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01-06-2005, 12:56 PM
A $32 million dollar extension for a 41 year old pitcher may be the straw that breaks the camel's back. Steinbrenner's always been willing to re-invest most of the profits back into the team but the Yankees mismanagement of signing high priced players may have finally caught up to them. Here's an interesting article from the NY Times:
Big Spending by Yankees Is Not Proof of Big Profits
By RICHARD SANDOMIR
Published: January 6, 2005
It is a source of continuing amazement in baseball: how do the Yankees, a team stocked with millionaires, continue to afford high-priced players like their newest superstar, Randy Johnson?
Does George Steinbrenner stash cash beneath the carpeting of his Tampa home, or is he gleefully deficit-spending his way to the World Series?
Surely, the Yankees must be rolling in cash thanks to the 3.77 million fans who went to Yankee Stadium last season, the $64 million in rights fees from the YES Network and sponsors like Adidas.
But a closer look at the private finances of baseball's most successful, envied and valuable team reveals that it may not be making money. Whether that is the reason for its seeming disinterest in Carlos Beltran, the prime free agent of the off-season, is not known with certainty, but at some point, even the Yankees may resort to temporary prudence.
Consider that in addition to a 2004 payroll of $187.9 million, Steinbrenner, the Yankees' principal owner, was saddled last year with two other large expenses: $63 million to be paid into Major League Baseball's revenue-sharing fund and $25 million in luxury-tax payments, a penalty that only the Yankees have paid in each of the past two years. That meant that $276 million went to players and less-wealthy teams, from total revenue estimated at $315 million to $350 million, before Manager Joe Torre, the coaches, the front office, the minor league system and the rent were paid.
In 2003, the payroll was a little smaller at $170 million, the revenue-sharing payment was the same $63 million and the luxury-tax payment was a lot less, at $11.2 million. And the Yankees, according to Michael Ozanian, a senior editor of Forbes magazine, posted an operating loss of $23 million that year, on revenue that he estimated at $238 million, including $119 million in income from ticket sales, luxury suites and club seats.
Andrew Zimbalist, an economics professor at Smith College who has written about baseball finances and who consulted for the players' union a decade ago, said the numbers might not add up for the Yankees.
"If you do a profit and loss, I don't think there's a plus at the bottom," he said. "But that doesn't mean it doesn't make sense for Steinbrenner."
Zimbalist and other sports business experts said that beyond Steinbrenner's craving for more World Series titles, his goal is to build the value of the team and the YES Network, in which the Yankees and the former owners of the Nets are majority owners. That goal prevails, even if it means operating at a short-term loss. Last May, the Goldman Sachs Group arranged lending worth $225 million to the Yankees to help finance losses, provide working capital and consolidate debt.
The experts saw the acquisitions of Johnson, Alex Rodriguez and other marquee names as a strategy to keep nearly four million fans jamming Yankee Stadium annually, to keep the team winning and to keep YES ratings high.
It may not be a coincidence that the addition of huge stars with enormous salaries has come since YES went on the air in 2002.
"It's an effort to keep the Yankees, always, as by far the premier brand," Ozanian said. "But a lot of what Steinbrenner does is not to maximize profit, it's to win."
The empire-building - the development of the Yankees as a ubiquitous entertainment product with ventures in Japan, with the Manchester United soccer team in England and in a new memorabilia business - could lead to a team and a network each worth $1 billion or more. This year, Forbes valued the Yankees at $832 million.
The Yankees declined to comment on their financial situation. What is known, through public documents, about past Yankee profitability is sketchy. A prospectus issued when bonds were sold to finance the Yankees-Nets merger showed the Yankees had a profit of $1.4 million in 1996, a loss of $8.6 million in 1997 and a leap to a $12.7 million profit in 1998.
In the first nine months of 1999 - before the Yankees beat the Braves in the World Series and playoff revenues were added - the team had a $4.4 million loss.
And in 2001, when Commissioner Bud Selig testified before Congress and said there were 25 money-losing teams, he released a report that placed the Yankees among the money-making few: the team had an operating profit of $8.2 million before deductions for interest, depreciation and amortization.
Several factors have altered Yankee finances in the 21st century. Steinbrenner's spending on player salaries has doubled since 2000, his bill for revenue sharing and the luxury tax has soared and the YES Network was created.
The 2005 payroll, which without Beltran is about $200 million, will no doubt exceed the threshold that triggers baseball's luxury tax - which is set at $128 million for next season. That will make the Yankees a three-time offender of the so-called deterrent to profligate spending and, as such, force to them to pay a 40 percent tax on all payroll over $128 million. That tax could end up close to $30 million.
There are more challenges ahead that will both increase Yankee revenue and payments to other teams. Sometime this year, the team will unveil its plan to build and privately finance a $750 million ballpark to replace Yankee Stadium.
While a modern facility would increase all sources of revenue, it would also lead to more money going into the revenue-sharing fund. On the other hand, the Yankees' debt payments for the stadium would be used as a revenue-sharing deduction that could save up to $15 million annually.
Before the ballpark on Macombs Dam Park is completed, YES will have paid rights fees to the Yankees for seven or more years. Like other TV stations or regional sports networks owned by teams, YES's existence has raised questions about whether a network with the same or similar ownership to a team pays full market value for the cable rights in what is called a "related party transaction."
The trend has also prompted concerns that income from the networks will unfairly subsidize team spending.
But Tom Werner, an owner of the Boston Red Sox, said that earnings from the New England Sports Network, which the team's investors, and the Bruins, also own, do not flow to the team. "I know people think we're more robust because of the success of NESN, but we're not," Werner said. He said a higher payroll is traceable to enhanced revenues from sponsorships, new seating and new seating and other sources.
Big Spending by Yankees Is Not Proof of Big Profits
By RICHARD SANDOMIR
Published: January 6, 2005
It is a source of continuing amazement in baseball: how do the Yankees, a team stocked with millionaires, continue to afford high-priced players like their newest superstar, Randy Johnson?
Does George Steinbrenner stash cash beneath the carpeting of his Tampa home, or is he gleefully deficit-spending his way to the World Series?
Surely, the Yankees must be rolling in cash thanks to the 3.77 million fans who went to Yankee Stadium last season, the $64 million in rights fees from the YES Network and sponsors like Adidas.
But a closer look at the private finances of baseball's most successful, envied and valuable team reveals that it may not be making money. Whether that is the reason for its seeming disinterest in Carlos Beltran, the prime free agent of the off-season, is not known with certainty, but at some point, even the Yankees may resort to temporary prudence.
Consider that in addition to a 2004 payroll of $187.9 million, Steinbrenner, the Yankees' principal owner, was saddled last year with two other large expenses: $63 million to be paid into Major League Baseball's revenue-sharing fund and $25 million in luxury-tax payments, a penalty that only the Yankees have paid in each of the past two years. That meant that $276 million went to players and less-wealthy teams, from total revenue estimated at $315 million to $350 million, before Manager Joe Torre, the coaches, the front office, the minor league system and the rent were paid.
In 2003, the payroll was a little smaller at $170 million, the revenue-sharing payment was the same $63 million and the luxury-tax payment was a lot less, at $11.2 million. And the Yankees, according to Michael Ozanian, a senior editor of Forbes magazine, posted an operating loss of $23 million that year, on revenue that he estimated at $238 million, including $119 million in income from ticket sales, luxury suites and club seats.
Andrew Zimbalist, an economics professor at Smith College who has written about baseball finances and who consulted for the players' union a decade ago, said the numbers might not add up for the Yankees.
"If you do a profit and loss, I don't think there's a plus at the bottom," he said. "But that doesn't mean it doesn't make sense for Steinbrenner."
Zimbalist and other sports business experts said that beyond Steinbrenner's craving for more World Series titles, his goal is to build the value of the team and the YES Network, in which the Yankees and the former owners of the Nets are majority owners. That goal prevails, even if it means operating at a short-term loss. Last May, the Goldman Sachs Group arranged lending worth $225 million to the Yankees to help finance losses, provide working capital and consolidate debt.
The experts saw the acquisitions of Johnson, Alex Rodriguez and other marquee names as a strategy to keep nearly four million fans jamming Yankee Stadium annually, to keep the team winning and to keep YES ratings high.
It may not be a coincidence that the addition of huge stars with enormous salaries has come since YES went on the air in 2002.
"It's an effort to keep the Yankees, always, as by far the premier brand," Ozanian said. "But a lot of what Steinbrenner does is not to maximize profit, it's to win."
The empire-building - the development of the Yankees as a ubiquitous entertainment product with ventures in Japan, with the Manchester United soccer team in England and in a new memorabilia business - could lead to a team and a network each worth $1 billion or more. This year, Forbes valued the Yankees at $832 million.
The Yankees declined to comment on their financial situation. What is known, through public documents, about past Yankee profitability is sketchy. A prospectus issued when bonds were sold to finance the Yankees-Nets merger showed the Yankees had a profit of $1.4 million in 1996, a loss of $8.6 million in 1997 and a leap to a $12.7 million profit in 1998.
In the first nine months of 1999 - before the Yankees beat the Braves in the World Series and playoff revenues were added - the team had a $4.4 million loss.
And in 2001, when Commissioner Bud Selig testified before Congress and said there were 25 money-losing teams, he released a report that placed the Yankees among the money-making few: the team had an operating profit of $8.2 million before deductions for interest, depreciation and amortization.
Several factors have altered Yankee finances in the 21st century. Steinbrenner's spending on player salaries has doubled since 2000, his bill for revenue sharing and the luxury tax has soared and the YES Network was created.
The 2005 payroll, which without Beltran is about $200 million, will no doubt exceed the threshold that triggers baseball's luxury tax - which is set at $128 million for next season. That will make the Yankees a three-time offender of the so-called deterrent to profligate spending and, as such, force to them to pay a 40 percent tax on all payroll over $128 million. That tax could end up close to $30 million.
There are more challenges ahead that will both increase Yankee revenue and payments to other teams. Sometime this year, the team will unveil its plan to build and privately finance a $750 million ballpark to replace Yankee Stadium.
While a modern facility would increase all sources of revenue, it would also lead to more money going into the revenue-sharing fund. On the other hand, the Yankees' debt payments for the stadium would be used as a revenue-sharing deduction that could save up to $15 million annually.
Before the ballpark on Macombs Dam Park is completed, YES will have paid rights fees to the Yankees for seven or more years. Like other TV stations or regional sports networks owned by teams, YES's existence has raised questions about whether a network with the same or similar ownership to a team pays full market value for the cable rights in what is called a "related party transaction."
The trend has also prompted concerns that income from the networks will unfairly subsidize team spending.
But Tom Werner, an owner of the Boston Red Sox, said that earnings from the New England Sports Network, which the team's investors, and the Bruins, also own, do not flow to the team. "I know people think we're more robust because of the success of NESN, but we're not," Werner said. He said a higher payroll is traceable to enhanced revenues from sponsorships, new seating and new seating and other sources.