the losses would be deductible, but probably not in the year in which the losses are sustained, but only later. But it’s still a big win for Wilpon and Katz.

There’s also the bonus of the team’s regional sports network, SportsNet NY, which was not included in the sale of the Mets to Cohen. Sterling Equities owns 65% of the RSN, which is expected to generate $94 million in cash flow this year on $261 million in revenue, according to S&P Global Market Intelligence.

Wilpon and Katz may have been hoodwinked by Bernie Madoff, but they have made bundle on the Mets—and still are.