Archive for Business of Baseball
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.
Notes! Everyone loves notes!
For Yanks, first half features three three ESPN Sunday Night Baseball games
ESPN released yesterday its slate of Sunday Night Baseball games for the first half of the 2012 season, and the Yankees, obviously, will be a prime player. Shockingly, two Yankees/Red Sox games will air on the World Wide Leader. Those will be on April 22 and July 8 when the Yanks trek up to Boston. ESPN will also show the Bombers’ first Sunday night meeting with Albert Pujols and the Angels on April 15.
As ESPN reminds everyone, former Red Sox skipper Terry Francona will be replacing Bobby Valentine in the booth this season. It’ll be interesting to see how he handles broadcast duties during that April 22 meeting between the two long-time rivals. I enjoyed Francona’s work during the playoffs when he filled in for an ailing Tim McCarver during the start of the ALCS.
Dave Checketts to head Legends Hospitality Management
Long-time fans of the New York Knicks will remember Dave Checketts as the president of the team who oversaw their spate of deep runs into the playoffs in the early and mid 1990s. Now the chairman of the group that owns the NHL’s St. Louis Blues, Checketts will be joining Legends Hospitality Management, the joint venture amongst Goldman Sachs, the Yankees and Dallas Cowboys that oversees concessions and sports marketing. Checketts, according to The Journal, “envisions building Legends into an international sports-marketing and entertainment business that advises franchises on media strategy, financing and building stadiums, then helps sell tickets and suites and handles concessions.”
As long as he doesn’t pull the sports marketing equivalent of trading Patrick Ewing for Glenn Rice on Legends Hospitality, the company will be in fine hands.
Roger Waters to play “The Wall” at Yankee Stadium
Finally, I’ve saved the best for last: The Yankees announced yesterday that Pink Floyd songwriter Roger Waters will bring “The Wall” to Yankee Stadium this summer. On Friday, July 6, Waters will perform at Yankee Stadium. Tickets go on sale on Monday, January 30 at 10 a.m.
The Waters performance though is almost an after-thought compared with the teaser in the press release. “In the near future,” the club said, “the Yankees will make additional announcements regarding other major acts that will be performing at Yankee Stadium in 2012. Information will also soon be available about other sporting events that will take place at Yankee Stadium during the summer months.”
Via RAB’s Twitter account, we speculated that the additional announcement could concern Bruce Springsteen. The Boss is on the road this year, and while he’s in Europe for much of May, June and July, the Yanks are out of town from September 3-13. It would be the perfect time for a concert, and it’s hard to find an act as major as Bruce on the road this year. We’ll keep an eye on this one.
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.