NEW YORK, March 19 (Reuters) - The owners of the New York Mets agreed to pay $162 million to settle a lawsuit by the trustee seeking money for the victims of Bernard Madoff's fraud, a deal that eases pressure on the owners of the cash-strapped baseball team.

The pact was announced in U.S. District Court in New York on Monday just as a trial was about to start. It was a victory for brothers-in-law Fred Wilpon and Saul Katz and their family-run Sterling Equities real estate, baseball and hedge-fund empire.

They will not have to pay out any cash immediately and the trustee, Irving Picard, dropped his allegation that they turned a blind eye to Madoff's fraud. For the trustee, the settlement could provide a template for other cases still pending against hundreds of individuals, funds and banks such as HSBC Holdings Plc, JPMorgan Chase & Co and UBS AG.

Wilpon and Katz were accused of acting in bad faith in their dealings with Madoff over 25 years until December 2008. Their case would have been the first involving the imprisoned financier to go to trial.

The Mets, who live in the shadow of the much more successful, world-famous New York Yankees, have struggled in recent years. Mets general manager Sandy Alderson has been quoted as saying the team lost $70 million last year. Forbes magazine said in 2011 that the team was worth $747 million.

The settlement is a "very positive moment for the team and the Wilpon family," said Robert Boland, academic chair at New York University's Tisch Center for Hospitality, Tourism and Sports.

Beyond the Madoff fraud, the owners have dealt with a struggling team and a financial hit to their commercial real estate business.

"Solving one of those issues will make it easier," he said.

The settlement calls for payments over a five-year period and Wilpon and Katz will not have to pay any cash until the fourth year. The $162 million could end up being mostly paid with money returning to the owners' Sterling Equities firm as a result of being a victim of the fraud.

Picard had accused the owners of ignoring warning signs that Madoff was running a fraud. Wilpon, Katz and their relatives denied the accusations and said they were also victims.

Both sides can claim victory, according to Neal Levin, a partner at law firm Freeborn & Peters LLP in Chicago, who specializes in recoveries for fraud victims.

"If I'm Picard, I'm going to try and use it as a template. But if I'm the target, I'm going to say that this is a very subjective analysis and every case is unique."

'FICTITIOUS PROFITS'

Picard's original complaint was filed in bankruptcy court in December 2010, seeking $1 billion, but it was whittled down to $386 million. If a jury had ruled against the Mets owners, they would have been liable for $303 million on top of as much as $83.3 million in "fictitious profits."

People involved in the litigation said the pressure of an upcoming trial led to the agreement.

"This is common sense," former New York State Governor Mario Cuomo, who oversaw mediation of the dispute, told reporters outside the courtroom. "There's no artistry here."

He said Wilpon and Katz were not personally involved in the negotiations.

For Picard and his legal team, the settlement brings an additional $162 million into the pot to pay back victims of Madoff's fraud, the biggest in investment history.

Madoff is in prison for his Ponzi scheme, in which he paid old clients with the money from new investments.

"This settlement is for the benefit of all the customers," said David Sheehan, the lead lawyer for Picard.

Picard estimates Madoff customers were defrauded of about $20 billion overall. He has said he will try to recover as much money as he can through the courts. So far, he has won settlements amounting to $9.1 billion.

Under the settlement, Wilpon, Katz and their partners at Sterling Equities essentially agreed to pay "fictitious profits" of about $162 million that the Sterling parties withdrew in the six years before Madoff's scheme collapsed in December 2008. U.S. District Judge Jed Rakoff previously ruled the defendants were liable for two years of profits, $83.3 million.

"The settlement that we announced in court confirms that Mr. Wilpon and Mr. Katz and their partners acted at all times in good faith and did not act willfully blind," said Robert Wise, one of their lawyers.

The Sterling parties' customer claims of about $178 million will be entitled to recovery on the same basis as other customers of the Madoff firm. Any pro rata distributions would be used to reduce the Sterling parties' settlement obligation.

The settlement was reached on Friday, but kept secret until Monday, when Rakoff announced it in court. The two sides agreed not to make any disparaging statement about each other or the settlement.

"All I have to say is, love is wonderful," the judge said. He set April 13 for final approval of the deal.

The case is Picard v. Katz et al, U.S. District Court, Southern District of New York, No. 11-03605.

For Picard: Fernando Bohorquez Jr., David Sheehan and Karin Jenson of Baker & Hostetler.

For Katz: Dana Seshens and Karen Wagner of Davis Polk & Wardwell.

(Reporting by Grant McCool and Jonathan Stempel; additional reporting by Basil Katz)

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