Sep
21

Report: Yankees Global Enterprises carrying $2 billion in debt

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The Yankees’ holding company is currently carrying nearly $2 billion in non-stadium-related debt and $1.2 billion in stadium bond debt, according to a report in the Sports Business Journal. Despite these seemingly staggering numbers, though, Yankees Global Enterprises enjoys a cash flow high enough to make the debt, in the words of one baseball source, “very manageable.”

Daniel Kaplan has more:

The enterprise value of the companies composing YGE is roughly $5 billion, and cash flow at YES alone is expected to hit $208 million this year, sources said. YGE has been using the bulk of YES’s cash flow to reduce the regional sports channel’s debt, which is $1.448 billion, the sources said…

Neil Begley, a media and entertainment analyst at Moody’s Investors Service, which rates the stadium bonds, said ratio of debt to value for YGE was in line with other companies of its kind. “It is a significant amount of debt for a sports enterprise, probably among the biggest there is,” he said. “But if they cleared 2009, I would be hard pressed to think they would have economic pressure more significant than that.”

What also stands out about the debt is how little of it, $97 million, actually resides at the team. MLB’s debt regulations are applicable to the league’s clubs, but not to the clubs’ affiliates. It also underscores how the Yankees have shifted revenue to affiliates like YES and Legends, limiting the already steep revenue-sharing and luxury-fee payments, about $100 million, the club pays to MLB. The team also deducts about one-third of its $64 million annual stadium interest payment from its revenue-sharing commitment.

What makes this story so interesting isn’t necessarily the high debt total but rather the overall picture we get of the Yankees. This is a company that is financially healthy enough to be carrying $2 billion worth of debt, and the on-field product — the New York Yankees themselves — are responsible for just $100 million. By shifting debt to the other YEG holdings, as Kaplan notes, the Yankees are not subject to MLB’s debt regulations.

Going forward, it seems clear that money isn’t much of an obstacle to the Yankees. The team will have a budget, higher than anyone else’s, for the on-field roster because it will make them operate more efficiently, but as, say, Derek Jeter‘s contract comes due, the difference between $15 million and $18 million a year is negligible to the Yankees.

It’s worth also keeping an eye on how the team comes under attack when the collective bargaining negotiations begin next year. The original luxury tax/revenue sharing schemes were instituted to reign in the Yanks’ spending, but the team has kept on spending while making use of smart accounting and corporate practices that allow them to shift the revenue and debt to other affiliates. If the owners again go after the Yankees’ millions, I expect the Steinbrenner family to fight hard against it.

Categories : News
  • Dream of Electric Sheep

    It’s always wonderful to be the handsomest and richest kid on the block.
    The empire just keeps on ticking . Also, I believe the important moral lesson here is this- if you are going to owe money, owe 1 billion instead of 1000.

    • Bob Stone

      Absolutely. Thank big!

      • Bob Stone

        I meant think big, but “thank big” works for us Yankee fans.

  • Big Stein

    Why is YES is so expensive? $1.4 Billion? Where did the money go? Yeah, it cost a couple of dollars to build a studio, hire some announcers and camera people, buy some satellite dishes, rent a building, but at most that cost $10 million bucks. Where did the rest go?

    • vin

      Bob Lorenz doesn’t come cheap.

    • Ed

      I wonder if they bought out an early investor or something along those lines. Goldman Sachs used to own a large chunk of the network. I don’t know what happened when Goldman Sachs sold their stake, but perhaps the Yankees Global Enterprises bought them out?

      Another thought – YES pays a fee to the team for the broadcast rights. Perhaps they have a long term contract in place, and the total money owed from the deal is being counted?

      • Bob Stone

        I haven’t researched it, but I am sure that the debt is due to some very creative accounting. When you look at it, the Yankees have been very smart and very creative in their financial structuring.

        The net effect of the low interest bonds the Yanks convinced the City of New York to sponsor actually takes the money that would have gone to luxury tax and pays off the new Yankee Stadium III. An exemption (loophole) to the luxury tax is capital improvements. That is what Yankee Stadium III represents – a very big capital expenditure.

        The result . . . the rest of the blood sucking cheap-and-or-poor/small market teams are pyaing for the new stadium.

        The rich get richer and the poor get poorer.

  • pat

    (Insert sinister laughter)

    • http://mystiqueandaura.com Steve H

      How much of this debt is tied up in your salary?

      • pat

        Heh, not nearly enough. Maybe like .00000000000000000001%

  • Yank the Frank

    I have a similiar financial situation

    • Guest

      This handle is hilarious on so many different levels. Well played, sir.

  • Big Stein

    The original luxury tax/revenue sharing schemes were instituted to reign in the Yanks’ spending, but the team has kept on spending

    Actually, it’s working.

    Yankee payroll in 2005 was $208 million.

    Yankee payroll in 2010 was $206 million.

    Ticket prices and concession prices are a lot higher today, than they were just 5 short years ago, yet team payroll has remained stagnant.

    • Bob Stone

      In current dollars (accounting for inflation), one could argue that the payroll total is actually DOWN.

      • Big Stein

        But I can see their point of view: every time you sign someone, you have to pay a 40% tax that goes to funding your opponents (ie the Rays) and even if they didn’t pay a luxury tax, they’re still stuck with revenue sharing.

        So, yes, the luxury tax and revenue sharing has curtailed payroll.

        • Bob Stone

          Read my comment above. They don’t actually pay the full luxury tax because of the capital expenditure exemption.

          • Big Stein

            the capital expenditure exemption applies to revenue sharing.

          • Big Stein

            but, yes, your are correct about payroll being down, and profit margins being UP.

    • Ed

      I was thinking the same thing. Payroll went down for a while after ’05 and hasn’t gone significantly over that total.

      The threshold where luxury tax kicks in has been increasing every year, so if you factor that into the equation, the team’s payroll expenses have actually been going down.

    • MikeD

      The Yankees really ramped their payroll in the mid-Aughts, probably driven by George Steinbrenner’s desire to win another world championship before he started transitioning day-to-day control to his sons in following couple of seasons. It’s fluctated right around that $200-million mark for the past five or six seasons, at times a bit higher, and at times a bit lower.

      I think that’s clearly by design, sending a message that while the Yankees are not planning to cut their payroll, they’re also not looking to keep escalating it either. There is probably some concern with a new CBA pending that the the rest of MLB will look to take more of the Yankees pie. It’s a legitimate concern.

      • Bob Stone

        Excellent point about the new CBA and perception of the Yankees by other owners and the MLBPA.

        • MikeD

          Just a guess, but by holding their payroll around the 200-million mark for six seasons, the Yankees are sending messages to both the MLB/owners as well as the Players Association.

          To the owners they’re saying we’ve stopped escalating our salary base so no need to take further punative action. More importantly, they’re talling the Players Association that the combination of luxury tax and revenue sharing is stopping the Yankees from spending more on players’ salaries. That players’ union has always been protective and supportive of the Yankees free-spending ways and don’t want to do anything to slow the Yankees down on that front. If they’re convinced the luxury tax is impacting the Yankees, they will fight any attempt to increase it. I have no evidence of this, but seems logical.

          Last, I’m curious about the recently leaked financial documents. Seems to me this would benefit the higher revenue teams, especially the Yankees, but letting the world know that the Pirates and the Marlins of the world are quite profitable. Not sure how the Yankees could orchestrate the leaking of documents, but it’s an interesting thought.

      • Big Stein

        of course, the MLPA has to be pissed about about owners increasing their profit margins. By they will have trouble trying to get public sentiment on their side, when someone like John Lackey makes $18 million per year.

        • http://www.yfsf.org AndrewYF

          Who cares about public sentiment? We don’t vote for anything.

          • Big Stein

            It hurts their commercial endorsements.

      • Big Stein

        what’s aggravating is the Yankees keep their payroll in check and pay, as Benjamin said, $100 per year in revenue sharing and luxury tax, yet teams still hate the Yankees so much, they won’t trade with them (ie Dodgers pulling back ted lilly from waivers when the yankees claimed him/Seattle screwing cashman over the CLee deal).

        • http://www.yfsf.org AndrewYF

          “Seattle screwing cashman over the CLee deal”

          It’s funny how often teams think they’re screwing the Yankees, when in fact they’re doing them a favor.

          Thank you, Z. Thank you.

  • Sweet Dick Willie

    The original luxury tax/revenue sharing schemes were instituted to reign in the Yanks’ spending, but the team has kept on spending while making use of smart accounting and corporate practices that allow them to shift the revenue and debt to other affiliates.

    Kinda like Congress & the wealthy. Congress passes laws to tax the rich, but the rich have access to the best attorneys & accountants, so they find the loopholes.

    Or, to use Ben’s phraseology, “they make use of smart accounting and corporate tax practices that allow them to shift the revenue and debt taxes to other affiliates taxpayers.

    • Bob Stone

      Exactly!

    • Big Stein

      Congress passes laws to tax the rich

      Not always. For example, capital gains tax used to be 28%, now it’s down to 15%.

      And loopholes are sometimes gaps in tax law found by attorneys, but alot of the times, they’re written into the tax code by congressmen bought off by lobbyists, who are hired by the rich.

      • Bob Stone

        Very true.

      • Dream of Electric Sheep

        The short term capital gains is in the 30s, the long term gains has been 15 for at least couple of years.

        • Dream of Electric Sheep

          Pending on your tax bracket , they do tax you more for higher income (richer). A good accountant’s job has always been ‘hiding’ that income whether being personal/ corp in nature.

          wait.. i am hearing IRS at the door.

  • CS Yankee

    I fully expect YGE’s debt to increase to 2.5B$ once Hank gets his English futbol team.

    This liability will be offset by the asset of not having Hank around Yankee stadium.

  • I am not the droids you’re looking for

    All this off balance sheet financing sounds a bit like the situation in Greece. I wonder if that means a massive Marlins-style fire sale, to bring our payroll down to around $17 million, is in the offing.