A federal judge ordered the owners of the New York Mets baseball team and their business partners to return as much as $83 million they withdrew from Bernard Madoff's firm and said a jury will decide whether they need to return more.


The Ruling

A judge rules Mets owners must return profits from Mr. Madoff's Ponzi scheme. See the court document.

The four-page decision by U.S. District Judge Jed Rakoff in New York is a blow to the Mets owners, Saul Katz and Fred Wilpon, who have been in a prolonged legal battle for more than a year with Irving Picard, the court-appointed bankruptcy trustee seeking to find money for victims of Mr. Madoff's Ponzi scheme.

Mr. Picard sued the Mets owners and their business partners for $1 billion more than a year ago, accusing them of knowingly ignoring warning signs that Mr. Madoff was perpetrating a fraud. Late last year, Judge Rakoff ruled that Mr. Picard could attempt to seek only $386 million.

In Monday's ruling, the judge agreed with Mr. Picard that alleged fictitious profits the Mets received in the two years before the fraud came to light should be returned to the bankruptcy estate. Mr. Picard claims that amount is $83.3 million, but the judge said in his order that "the exact amount" will be determined at a later date.

Unless there is settlement, the civil trial, which is set for March 19, will determine whether the Mets owners could be on the hook for more than $300 million in principal investments allegedly made with Mr. Madoff and later withdrawn by the Mets owners. That would be in addition to the potential $83 million in the judge's decision.

In order to claw back the Mets owners' principal investments, the trustee must prove that the defendants willfully ignored warning signs that Mr. Madoff was operating a fraudulent enterprise. Judge Rakoff's order means a jury will decide whether the trustee proves that.

Any verdict that awards more money to Mr. Picard could have a potentially devastating impact on the team's owners. The total amount Mr. Picard is seeking isn't one that the team's owners are in a position to pay, according to people familiar with team's and the family's finances.

The Mets owners have repeatedly said they were victims and had no inkling that Mr. Madoff was running a huge scam. Sterling Partners, the real-estate firm run by Messrs. Katz and Wilpon and their business partners, said in a statement, "We look forward to demonstrating that we were not willfully blind to the Madoff fraud."

Judge Rakoff has expressed some skepticism that Mr. Picard will be successful in showing that the Mets owners were aware of Mr. Madoff's fraud.

New York Mets owners Saul Katz, left, and Fred Wilpon Associated Press

"Conclusions are no substitute for facts, and too much of what the parties characterized as bombshells proved to be nothing but bombast," Judge Rakoff said in his order. "Nevertheless, there remains a residue of disputed factual assertions from which a jury could infer either good or bad faith depending on which assertions are credited."

Mark Conrad, a professor of sports law at Fordham University in New York, said he sees Judge Rakoff's decision as troublesome for the Mets. "Bringing it to the jury, you never know what is going to happen," he said. "It's a lot of money, Madoff is a hated guy and jury discretion could run pretty wide."

Rob Tilliss, principal at sports advisory firm InnerCircle Sports, said the judge's order was a "big setback" for the Mets owners because it raises uncertainty for investors as the Mets try to sell noncontrolling, minority stakes in the team.

The Mets, a team whose attendance has steadily dropped in recent years, have been forced to borrow against their assets. Major League Baseball extended a $25 million loan to the team and Bank of America Corp. BAC -1.03% Bank of America Corp. U.S.: NYSE $15.44 -0.16 -1.03% July 10, 2014 4:00 pm Volume (Delayed 15m) : 60.73M AFTER HOURS $15.43 -0.01 -0.06% July 10, 2014 5:19 pm Volume (Delayed 15m): 386,912 P/E Ratio 19.54 Market Cap $164.04 Billion Dividend Yield 0.26% Rev. per Employee $409,537 07/10/14 For Wells Fargo, There's No Pl... 07/09/14 Bank of America Again Requests... 07/09/14 Heard on the Street: Legal Clo... More quote details and news » lent the team $40 million to cover operational costs in recent years. The team is in violation of Major League's Baseball's rules limiting the amount franchises can borrow against their teams.

The Mets are seeking new investors, in part to repay the loans, but plan to sell just enough of the team to retain majority ownership. The franchise also let its arguably best player, Jose Reyes, go in free agency this winter without making a formal offer.

Owners of the New York Mets face a civil trial over their Madoff investments. Above, Daniel Murphy during a spring training workout. Associated Press

In his lawsuit, Mr. Picard alleges that Messrs. Wilpon and Katz came to rely on the steady returns they received from investments with Mr. Madoff and failed to recognize red flags and other warning signs that he might be carrying out a fraud.

The trustee claims the Mets "held it as a given" that returns from Mr. Madoff would be between 10% and 12% annually, and they relied on those returns to bridge the gap when they faced weekly "cash crunches." Mr. Picard also claims the Mets used their investments to pay deferred salaries for a number of players.

However, the Mets owners say the team deposited money from ticket sales, concessions and other team-generated revenue with Mr. Madoff and then withdrew that money as needed to make payroll and cover team expenses. They say any suggestion that the Mets relied on Madoff returns to pay their players is "a complete distortion."

Mr. Picard has filed more than 1,000 lawsuits for nearly $100 billion—about five times what was lost in the Ponzi scheme—against banks, individuals and others. Mr. Picard has recovered about $11 billion of the $17.3 billion in principal he has estimated was lost.

A spokeswoman for Mr. Picard said the trustee was reviewing the decision and declined further comment.

Robert Boland, a professor of sports law at New York University's Tisch Center, said a settlement is a possibility, though not anytime soon. "What the Mets need most to right their ship is time," he said. The Mets could push to extend the trial date, said Mr. Boland. Even then, a settlement could come after the trial, if both sides want to avoid the appeal process. The Mets do have one edge, said Mr. Boland. The fact that the Mets were "willfully blind" to the Madoff fraud "will be difficult to prove," he said.

Write to Chad Bray at chad.bray@wsj.com and Reed Albergotti at reed.albergotti@wsj.com