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.