Archive for Business of Baseball
The Yankees, baseball’s biggest spenders for the better part of two decades, may finally be eying something of a budget, according to a report by Joel Sherman. In a piece on Sunday, the New York Post scribe says that Major League Baseball’s Collective Bargaining Agreement and the other 29 teams’ attempts at keeping the Yanks’ spending under control may finally pay off in 2014 as the New York front office wants to bring its payroll below the luxury tax threshold. If the Yanks are truly intent on reducing costs, the club will not overpay for long-term deals in the near future and may focus on ushering in a new round of young players instead.
Sherman, who noted that this drive toward fiscal control has them lukewarm on top free agent pitchers Mark Buehrle and C.J. Wilson, explained the rational behind the Yanks’ thinking:
As an organization, they are saying they are driven to have a payroll of $189 million or less in 2014 when that becomes the luxury tax threshold. Because the incentives that come via the new CBA are just too great for them to ignore.
For if they are at $189 million or less for the three seasons from 2014-16, they not only avoid paying one cent in luxury tax, which would rise to 50 percent for them as repeat offenders, but they also would get roughly $40 million in savings via the to-be-implemented market disqualification revenue sharing program. However, only teams under the luxury-tax threshold get reimbursed in this program, which is designed to prevent big markets such as Toronto and Washington from receiving revenue sharing dollars, which in turn will lower how much teams such as the Yanks pay (as long as they are under the threshold).
And even if they just went under $189 million for 2014 before going over again in 2015, the Yankees would receive serious benefits. They would get about $10 million in the revenue sharing disqualification program. Also, by simply going under the threshold once, the Yankees would go back to having a 17.5 percent tax rather than the 50 percent that begins in 2014 for them if they never go under. Keep in mind that since the luxury tax went to 40 percent for them in 2005, the Yankees have averaged paying $25.75 million in tax annually.
So what’s going on here? How could the Yankees, who enjoy the edge of money with their new stadium, TV deal and various other revenue sources, suddenly become fiscally conservative? There are, in effect, three answers. First, the Yankee sources who are talking to Joel Sherman are being truthful. The Yankees know what they stand to gain by getting their payroll under $189 million in 2014, and they think they have the young pieces to do so. Plus, as Sherman writes, the Yankees say, “The big-name guys are a waste of time. We are not spending that kind of money.”
Next, they could be bluffing. Maybe they’re playing coy now to make a bigger move later in the year. If any free agent player wants to come to New York but the Yanks don’t want to meet that player’s asking price, it’s in the club’s best interest to put forward a plausible explanation for future that is fiscally conservative. Maybe they want to go big on Yu Darvish or Yoenis Cespedes but do not want to overplay their hand now.
Third, they’re laying the groundwork now in order to play it coy next winter. Right now, they have $72 million tied up in three players in 2014 — A-Rod, Mark Teixeira and CC Sabathia. They know that they’ll have to deal with Robinson Cano‘s, Curtis Granderson‘s and Nick Swisher‘s free agencies within the next two offseasons, and they will likely want to retain two of those three if not all three. Plus, the free agent pitchers could include Matt Cain, Cole Hamels and Anibal Sanchez while Mariano Rivera‘s current deal — and perhaps his career — is set to end after 2012 as well. That’s a whole lotta holes the Yanks are going to have to fill with an eye toward the 2014 luxury tax benefits.
Ultimately, then, baseball’s long-term effort to rein in the Yanks’ spending may be coming to a head, at least temporarily. Baseball has incentivized the Yanks to drop their payroll under the luxury threshold for at least a season. In 2007, the Yanks spent $189 million and won 94 games. They’ve spent over $200 million every year since then and will likely do so again in 2012. Change may be on the horizon though, and if it comes, it could benefit the Yanks’ bottom line tremendously as they gear up for another half decade of exorbitant spending.
Via Paul Sokoloski, the Yankees have informed their minor league affiliates in Scranton/Wilkes-Barre, Tampa, and Staten Island that they want them to drop “Yankees” as their nickname. “There’s only one team they want as the Yankees,” said Jim Timlin, chairman of the Lackawanna County Stadium Authority board in Northeast Pennsylvania. “And they live in the Bronx.”
“It was a recommendation,” added Timlin. “We don’t have to listen to them. But it would be a good idea to go along with them. The Yankees, when they come back [to Scranton] in 2013, may have a different name. Scranton/Wilkes-Barre-something. The naming rights are up for grabs.” The Triple-A Scranton franchise will play all of their 2012 home games on the road as PNC Field undergoes $40M worth of renovations.
There’s something fishy going on here, no? The Yankees just offloaded their stake in the Staten Island franchise, and now asked them to change their name. Meanwhile, they’re purchasing the SWB franchise … and are still asking them to change their name. I’m sure there’s some weird legal reason behind it, but it just seems off from where I sit.
Ray Bartoszek, a commodities trader with a net worth estimated at $5 billion, purchased a minority share of the Yankees today, according to a variety of sources. Forbes says Bartoszek’s investment values the Yanks at nearly $1.7 billion. As ESPN New York detailed, Bartoszek allegedly purchased another minority share from one of the team’s limited partners who wished to sell. The sale will not impact the day-to-day management of the ballclub.
Bartoszek has recently been interested in breaking into the MLB ownership club. He was a runner-up to purchase a stake in the Mets earlier this year, but his offer fell short to David Einhorn’s proposal. Instead he gets the Yanks. Once upon a time, John McMullen said of owning a small piece of the Yanks, “Nothing is more limited than being a limited partner of George’s.” These days, though, it’s a badge of honor and apparently a sound investment indeed.
Update (Sept. 15th): More from Pimpsner. Apparently Mandalay doesn’t want anything to do with the Staten Island franchise after the sale if the Yankees are not involved. They will likely look to purchase another team, and their are several on the market. Important thing to remember: SI will remain the Yankees affiliate.
In other news, Mandalay and the Yankees are teaming up to buy the Triple-A Scranton/Wilkes-Barre Yankees for $14.6M. Much of that money is going towards PNC Field renovations, which will force the team to play all their games on the road next year.
Original Post (Sept. 14th): Via Robert Pimpsner, the Staten Island Yankees are being sold to a NYC hedge fund manager for $8.3M. It’s the second time the franchise has been sold in the last five years, but the first time it was the Yankees and Mandalay Sports Entertainment that did the purchasing. Average attendance has been dropping in recent years, and the sale was financially motivated. It’s unclear if Mandalay will remain involved with the team, but the franchise will remain in Staten Island and affiliated with the Yankees. An official announcement is expected soon.
When Yankee fans return to the stadium tomorrow after nearly two weeks away, they will be greeted by a new set of sandwiches in the Great Hall. As The Post reported, Rich Torrisi and Mario Carbone, the braintrust behind Mulberry St. hot spot Torrisi Italian Specialities will be opening a branch of their new sandwich shop Parm tomorrow in the Great Hall. The branch of the sandwich shop will sell the Torrisi and a new meatball parm offering. No word yet on the prices, but the turkey sandwich goes for $11 at the downtown restaurant.
One of the investment partners, Jeff Zalaznick, spoke about the challenges facing the team as they prepare to expand their business. Usually, they sell 200-300 sandwiches per day, but with over 40,000 fans per game heading to the Bronx, their volume will increase. “For a small restaurant group, we have a lot on our plates,” Zalaznick said to The Post. “We’re probably the first restaurant of our size to do something like this. It’s a totally new market, who we hope will have an equal appreciation for our sandwiches.” Having a Torrisi sandwich outlet in Yankee Stadium greatly improves what I believe are lackluster food options in the new stadium; these sandwiches should be quite good. The bricks-and-mortar version of Parm will open later this summer.
As the Yankees sign big-name free agents or their own players to seemingly larger-than-life contracts, we often bemoan the expenses. We shudder at the idea of paying 41-year-old A-Rod $21 million, 36-year-old Mark Teixeira $22.5 million or CC whatever exorbitant amount he will make after leveraging his opt-out clause this winter. We worry that the dollars will reward players for past performances and that the spending will handcuff the Yankees, but perhaps we shouldn’t.
In an interesting piece on the Baseball Reference blog yesterday, Neil Paine looked at the 100 players making the highest percentage of team payroll, and the Yankees are surprisingly not well represented. A-Rod’s $32 million salary is only 15.8 percent of the Yanks’ payroll this year, good for 19th in baseball. Carlos Lee, who makes 26.9 percent of the Astros’ total payroll leads the pack.
Behind A-Rod, only two other Yankees make the top 100: CC Sabathia‘s salary puts him at 49th overall. He makes 12 percent of the team payroll. Mark Teixeira’s salary represents 11.4 percent $202 million total, good for 62nd overall. For what it’s worth, the Red Sox have just two players on that list while the Mets have six.
For well-leveraged big-market teams like the Yankees and Red Sox, the object would be to limit the number of players on the list. With many high-paid players, clubs become top-heavy, and that’s what has happened to the Mets. They’re paying Johan Santana, Carlos Beltran, Jason Bay, David Wright, Francisco Rodriguez and Jose Reyes a combined 81 percent of their payroll which leads to little wiggle room for the rest of the 25-man roster. The Yankees have better maximized their economic might and can cover for so the more ungainly contracts.
Anyway, food for thought for the night. As we know, tonight’s game has been rained out, and no doubleheader is scheduled for tomorrow. The teams will instead make up tonight’s game on Thursday, Sept. 22 because Tampa Bay refused to play two on Saturday. Them’s the breaks.
Meanwhile, the Yankees have said they will skip Freddy Garcia‘s spot in the rotation. A.J. Burnett will face David Price tomorrow, and CC Sabathia will close out the first half against James Shields on Sunday. In local action, the Mets and Giants play at 10:15 p.m. In New York, the MLB Network will carry the Seattle/Los Angeles game at the same time.
On a tip via Twitter from Ross at NYY Stadium Insider comes some intriguing news about purchasing Yankee tickets online. As seats have become plentiful this spring and the secondary market already allowing fans to select their seats down to the row, Ticketmaster has unveiled an interactive seat map on Yankees.com that allows fans to pick out specific seats for games they want to attend. The screenshot above features a glimpse at seats in Sec. 417 available for tonight’s game against the Royals.
While this technology is new for fans turning to the team’s official site to pick out tickets, Ticketmaster has long been able to use it to sell seats for a variety of other events including concerts and other sporting events. It is, in my opinion, a change to the baseball ticket buying landscape that is long overdue. For years now, we’ve been able to choose our rows on StubHub, and allowing fans the opportunity to select seats makes the process more personal.
“This is a really important step in drawing people back in from the secondary market,” Ross said via Twitter this evening. “Having full control of seat choice is important.”
It’s interesting to take a scan around the ballpark with the new technology as well. As we can see from the overview below, numerous sections — those shaded in darker blue — have plenty of seats available.
Meanwhile, as the shine of the new park wears off, the Yanks are finding that thousands of seats — including some very expensive ones — remain open as game time approaches. Take a look at this screenshot from the Mohegan Sun seats and the batter’s eye tickets, both of which run upwards of $100 a pop.
Pricing aside, I’d say this is a very welcome addition to the way we can buy Yankee tickets online.
For all of you non-chatters out there, we have a pair of small stories relating to the business of baseball on tap. Let’s get started.
Peanut-maker Bazzini heads to Pennsylvania
Nothing goes together quite like peanuts and baseball, but the Yanks’ official peanut company is heading out of the Bronx. As Crain’s Small Business reported earlier in the week, A.L. Bazzini Co. is going to close its Hunts Point plant and move its operations to Allentown, Pennsylvania. The Bronx will lose 57 jobs as this plant becomes the third to close in recent years, but the company will continue to serve as the official peanut of Yankee Stadium.
Woman alleges copyright infringement over Yankee logo
From the Litigation Over Anything Department, a Yonkers woman is suing the Yanks alleging a case of 75-year-old copyright infringement. After spending 15 years researching the issue, Tanit Buday claims that the Yanks stole their famous Top Hat logo from her uncle in the mid-1930s. She alleges that the team, then run by Jacob Ruppert, promised to pay Kenneth Timur for the logo then and when it was redesigned in the early 1950s.
While the history of the Top Hat logo has been in doubt, Buday’s filing alleging unjust enrichment, copyright infringement and breach of contract, among other charges. She says her uncle did not know the Yanks were even using the logo until he arrived in the States in the late 1940s and that the Yanks rebuffed his attempts at getting paid. He did however agree to update the logo in 1952 for the team’s 50th anniversary in New York.
The Yankees haven’t commented, but it’s hard to see how they would lose the case. First, the underlying complaint is based on a cause of action at least 60 years old, and the Yanks can probably get the case dismissed on either a laches-based argument or by appealing to the statute of limitations. Even if this complaint somehow survives a motion to dismiss, the club has every reason to fight for its highly valued intellectual property rights. The full complaint –which seems like a frivolous one to me — is embedded after the jump.
It’s not quite breaking news to announce that the Yanks are Major League Baseball’s most valuable team, but when Forbes announced its club valuations on Wednesday, the numbers were staggering. Not only are the Yanks Major League Baseball’s top franchise, but they are by a whopping 86 percent.
The Yankees, says Forbes, are worth $1.7 billion while the Red Sox are number two at $912 million. The Yankees allegedly generate over $427 million in revenue and turn an annual profit of $25.7 million. Nice work if you can get it, eh? Coming in last on the list are the Pittsburgh Pirates with the A’s and Rays right behind them.
Fans of the Bombers don’t need Forbes valuations to drive home the lucrative nature of business in the Bronx, but these figures — estimates because baseball doesn’t open its books — certainly contextualize the revenue stream. In fact, no other team even approaches the Yanks’ revenue figures as Boston earns $272 million annually. Just to compete with the Yankees, the Sox lost $1.1 million last year.
When we sort the list by operating income though, the Yankees slip a few places to seventh, and the teams ahead of them are mostly surprising. The Padres and Nationals lead baseball operating income; both clubs top $35 million before interest, taxes, depreciation and amortization. The Marlins and A’s, two clubs that earned headlines for raking in the dough without investing on the field, both made over $20 million in income last year.
In a blog post on the valuations, Forbes senior editor Kurt Badenhausen discussed the Yanks’ financial edge. He writes:
Yankee Global Enterprises is a three-engine money-making machine. The baseball team generated $325 million in revenue from regular-season tickets and luxury suites in 2010. Sponsorship revenue at the stadium is $85 million annually thanks to deals with PepsiCo, Bank of America, MasterCard, Delta Air Lines and others.
The YES Network, the team’s 34%-owned regional sports channel, is the most profitable RSN in the country and had over $400 million in revenue last year. The Yankees own a stake in Legends Hospitality Management, which manages stadiums, and generates $25 million in operating income. The enterprise value for the Yankees, YES and Legends is $5.1 billion.
In a sense, that certainly begs a question: Should the Yankees be at all worried about a budget? The numbers suggest that perhaps they shouldn’t, but the numbers don’t illuminate internal pressures both from within the organization or from the Commissioner’s Office.
Baseball’s Debt Bombs
In addition to the franchise valuations, Forbes also unveiled an extensive piece on debt disasters within baseball. Nathan Vardi and Monte Burke rehash the stories concerning the Dodgers and Rangers, focus a bit on the Mets and highlight the cash-starved Diamondbacks and Padres as well. Owning a baseball team is a sound long-term investment, but turning a profit and winning is no sure thing outside of the Bronx.
Jeter’s jersey still sells
The 2011 season will be Derek Jeter‘s 16th as a full-time player, and yet, his jersey still sells like hotcakes. As Major League Baseball announced yesterday, Derek’s No. 2 is the most popular choice among fans purchasing Majestic jerseys. A-Rod (9) and Mark Teixeira (11) are the only other Yanks in the top 20, and somehow, Jacoby Ellsbury’s jersey ranked 16th last year. Joe Mauer, Roy Halladay, Chase Utley and Cliff Lee rounded out the top five last year.
From TV deals to concession prices to stadium promotions, baseball teams are in the business of making money. Over the past few years, with the onset of variable ticket pricing and all-inclusive stadium packages, clubs have boosted their bottom lines, and the game is booming. But a new report from Horizon Media says that teams could be doing more. Clubs could generate millions of dollars by doing what many consider to be the unthinkable: selling advertising space on team uniforms.
In essence, such a proposal would represent the NASCAR-ization of professional team sports. While logos are plastered over cars and tennis players are rewarded to wear certain labels on the court, baseball has resisted logo creep. Even New Era, the long-time cap provider, hasn’t been able to secure a place on its hats for a logo. But Horizon Media says this is a major missed opportunity, and the Yanks — the top team in the game in top media market in the country — could generate up to $13 million in revenue by selling uniform space.
The company spoke more about its methodology in a press release:
The report aggregates key jersey exposure attributes including; total duration, logo isolation status, logo size and the cost of a 30-second unit in each market. In addition, the report considered the number of detections (how many times a brand/sponsor can be viewed per game), measured duration (how long the brand/sponsor is visible at each detection) and assigned an attribute score (a relative measurement of performance based on the duration, size, isolation and source type) for each sport. This information then produced a media equivalency value – a dollar figure representing the advertising value of each team’s jersey.
According to the study, the Yanks’ TV exposure and ad rates lead to an opportunity to realize up to $13.8 million if advertisements were prominently displayed on uniforms during tv broadcasts. The findings, Horizon Media stressed, are somewhat preliminary, but the dollar figures are enticing. “Roughly two-thirds of all professional sports franchises were evaluated in this study to determine how much revenue could be generated if the leagues and team owners decided to sell the real estate on the front of their jerseys,” Michael A. Neuman, Horizon’s managing partner, said. “We think the findings more than convey the need for stakeholders to take this concept seriously.”
Of course, any proposal that calls for sullying uniforms would quickly be met by gasps from the game’s traditionalist gatekeepers. Perhaps, advertisements, already so prevalent in game broadcast, should stay clear of uniforms. Furthermore, if such an idea were to come to fruition, baseball would like consider these dollars to be, at least in part, a contribution to the revenue sharing pot because media market disparities would give a significant edge to the top teams. (The Marlins, for instance, would draw in just $1.3 million if their ad-filled uniforms had the same on-air exposure time as the Yanks.)
Ultimately, though, this idea is but a thought experiment. No sport has shown a willingness to head down this path, and such a move would indeed sully the purity of the game’s visual aspects. For the money, though, it might almost be worth it.