Yankee profits, World Series taxes and steak
ByIt’s a three-for-one special this afternoon on RAB. You get three mini-posts about the Yankees’ business and rolled up into one.
Yanks break even in ‘09
Generally, the New York Yankees with their gaudy $200 million payroll, don’t turn a profit. According to team officials, the club operates in the red due to the $100 million in revenue sharing and luxury tax payments it must make each year. In a way, that figure is a bit of an accounting slight of hand because it doesn’t count numerous other Yankee business ventures, including the YES Network, but that’s what the books read.
This year, though, the economics of the Yankees are different. As CNBC’s Darren Rovell reported yesterday, the Yankees are breaking even this year, and the team can thank the generosity and largesse of the City of New York for it. Reports Rovell:
But thanks to higher ticket prices, crowds filling the new Yankee Stadium seats to almost 94 percent of capacity and, perhaps most importanly, the tax shelter associated with new stadium costs that can be deducted from the team’s net revenues, sources say that the Yankees organization will make break even or perhaps even make money this year.
Sources say the savings on the tax shelter are expected to be at least $40 million.
I’ve long contended that taxpayers got a raw deal with the new Yankee Stadium. The city forewent far too much tax revenue and handed out far too many tax subsidies at a time when it could least afford it. The Yanks, though, are benefiting from it. The team has talked about maintaining or reducing payroll for 2010, but with this tax shelter, it appears as though the Yanks could add payroll next year and still come out fiscally stronger than they were a year or two ago.
World Series nets New York $40-$110 million
The New York City economy has long been sagging. Saddled with rising costs and a decreasing tax base due to the current recession, the city is in danger of running a deficit that would trigger state control of municipal finances. Perhaps, though, the World Series can alleviate some of the pain.
According to the Daily News, the World Series is very, very good for the economy. Each game brings in approximately $20 million in added revenue. From taxes on merchandise sales to bar tabs and crowded restaurants, business and the government enjoy the benefits of the Fall Classic. Even the MTA which sees 20,000 more riders per game gets in on the act.
For the Yankees and the City, the ideal outcome too would be a parade. A World Series victory would mean an additional $30 million economic activity. Here’s to No. 27.
NYY Steak roots for rain delays
Finally, we arrive at food. Crains New York spoke with David Miller, the COO of NYY Steak, about running a steak house in a stadium. While fans root for clear skies and warm weather, Miller says his restaurant benefits from rain delayed games and cool winds. “Rain and cold drive up business at the restaurant by at least 20 percent,” he said to Lisa Fickenscher.
According to Miller, the average tab at the steak house runs to around $98, and the place fills up pretty quickly once the game wraps up. It will be interesting to see how both NYY Steak and the Hard Rock Cafe do over the winter. These two establishments will keep their doors open all year long but won’t enjoy the benefits of 48,000 fans traipsing past their doors 81 times as they do during the summer.
I wonder if the increased revenues generated from higher sales and income taxes related to the businesses in and around the Stadium (as much as you can conceivably tie them to specifically this stadium as opposed to the old stadium) are offset by the lost tax revenues that could have been gained from a more favorable stadium financing deal (and counter-offset by the negated maintenance costs for the old eliminated stadium (and counter-counter-offset by the construction and infrastructure costs related to tearing down the stadium and rebuilding/improving the surrounding areas).
My bet is that the city is taking a moderate loss when looked at in totality. Not a gigantic loss, not a miniscule loss, just a modest but statistically non-negligible loss.
JMHO.
What sort of tax shelter are they referring to? My understanding of the stadium deal is that the Yankees got a break in that they received tax-exempt bonds. While this saves the Yankees money (they pay a lower interest rate on them), it mostly hurts the federal government because they have higher tax rates than the city. Were there other additional tax breaks?
It sounds like he is talking about the luxury tax shelter within MLB – not anything associated with the city. That would have a huge impact on their revenue sharing payments.
The bonds are exempt from all taxes – city, state, and federal. All three levels of government lose out on potential tax revenues.
Right, but the city only loses out on the portion of the interest that is paid to city residents. Also, the city tax rate is much lower than the federal rate (~4% vs ~35%) the federal government loses the most money. Even if all of the bonds are held by city residents, the city only loses around $2M per year.
True, but 2M is still 2M.
The big loser is the Feds, yes. Which is why they’re investigating it as well.
Yeah, the Feds are pissed because they see the city giving away their money.
In the end, the city probably could have gotten a better deal, but the actual deal isn’t that bad (and certainly better than a lot stadium deals).
FWIW, Congress put the kibosh on this type of stadium financing deal. They don’t want to ever see it happen again.
I thought the main benefit of the stadium was they can offset its costs against their MLB payroll with regard to luxury tax and thus save luxury tax payments to MLB.
There’s way more than one “main benefit” to the stadium.
Yeah, i mean in terms of the accounting side of things.
Yes, but which accounting?
The MLB-level accounting, or the team-level accounting? The bottom line is, the tax benefits probably outweigh all other benefits it terms of pure dollars and cents savings. The MLB rules in terms of revenue sharing/luxury tax offsets for stadium construction is nice, but it probably pales in comparison to tax savings. I mean, this is a 1.5B construction project that’s virtually tax-free.
I meant at the MLB level, but realistically the high level benefits are the new stadium are offsetting taxes, thus the actual cost being less than 1.5B & increased revenue streams
That was another reason they built the new stadium. They had to take advantage of the MLB system that lets teams who build stadiums save payments on luxury tax and rev sharing. Now they can enjoy all those profits without supporting do nothing owners in Pittsburgh and Florida. Besides being a moneymaker its a money saver.
The food better get a lot better if they expect to make any money during the off season. Because not many are going to the South Bronx at night for average food.
Have you eaten at NYY Steak? I haven’t eaten at either, and I’m curious to hear a review of the food.
Paul Lukas reviewed the place for his Page 2 column. Seems decent.
http://sports.espn.go.com/espn.....kas/090422
Also, doesn’t the city really own the new Yankee Stadium not the team?
I think it only owns the land. I could be wrong, though.
Correct. The city bought back YS2 from the Yankees way back in the day (I think during the CBS ownership period, could be wrong) and leased it to the team.
The new stadium, however, is owned wholly by the team and the city leases the land underneath it to the team, for free, into perpetuity (while the stadium still stands on it, that is) and does not collect any property taxes on said land.
FWIW, Outside the Lines’s piece on the tax-free bonds issue (from last year):
http://videos.espn.com/m/video.....oversy.htm
If the City saved the team $40 million through the bonds, but makes $40-110 million through the WS, looks like the City comes out just fine this year, even if allowing the bonds cost the City face value. Presumably the other post-season series also brought extra visitors and their money to the City, as well as happy fans watching games and celebrating in City establishments. Not to mention the 81 days out of the year that regular games bring fans from ‘away’ and get local fans out in the City. Long story short, looks like the team brings a pretty reasonable net economic gain to the City.
That they do. It’s quite easy to make a pro-tax-free argument for keeping the Yanks happy. The thing is, though, the Yanks weren’t going anywhere with or without tax-free bonds. New Jersey was firmly off the table when the new stadium deal was negotiated.
If the City saved the team $40 million through the bonds, but makes $40-110 million through the WS, looks like the City comes out just fine this year,
That’s not what it said, though.
The two sourced articles are saying:
1) The YANKEES are saving about 40M in tax shelters from the stadium. Most of that tax savings is probably federal corporate taxes, but portions of it are city and state taxes they would have paid on property/real assets/held bonds/etc, so that lost tax revenue that the city and state budgets would get is a portion of that 40M (but not a miniscule portion).
2) The PLAYOFFS (not the Stadium, mind you, just the playoffs) is bringing in 40-110M to the NYC ECONOMY. Not 40-110M in straight tax revenue; 40-110M in increased business in the NYC economy. The city itself only sees 4-8% of that money, depending on applicable sales taxes, plus a portion of the increased income taxes (if this increase in city economy equals increased payouts to employees on the other end.
It may be a wash, it may be a loss, it may be a win. Not nearly enough info to know from those two non-detailed articles.
The fact that I can go to the stadium and not worry about whether the puddle I just stepped in was beer or urine is enough of a benefit for me to support a new stadium.
I’m not saying I’m not in favor of the new Stadium. I am.
I’m just saying, it’s a bit of a civic screw job, especially for the non-Yankee-fan New Yorker (or non New Yorker, for that matter).
The “tax shelter” referred to in the article is that the cap ex expenditures are deductible from revenue for corporate tax purposes, which would be the case if your uncle Bob put a new wing on his widget factory. It’s not a give away, it’s just the Yankee’s current state of play as a taxpayer.
The city allowing the Yankees to use municipal bonds is almost certainly revenue positive for the city and state or at worst revenue neutral. The Yankees got the subsidy of lower interest payments in exchange for engaging in activiy that local governements love: a massive, billion dollar constructon project. The alternative financing routes the Yankees could have pursued would have involved higher interest payments which might have caused them to spend less on the project, i.e., less on things like materal purchases (subject to sales tax) and wages (subject to income tax). If the Yankees don’t get the boost of using the municipal bonds, their alternatives would be (1) offering taxable corporate bonds paying higher interest rates in which case the city and state only get additional taxes paid by the bondholders if those holders are NY taxpayers with no offsetting losses or (2) financing via loan in which case the city and state only get potentially the tax on the payments to any banks in the syndicate that are NY taxpayers. Note that the federal government likely recovered more in income tax on wages for the project than they would have recovered in taxable interest payments from bondholders had the Yankees gone that route.
After the fact grandstanding by financially illiterate legislators aside, the state and local folks who assisted in this deal knew what they were doing and were looking out for their interests.
You moan about the taxpayers burden and then in the next section speak of the economic benefits a New York World Series brings to New York, give me a break. If the Yankees can stay and pump more revenue into the roster, be successful and bring more World Series to New York, then this is all moot.
Yes, heaven forbid somethig could possibly be a complex issue that has some positives and some negatives, and we discuss that complex issue here. All we ever want are clear goods and evils that we can cheer or boo, melodrama-style.
(rolls eyes)
But…how will I know what to do if no one tells me what to think!??!
Peripatetic’d
I am just sick of the complaining this site does about the new stadium.
I thought I read somewhere that in the collective bargaining agreement…any team building a new stadium is exempt from revenue sharing up to a certain amount during the first year or so?? It was something like that…anybody remember that?