Yankees May Have Hit Their Financial Limit: Lost Lots of Money in 2005

[Dynasty]

New York Daily News Story

It's possible we may be seeing a reduction in the Yankees' payroll if the New York Daily News' story is correct.



Despite drawing more than four million fans, the Yankees lost between $50 million and $85 million for the 2005 season, several Major League Baseball sources told the Daily News. The benefactors of baseball, who pumped more than $200 million into their payroll and almost $110 million into revenue sharing and luxury tax, are deep in the red this year.
"Yes, even George has his limits," one source said.

And it may get worse.

According to lawyers close to the situation, the Yankees might have to share additional revenue with poorer clubs if a consultant hired by MLB decides they undervalued their television rights. The Yankees currently charge the YES Network about $60 million a year to broadcast games, but the consultant is expected to say the rights are worth far more. If he does, that will mean the Yankees will be required to make up the difference and put more money into the revenue-sharing fund.

The Yankees and the YES Network might appear to be one and the same, but the ownership of each is constructed differently and they are required by baseball to operate as two separate entities. MLB doesn't want clubs with their own networks to hide team revenues in network accounting books as a way to avoid revenue sharing.

"They're going to owe us money," one MLB source predicted.

The extent of the Yankee losses won't be clear for months, after they finish the epically complicated task of analyzing revenues for their major and minor league operations and file their financial statements with the commissioner's office. Several sources said they believe the final number will be roughly $80 million when all is tallied. According to Forbes magazine, the Yankees lost $37.1 million in 2004.

Although the Yankees lost $50 million to $85 million in the 2005 season, it doesn't mean Steinbrenner and his YES partners lost money. The Yankees' holding company, Yankee Global Enterprises LLC, owns 35% of YES, while Goldman Sachs and Providence Equity own 40% and several individuals make up the remaining 25%. YES continues to be profitable, although network partners have borrowed money against the company's cash flow.

Baseball has always been the domain of creative math, back to the days when the Brooklyn Dodgers' Walter O'Malley famously claimed $2 million in losses because he had expected to make $4 million and only made $2 million. But sources said the Yankee losses are real by any measure, and the upshot of the team's financial strains has been evident since last winter, when the team refused to bid on Carlos Beltran - even when they were well aware of their developing center field problems.

The Yankees had overall revenues of roughly $335 million in 2005 (including the $60 million from YES), but after their $200 million payroll in addition to operating costs, they will pay $75 million in revenue sharing and $33 million in luxury tax, which is based on 40% of payroll over $128 million. (The Yankees would have paid a lower tax rate, but because they were over the luxury tax threshold for the third straight year they were required to pay 40%.)

The size of the Yankee losses, and GM Brian Cashman's announcement that the team is going to cut payroll, is rife with significance for the entire game.

This is what commissioner Bud Selig and owners (other than the Yankees') had in mind when they pushed for revenue sharing and a luxury tax in the current basic labor agreement. The Yanks' payroll is already down to around $160 million, and it is expected to end up in the $180 million-$185 million range. The top seat at the Stadium will cost $110 next season, a $20 increase. And no longer can agents assume that the Yankees will inflate the market for the best free-agent players.

When the Yankees build their new stadium they will be able to deduct some of the building costs from their portion of the revenue-sharing pool, but when the stadium opens in 2009 they should have vast new revenue streams from concessions (up to six times the current stadium retail space) and luxury boxes (with up to three times as many as they have now).

The Yankees could catch a break if the Basic Agreement, set to expire next year, is extended without a new deal. Under the current agreement, if they play 2007 under the old contract then there is no luxury tax. And just think how many center fielders they could get with that extra $33 million.

[lastchance]

George needs to hire a GM and a bunch of minor league staff.

[rudedog78]

It's good to know that the yankees are not invicible... for now!

They lost money last year too. Probably are still profitable both years considering they have their own network. They are gettin investigated by mlb for charging their network 20 mill less than they should have. Easy way to avoid rev sharing and make it look like the team is losing money

[pokerdirty]

wow, I'm soooo glad we get to have soooo many threads on this...

[brettbrettr]

I think that 5-6 years ago, when the payroll was still the highest in the league, the Yanks needed to make the playoffs to turn a profit. Obviously that's changed.

But Steinbrenner also holds a good chunk of equity in the Nets and, I believe, a Japanese team. He's not going to be on the soup line anytime soon.

[istewart]

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But Steinbrenner also holds a good chunk of equity in the Nets

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He's not going to be on the soup line anytime soon.

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Hmm... [img]/images/graemlins/grin.gif[/img]

[Wes ManTooth]

[ QUOTE ]
"Yes, even George has his limits," one source said

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Doubtful

[ThaSaltCracka]

[ QUOTE ]
This is what commissioner Bud Selig and owners (other than the Yankees') had in mind when they pushed for revenue sharing and a luxury tax in the current basic labor agreement.

[/ QUOTE ] Something about this irks me. I am sure I will catch some flack, especially since I am a fan, but I think this is somewhat of a negative effect. Sure, it forces them to cut payroll and to try and find other solutions to improve their team, but it seems like it is also stiffling growth(sort of like high taxes in the economy). I already have some issues with revenue sharing anyways, but I will agree that it does some good things as well.

I think it is easy for people to be happy with this announcement, because it means that the Yankees are "suffering". However, most of us agree that they were heading down the wrong path anyways to fix this team.

[MyTurn2Raise]

The Yanks need to get this guy back