Archive for Business of Baseball
The Yankees and the Trenton Thunder announced an eight-year extension of their player development contract at a press conference this afternoon. The current agreement runs through 2014, so the new deal will keep the two clubs together through 2022.
Trenton has been home to the Yankees’ Double-A affiliate since 2002, and by all indications the marriage has worked exceedingly well. The Thunder draw well at Waterfront Park and they’re nice and close for Major League rehab assignments and whatnot. Since hooking on with the Yankees, Trenton has won four division titles and two league championships in ten years. They’re in position to add to those totals this season as well.
Along with a subpar May, comparisons to 1965 and premature eulogies for Alex Rodriguez, unsourced whispers of an impending Yankee sale seem to crop up annually. This year, it all happened during the same week as a few hours after Joel Sherman compared the 2012 Yankees to the 1965 crew and A-Rod homered twice to end a long dinger drought, The Daily News reported that the Yankees may be for sale.
The article itself announcing the alleged sale was replete with Wall Street insiders and baseball sources. No one wanted to go on the record saying much of anything. “There has been chatter all around the banking and financial industries in the city for a couple of weeks now,” a baseball source said.
Noting that the Dodgers’ sale could lead to a $3 billion valuation for the Yanks, another unnamed source agreed on the timing. “It would definitely be the right time for the family to sell,” the source said. “The value of the team couldn’t be higher, but at the same time, it’s an older team in a division with younger teams getting better at the same time a lot of the Yankees’ core veterans are starting to go into decline.”
Of course, the age of the current team would have little impact on the intentions of someone looking to make a long-term investment in the Yanks. No one today cares about who was on the Yankees in 1973 when George Steinbrenner bought the team.
Reading the Daily News article closely though, we see the thesis begin to fall apart. The unsourced quotes concern timing. Everyone agrees now would be a great time to sell the Yanks, but “now” is always a great time to sell a baseball team. As baseball is growing with no signs of slowing down, any team — and especially the Yankees — is a valuable commodity. The News’ strongest argument for the sale seemingly is Hal Steinbrenner’s reluctance to hand out large contracts and his hands-off ownership approach. I’m not so sure either of those are negatives.
The Yankees, meanwhile, went into full-scale on-the-record denial mode. “I can say to you there is absolutely, positively nothing to this,” Randy Levine said. “The Steinbrenners are not selling the team.”
“I just learned of the Daily News story,” Hal Steinbrenner said in a statement. “It is pure fiction. The Yankees are not for sale. I expect that the Yankees will be in my family for many years to come.”
Even as Bill Madden stuck by his story, Lonn Trost too denied the rumors. “We’re aghast at such a story,” he said on the radio this morning.
“My impression is not only do they all love being part of it, I think they are interested in handing it to their kids,” Yanks’ GM Brian Cashman said to Joel Sherman. “I think they want the family to be involved for generations to come. The Steinbrenners love owning the Yankees — and they are damn good at it. I have gotten no impression that they want to do anything but own the Yankees. They are the only ones who know the truth, but my impression is they are not even entertaining selling the Yankees.”
Furthermore, Major League Baseball, involved in the sale of all of its member clubs, put out its own statement: “Major League Baseball has received no indications from any representatives of the Yankees or anyone else that the Club is for sale.”
So on the one hand, we have speculation that the club could be put up for sale, and on the other, we have everyone on record denying that the club is for sale. That doesn’t even account for Richard Sandomir’s note on the Yankees trust. In my mind, the fact that the family would incur significant tax penalties is likely the biggest factor keeping the club off the market.
As fans of the team who have long grown accustomed to the Steinbrenner’s free-spending and largely hands-off ownership, what are we to make of this? Yankee fans live in fear that a rich New York family with sports ties such as the Dolans could buy the team and ruin it. No names, though, have been attached to this offer. So are the Yanks floating this story to gauge interest? The across-the-board denials suggest not. Is someone trying to make interest in the team known? Perhaps.
Right now, we know what’s on the record: The Yankees are not for sale, and no one is on the verge of buying them. But money talks, and if the right offer comes around, the Steinbrenner family will be tempted to cash out. It’s only, after all, a business, and the Yankees today aren’t for sale until the day they are.
The baseball franchise valuation world shook when Magic Johnson, Stan Kasten & Co. purchased the Dodgers for $2 billion last month, and as expected, that sale has caught the Steinbrenners’ attention. Bill Madden and Michael O’Keeffe have heard from several sources that ownership is “exploring the possibility” of selling the Yankees. “There has been chatter all around the banking and financial industries in the city for a couple of weeks now,” said one source.
Unsurprisingly, team officials has shot down the report. “I can say to you there is absolutely, positively nothing to this. The Steinbrenners are not selling the team,” said president Randy Levine. “I read the Daily News story. It is fiction. The Yankees are not for sale. I expect (the Yankees) to be in my family for many years to come,” said Hal Steinbrenner.
Of course, there’s no harm in exploring the possibility of a sale. It actually would be foolish of the Steinbrenner to not see what the team could fetch following the Dodgers’ sale. If that franchise is worth $2 billion, what are the Yankees worth, $3 billion? Well, it’s not that simple because the Yankees can’t sell the land Yankee Stadium is built on like the Dodgers were able to sell Chavez Revine. As Richard Sandomir notes, the Steinbrenner family would assume a huge tax hit with the sale because of multi-generational trusts set up by George Steinbrenner years ago, which may be a deterrent. I suspect this will not be the last we hear of this.
The sale of the Triple-A Scranton/Wilkes-Barre Yankees franchise is finally complete, reports David Singleton of The Scranton Times-Tribune. Lackawanna County approved the sale on Thursday following more than two years of political wrangling. The team was sold for $14.6M to SWB Yankees LLC, a joint venture between the Yankees and Mandalay Bay. They had passed on an option to buy to the team for $13M in 2007, when the Yankees moved their Triple-A operations out of Columbus and into Northeast Pennsylvania.
Extensive renovations at PNC Field can finally begin now that the sale is complete, with major demolition starting yesterday. The $43.3M project is forcing the team to play all of its home games on the road this season. Last month we heard that construction had to begin no later than April 1st to ensure the facility is ready for the start of next season, but the park is expected to be ready in time following the sale approval. The Times-Tribune has some new renderings like the one you see above.
The sale locks SWB Yankees LLC into a 30-year stadium lease that could run as long as 50 years, so don’t expect the team’s Triple-A affiliate to move anytime soon. Scranton/Wilkes-Barre is about as close to the Bronx as the Yankees could get their top minor league club, a two-hour drive if you run into some traffic. The season-long road trip is terrible for the players and prospects currently in Triple-A, but hopefully the sale and new facility sets things up well for the organization moving forward.
Magic Johnson and a group of investors sent shockwaves through baseball on Monday when Frank McCourt revealed the group’s $2 billion bid for the Los Angeles Dodgers. Coupled with a $150 million deal for the parking lots that surround Dodger Stadium in Chavez Ravine, it was a monstrous deal that not only dwarfed the next highest bid but set a new mark in professional sports. Of course, it left many in New York wondering for just how much the Yanks could be sold.
The Yankees brass, of course, noticed the sale. How could they not, after all, considering they control the most valuable franchise in baseball right now? “It is an incredible price. If they are worth $2 billion, one can only imagine how high the Yankees’ value is,” Randy Levine said to ESPN New York.
Hal Steinbrenner seemingly spoke in awe of the big figures as well. “It’s certainly a big price. It’s interesting,” he said. “No, I haven’t thought about how this would impact it. We’ll have to see what happens with that sale. It’s a big number.”
It’s a big number indeed, and the Steinbrenners insist they aren’t looking to sell the Yankees. They’re quite content to hold onto their inheritance and allow the team to continue to thrive. Between the YES Network and the team itself, the owners are sitting pretty. We can still play that “what if” game though. What if the Yankees were put up for sale?
As a starting point, we have the recent Forbes valuations. With little explanation, the business mag pegged the Yanks’ value at $1.85 billion, tops in the game. The Dodgers were second at $1.4 billion. A back-of-the-napkin calculation would lead one to believe the Yanks could sell then for $2.775 billion.
Yet, as Richard Sandomir writes in The Times today, not all things are equal. The Dodgers’ deal is a creature of good circumstance and geography that came in $650 million above the next highest bidder. Essentially Magic Johnson and his co-investors — who are going to pay in cash — were bidding against themselves. Sandomir summarizes:
Johnson and Walter are betting on reviving the Dodgers’ fortunes now that the Frank McCourt era is over. More important, the sale price is enormous because the buyers anticipate a huge windfall from a new cable TV deal that would go into effect after the 2013 season. [Investor Mark] Walter said: “It will be substantial.”
It will have to be. To get the most money, the Dodgers will probably be the centerpiece of a regional sports channel that will funnel enormous annual rights fees to the team and amass monthly subscriber fees from the cable, satellite and telephone companies that will carry its games.
A bevy of media companies are likely to line up to give the Dodgers the most lucrative deal, which could couple ownership of a channel with huge yearly rights payments. Time Warner Cable, for instance, is creating two networks, one in English, one in Spanish, with Johnson’s old team, the Los Angeles Lakers, at their core. The Lakers are expected to ultimately realize huge profits from the deal.
It’s worth noting as well that the Dodgers’ deal involved a significant chunk of change for the rights to revenue from the vast acres of parking lots that surround Chavez Ravine. The Yankees would enjoy no such luxury. The city controls the parking lots around Yankee Stadium, and in fact, the city controls the land underneath the stadium as well. No one wants to park in the transit-rich South Bronx, and the city would raise hell if it tried to sell the former park land. Ultimately, then, TV is king.
In contrast to the recently-acquired Cubs, who carried a purchase price of $845 million, the Dodgers’ next owners will benefit tremendously from a brand new TV deal, and that’s a luxury the Yankees also do not have right now. Their rights lie with the YES Network, in which, according to reports, the Yanks have a 30 percent share. Now, that alone could be worth around $1-$1.5 billion, but how to structure such a sale? To maximize their take, the Steinbrenners would have to sell the entire club and their YES share. Even without the fortuitous circumstances in Los Angeles, a Yankee sale involving the team and the TV network could reach $3 or even $4 billion.
At that point, questions begin to shift from “how much” to “who.” Who would spend $3 billion for a baseball franchise and a broadcast TV station that has no chance of controlling much of its Internet broadcast rights? (Those rights belong to MLB Advanced Media and will for the foreseeable future.) It may be a moot point as the Steinbrenners continue to say the club is not for sale, but one thing is certain: Baseball franchise values are on the rise.
On paper, the rich are getting richer, and so too are the smaller market teams. The Dodgers’ sale is a tide that can lift all boats. Frank McCourt, who invested just over $400 million in the Dodgers, walks away a very wealthy man. The Boss, on the other hand, spent just $10 million on the Yanks 40 years ago, and even as his children vow to keep the team, that allure of the cash must be strong indeed.
With Opening Day just a few weeks away, Forbes released its annual MLB valuations today, and once again, the Yankees are the game’s top dogs. According to the business mag, the Yanks are worth a cool $1.85 billion, up nine percent over 2011. Interestingly enough, Forbes guesses that the club itself turns a profit of only around $10 million a year with the money generated through live TV programming. In other words, the dollars are in the TV rights.
“The Rolls-Royce of the RSN model is the New York Yankees, who own 34% of the YES Network,” Mike Ozanian wrote. “The Bronx Bombers are the most valuable team in baseball, worth $1.85 billion, tying them with the National Football League’s Dallas Cowboys for the top spot among American sports teams and placing them second in the world to Manchester United, the English soccer team worth $1.9 billion. YES generated a staggering $224 million in operating income and paid the Yankees a $90 million rights fee in 2011.”
For what it’s worth, only two teams — the Mets and Rays — saw their values decline from 2011 as legal woes for the former and attendance woes for the latter were the main drivers there. Meanwhile, it’s somewhat incongruous to hear how the Yanks are eying “austerity” budgets of only $189 million for 2014 and 2015, but that’s how baseball economics work these days. The Dodgers, currently undergoing a sale and with their TV rights up for renewal, will set the market, but if the Steinbrenner family ever wanted to sell, they could command a pretty penny for the crown jewel of Major League Baseball.
Scranton/Wilkes-Barre Empire State Yankees will be stuck on a season-long road trip this year, playing “home” game in six different cities as PNC Field is renovated. Apparently the renovation is actually a total replacement, as Josh Leventhal reports that the current stadium will be torn down and replaced with a new $40M facility. That’s great, but the problem is that demolition must start on April 1st in order for the place to be ready for next season.
According to Leventhal, the $14.5M sale of the team from Lackawanna county to the Yankees and Mandalay Bay is still being finalized. Those funds are needed for the new facility, so construction can’t begin until a deal is hammered out. International League president Randy Mobley says the two sides are still negotiating, but “with this construction start deadline rapidly approaching, it is all going to become pretty evident, pretty quickly, what is or isn’t going to happen.”
There is no contingency plan in place if the stadium is not ready in time for Opening Day 2013. “This is a one-year arrangement, not to be repeated,” said Mobley of the team’s unfortunate 2012 plans. It’s bad enough that some of the organization’s best prospects will be stuck on the road all year with the Triple-A squad, doing something similar in 2013 would be a disaster. Everyone involved — especially the Yankees — has every reason to want to get a deal done so construction can start on time, and I suspect it will.
The concept of “face value” for a ticket to a baseball game is often an amorphous one. In our case, the Yankees price out their seats and sell tickets as part of a variety of packages at different place levels. Face value for one seat could be different for the face value of a seat in the same row or section by virtue of the associated season ticket package. By and large, though, face value as set by the Yanks is fairly constant.
Of course, as many fans recognize, face value isn’t the true value of the ticket. Baseball tickets are a finite resource, and only so many exist per game. If the tickets are priced at the right level and the team is good enough, the game will effectively sell out, and then the secondary market takes over. On the secondary market, people who buy tickets with an eye toward making a profit or those who can’t make it to the game are trying to find the true value of their seats.
Over the past few years, it’s been possible to buy many Yankee tickets at or even below face value on the secondary market. Demand isn’t high enough for all but the most sought-after games to warrant a high price, and discerning shoppers know that market value for a mid-week game against, say, the Royals or Orioles isn’t the same as a weekend affair against the Red Sox or Mets. Essentially, those of us who rely on the secondary market to feed our baseball needs have lived with dynamic pricing for years.
Despite innovation on the field, baseball teams have been slow to pick up on this dynamic pricing model. Some teams sell so-called premium games against good teams while others are content to price everything at the same level. That’s beginning to change though. As Kyle Stock wrote in The Daily this weekend, some baseball teams are set to embrace dynamic ticketing. The Brewers, for instance, will change prices on seats if it looks like Zack Greinke will face the Royals while the games in which he doesn’t pitch will see lower prices.
Stock reports on the way dynamic pricing came into being for baseball clubs:
In this case, the guy bucking the system was not a washed-up pro, but rather a 26-year-old fan finishing a Ph.D in economics at the University of Texas. In early 2009, Barry Kahn sneaked into a sports ticketing conference in Las Vegas. Armed with chutzpah and hand-cut business cards, he persuaded the San Francisco Giants to try dynamic pricing in about 2,000 of its worst bleacher seats.
“Basically, we saw that there was a huge price inefficiency here,” Kahn said. “Everyone was saying ‘StubHub is making all this money. How do I get a piece of that?’ My message was: ‘It’s your inventory. You have the ability to get the whole thing.’ ”
By the end of the 2009 season, San Francisco had a 20 percent attendance increase in its test seats and an extra $500,000 in ticket revenue. Three seasons later, Kahn is CEO of Qcue Inc., a profitable Texas-based company that will help 15 baseball teams set their prices this year.
As Stock notes, teams were hesitant to embrace this idea over fears of turning off fans. Some view it as institutional price gouging without realizing that it’s a lesson in Economics 101. Others are more willing to embrace it as it offers up a cheaper way to see more games at the expense of higher prices for the more generally desirable contests.
Here in New York, the Yankees haven’t yet embraced dynamic pricing. It may be slow in coming as the club would have to admit that their pricing models at the expensive new stadium haven’t been as rousing a success as they should have been. But they’ll get here. It’s unavoidable, and it’s a way for the team to tap into more revenue streams. After all, a cheaper ticket could lead to more people would should lead to more concession stands. The money somehow trickles up and into the Yanks’ pocket. For now, though, it’s the next great innovation in the business of baseball and one that should have made its debut years ago.
Via Mike Ashmore, the Triple-A Scranton/Wilkes-Barre Yankees will be renamed the Empire State Yankees for the 2012 season. The club will play all of its home games on the road this summer because of extensive renovations to PNC Field, including 60 games throughout New York. The new logos can be seen here and here, and will be featured on the team’s caps this season. They’ll go back to being the SWB Yanks in 2013. Pretty neat, guess I have to buy a hat while they’re available.
I’d be hard-pressed to tell you the last time I had a real ticket for a Yankee game. It might have been toward the end of 2010 when a friend of mine scored a pair in a corporate giveaway, and before that, who knows? The tickets I get through StubHub are all of the digital variety, and the few I’ve ordered straight from the source come as PDF files as well.
These 21st Century e-tickets, though, bring with them a decidedly 20th Century problem: You need a printer. Usually, when I’m going to a game with some friends, we spend the afternoon figuring out who has access to a printer and who’s printing which ticket. These are some serious First World problems, I know, but it’s something technological innovation should have figured out by now.
Up in Boston, the Red Sox seemingly have but with some twists. For Upper Bleacher seats at Fenway, the Sox will now be offering digital tickets. Instead of scrambling to find a printer with ink cartridges, the Sox are going to allow entry via the swipe of the credit card that originally was used to purchase the tickets. No more printing — and no more selling these seats on the secondary market.
“Over the past 10 years, we have intentionally held the price of the Upper Bleacher seating category at $12 per seat in order to provide family-friendly pricing options for Red Sox fans,” Red Sox SVP/Ticketing Ron Bumgarner explained. “The downside of keeping these low price points is that these tickets sometimes end up on the secondary ticketing market at significantly marked up prices. By requiring the primary purchaser of the tickets to attend the game through this Digital Ticketing Initiative, our hope is to gradually eliminate those purchasing these specific tickets solely for the purpose of resale, and instead get these tickets into the hands of fans and families all over New England.”
On the one hand, this move adds a level of convenience to purchasing tickets. On the other, it may skirt scalping and resale laws by limiting what one who purchases a ticket is allowed to do with the ticket. They don’t, however, plan on offering these types of tickets for every game. Certainly, the Red Sox should be applauded for trying to keep seat prices at a reasonable level, and I would imagine more teams will follow suit if this effort is successful.
Ultimately, Major League Baseball should be eying a move toward digital ticketing that some airlines are using. Most people carry around Internet-enabled phones that can display scannable bar codes. With such technology in place, we’ll never need a ticket — printed or otherwise — again. We’re not there yet though.