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July 22, 2006

Future Yankeenomics

Ken Belson has an excellent feature on the Yankees and their new Stadium in the Times today. Some highlights:

Bankers, analysts and others familiar with the team’s finances say the franchise is now worth about $1 billion, nearly 70 percent more than the next most valuable team, the Red Sox, and nearly three times more than the average major league team is worth.

Making the most of a winning tradition and their home in the nation’s biggest city and media market, the Yankees generate nearly $300 million in annual revenue, according to an individual with knowledge of the team’s finances. He requested anonymity because of his continuing professional relationship with the team.

Yes, the Yankees earn the most money, but analysts say they also spend the most, giving the team razor-thin profit margins.

The Yankees’ haul is produced by its share of the No. 1-ranked regional sports network, YES, as well as the more than four million fans who flock to the Bronx in a season and pay top dollar for tickets, parking and food at the 83-year-old shrine known as the House That Ruth Built. The Yankees also get some of the highest licensing and advertising fees in Major League Baseball.

TO keep up with the escalating prices that it pays its players — a surge that Mr. Steinbrenner himself set in motion — the Yankees need still more revenue.

Meanwhile, the Yankees are trying to cut their payroll by using younger and cheaper players when possible and staking their financial future on a new megastadium.

Set for a 2009 debut, the stadium, including building costs and debt payments, will carry a $1 billion price tag. To pay for it, the Yankees will need to generate an additional $50 million to $60 million a year in revenue, according to analysts. Mr. Levine declined to discuss how much money the team expects to earn in its new digs, though he ruled out selling the naming rights to the stadium.

The challenges of financing the new stadium can be softened in some ways. The Yankees will be able to deduct some of the costs of building and operating the stadium from their contributions to other teams under the league’s revenue-sharing agreement.

The Yankees need the subsidies, tax breaks and new revenue not only to pay for the stadium, but also the team’s hefty payroll. Without that padding, the Yankees might find it harder to assemble a winning team. And without a winning team, it will be harder to raise tickets prices, broadcast rights and other fees.

I think it's going to be very interesting to see the Yankees payroll in 2008 versus what it's going to be in 2009.

Posted by Steve Lombardi at July 22, 2006 01:28 PM

Comments

That's the first that I've seen that they won't sell the naming rights. That's a relief.

Posted by: jonm [TypeKey Profile Page] at July 22, 2006 02:02 PM

What this article doesn't take into consideration is the possibility that the Yanks launch their own radio station after their deal with WCBS-880 expires in the offseason. The investment in a new radio station, or even the possibility of negotiating a higher rights fee to remain at WCBS, will represent found money and additional revenue for the team. Part of that equation is what YES can begin to charge the cable companies in subscriber fees now that YES is the #1 regional sports network in the country. I'd bet that the $2.09 being charged now will creep up to $2.25 or higher the next time it comes up for review.

Also, the Yankees haven't fully capitalized on new media streams such as podcasting games and things down the pike that we haven't even conceived of yet. Finally, never for a second doubt what a naming rights deal could bring to Yankee Stadium. They might say "no" now, but in business you never say never.

Posted by: MJ [TypeKey Profile Page] at July 22, 2006 02:11 PM

I'm not sure exactly how it works, but if they have a complete reduction of revenue-sharing money, then won't they be saving something like 100 million dollars the next year?

And I hardly think the Yankees have been leaning on less expensive players. This team is filled with those types of players because of injuries. Just this off-season they signed Damon to a huge contract and re-signed Matsui to a huge contract.

Anyway, if this just gets Hughes, Clippard, Duncan, Tabata, Cox, etc., up to the bigs faster, then so be it.

Posted by: baileywalk [TypeKey Profile Page] at July 22, 2006 03:24 PM