Archive for Business of Baseball
Yankees, Scranton extend PDC through 2014
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The Yankees will be in Scranton through at least 2014, the club announced yesterday. The big league organization has opted to extend its player development agreement with its AAA franchise to cover the next four seasons. Additionally, SWB Yankees LLC, the joint venture between the Yankees and Mandalay Bay that manages the team, has also re-upped its agreement for the same length of time.
“We remain committed to having our Triple-A franchise in Scranton/Wilkes-Barre,” Yanks’ COO Lonn Trost said. “The market offers us an excellent combination of business opportunities as well as player development and baseball operations efficiencies. We are delighted to be extending our relationships in Scranton/Wilkes-Barre.”
Scranton has been home to the Yanks’ Triple-A affiliate since 2007, when the team left Columbus after a 28 year relationship. The team made the move to bring its highest level minor league affiliate closer to New York, and it doesn’t get any closer than Scranton. The PDC extension is good news yet unsurprising because it really is a match made in Triple-A heaven. With a strong fan base, geographically favorable and good business opportunities, it just makes sense for both sides.
Despite this convenience, a PDC renewal was no sure thing last year. As the Yanks adjusted to life in Scranton, the club found that the ballpark needed $13 million in upgrades due to a bad drainage system, and Scranton was not too keen on building a new stadium for the team. Still, the Yanks are committed to working through these problems.
“We look forward to continuing to work with county leadership and members of the Multi-Purpose Stadium Authority of Lackawanna County to develop a plan to significantly improve the current stadium or replace it with a new one,” Trost said.
With this news, Kei Igawa too stands to benefit as he’ll have a few more years to build on his career franchise-record win total.
Additional reporting by Benjamin Kabak
To gouge or to capture? That is the question
Posted by: | CommentsAs American businesses have grown accustomed to life under a bad economy, consumers have seen long-established pricing practices thrown by the wayside. The airline industry has been the one taking the lead here, and the most notable example came last week when Spirit Airlines announced they would be charging for carry-on luggage.
Spirit’s CEO subsequently explained their pricing rationale. Their base fares would be reduced by $45, and those who wanted to bring a piece of luggage on board would have to pay the unbundled $45 to do so. Potential customers were unhappy but only because this is a new — and sensible — way to price a commodity. By paying for component parts, we are paying for what we need and want to use. If only telecommunications and cable providers would follow such a path.
In baseball, economics are moving in new ways as well, and the Yankees have been among the prime motivating factors. The team has long been a hot ticket in New York, and road attendance has risen as well. Last year, the Yanks averaged over 34,000 fans per game on the road, tops in the AL and second overall to the Cubs. Teams such as Tampa and Kansas City that don’t draw well regularly see record crowds when the Yanks come to town.
As such, teams have wisely jacked up prices when the Yanks come to town. Tickets and concessions are priced for premium games, and it works because the market forces of supply and demand can dictate the prices. If a potential fan is willing to pay more on the secondary market for a chance to see a premium team play, the home team should be trying to capture that added revenue.
What happens though when teams start bundling tickets? That’s the question Craig Calcaterra raises today. He highlights two Consumerist posts — one on the Mets and one on the Dodgers — that expose a new practice. Instead of selling individual tickets to games involving the Yankees, these teams are requiring their fans to purchase Yankee tickets as part of a season- or package-ticket plan. For Yankees/Mets games, fans have to buy tickets in groups of five or more. For Dodgers/Yankees games, Los Angelinos have to purchase at least a seven-game mini plan. (The Orioles, I believe, instituted this practice last year when Yankee fans started overwhelming the Baltimore crowd.)
Loyal fans, of course, aren’t happen. Said the Mets fan who reported his tale to Consumerist to his ticket agent, “I’m going to be blunt with you. That is a horrible practice. The fact that I have to buy four extra tickets to get a guaranteed good seat ticket right now is horse shit. To be honest you have just turned me off from buying a ticket for the rest of the season.”
From an economics perspective, though, teams should have done this years ago. The demand for these premium games is great enough for the team to try to get fans interested in other non-sold out games as well. The teams want to capture more fans, and if they alienate a few fans along the way, well, then others will just take those seats instead. What makes people uncomfortable with it is that it’s a new practice. Had the ticket office been run as a sensible business from the start, teams would have been bundling years ago.
Calcaterra wants teams to “what the market would bear for the hot seats and sell them individually,” but he freely admits its an emotional reaction to what he views as sensible economics by clubs looking to milk money out of fan attraction. We might not like the blatant money grab, but that’s the way the capture market works.
Ticket sales for 2010 outpacing ’09
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As the Yankees begin their second season in a new ballpark with lower ticket prices and a World Series title to defend, fans are flocking to the Bronx for a chance to watch a game or 81. According to a report from the Associated Press, ticket sales for 2010 are outpacing 2009, and Yankee officials say they may soon need to cut off season-ticket sales to keep some seats open for individual game purchases.
Earlier this week, Hal Steinbrenner said that the Yankees have outsold last year by 2000 full season ticket packages. So far, the team has sold the equivalent of 37,000 season ticket plans while, in 2009, they had sold 35,000 before the stadium had hosted Opening Day. The team eventually sold 2000 more tickets last year, and Steinbrenner anticipates cutting off season ticket sales shortly.
The team averaged 45,918 fans per game last year in a stadium with a capacity that nears 50,000, and team officials believe that high prices were to blame for the empty seats. This year, as the AP notes, the team has slashed the price tag on the most expensive options:
New York renamed 538 seats along the foul lines Champions Suite, removing them from the Legends Suite and cutting off access from the duplex Legends Suite Club. The reclassified seats sell for $350-$550 for individual games, while the 1,357 remaining seats in the Legends Suite are $450-$1,600 for individual games, down from $500 to $2,625.
New York also cut 3,400 tickets behind home plate in the lower deck from $325 to $235-$250 per game as part of season plans. “The big change here was giving our fans yet another option as far as tickets,” Steinbrenner said.
I’m curious to see how these numbers translate into final attendance figures for the Yankees. In old Yankee Stadium’s last year, the team drew a record 4.29 million fans with an average of 53,069 per game. In the new park, the Yankees still claim a capacity of 52,325 including standing room, but the team averaged just 45,918 fans last year for a total attendance of 3.79 million. Tuesday’s crowd of 49,293 was the largest regular season crowd in the new park’s short history. Wednesday’s game drew just 42,372.
For the Yanks to draw 4 million fans again, they’ll have to average 49,382 fans per game in the new house, and until standing room tickets are available for every game, that mark seems unattainable. For now, though, we should be happy that the Yankees are both lowering ticket prices and selling so many seats. The gaudy economic experiment of the new stadium may not have been as smashing a success as the Yanks had originally hoped, but the team has found a gold mine of money no matter. People will, after all, come out to watch a winner.
Photo of the 2009 ticket above comes to us from the incomparable Amanda Rykoff.
Introducing the Official Guacamole of the Yankees
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That's the Official Salsa, Queso Dip and Guacamole of the Yankees. (Photo via Wholly Guacamole)
A flavorful guacamole, I find, is one of the easiest things to make. Grab a ripe avocado, a little bit of red onion and tomato, some jalapeno and garlic, a touch of salt, a few cilantro sprigs, a dash of cumin and lime juice. Voila, guacamole. For some, though, this simple bit of dicing and mashing requires too much effort, and when the urge for guacamole strikes, the supermarket should have Wholly Guacamole in a bag from Fresherized Foods. The things I didn’t know we needed…
Anyway, this week, Wholly Guacamole and the Yankees announced a parternship. The “Wholly” line of dips are now the Official Dips of the Yankees, a title I thought belonged to John Sterling. The guacamole is the Official Guacamole of the team, and the Wholly Salsa and Wholly Queso are the official salsa and queso dip of the Yanks, respectively.
According to a report on the deal, the sponsorship agreement is valued in the “low six figures,” and Wholly will market its products in the New York area with Yankee branding. At this point, is there anything for which the Yanks don’t have an official sponsor?
Forbes: Yanks now worth $1.6 billion
Posted by: | CommentsThe Yankees, baseball’s World Champions, are now worth nearly twice as much as the next most valuable franchise, according to Forbes Magazine. In its annual Business of Baseball report, released last night, Forbes pegged the value of the New York Yankees at a cool $1.6 billion, and more surprisingly, the business mag claims the team turned a profit of nearly $25 million in 2009 after six straight seasons of operating in the red.
Hot on the heels of the franchises’ 27th World Series title and with a new stadium raking in the bucks, the Yanks saw their value increase by more than seven percent over 2009. The Red Sox, at $870 million, are ranked number two, and the Mets ($858 million), Dodgers ($727 million) and Cubs ($726 million) round out the top five. The Pirates and A’s, both valued are under $300 million, are MLB’s two cheapest clubs right now.
According to Forbes, the Yanks’ valuation breakdown is as follows: The Yanks’ sport value — that aspect attributable to revenue shared among all teams — is $146 million. The team’s position as New York’s leading franchise lends it $839 million in value. The new stadium contributes $287 million, and brand management — that famous interlocking NY — is worth $328 million on paper. The team, wrote Forbes, also “boast[s] the richest cable deal in baseball and have begun to make money from their new concession business, Legends Hospitality Management, a partnership with the Dallas Cowboys and Goldman Sachs.”
On the revenue side, the Yanks enjoyed great success at their new home. With player obligations, according to Forbes, totaling $240 million, the team enjoyed $319 million in gate receipts and $440 million in overall stadium revenue used for debt payments. The team’s reported profit before interest, taxes, depreciation and amortization checks in at a healthy $24 million, good for tenth in the game. Overall, the Marlins again led the field with a profit in excess of $46 million, and the Red Sox were second at $40 million.
For the Yankees, this report paints a rosy picture. The team had been operating at significant deficits for much of the luxury tax era in the 2000s, but with a new stadium and more success, the franchise has managed to turn a profit. There is however a cloud to this silver lining: The team’s debt/value ratio is 89 percent, second only to the debt-riddled Texas Rangers. The Yankees owe debt on stadium construction bonds and on previous years’ revenue outcomes.
So as we delve into these numbers, it’s worth revisiting the Yanks’ claims of a budget for 2010. For much of the winter, we heard talk about the Yanks’ attention to the bottom line. Brian Cashman adhered to the budget set by the team’s Front Office, and with an eye toward flexibility closer to the July trade deadline, the team was unwilling to stretch that budget.
With a profit, it is possible that the Yanks could have invested more in the team this winter, but at the same time, the franchise owes payment on a significant chunk of debt. As baseball is definitely a business, the team has to keep an eye on both the product on the field and its balance sheet. With the information from Forbes, we have a snapshot of the Yankees as they play out the start of the 2010 season and a better understanding of the economics behind it. The team has never been more valuable, and you can bet that the rest of baseball is well aware of this economic reality.
Levine, Attanasio spar over baseball economics
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Randy Levine, with t-shirt and World Series trophy in tow. (AP Photo/Kin Cheung)
When USA Today released their annual salary survey yesterday, Brewers’ owner Mark Attanasio had some choice words for the Yankees. The Brewers, what one might consider to be a mid- or small-market team, make do with what they have, but what they have pales in comparison with the Yanks’ coffers, and Attanasio, a Yankee fan by birth, knows this.
?We?re struggling to sign [first baseman Prince Fielder], and the Yankees infield is making more than our team,? he said to Bob Nightengale and Scott Boeck yesterday.
Today, Randy Levine, the Yanks’ team president, fired back. While speaking with Andrew Marchand of ESPN New York, Levine had this to say:
“I’m sorry that my friend Mark continues to whine about his running the Brewers. We play by all the rules and there doesn’t seem to be any complaints when teams such as the Brewers receive hundreds of millions of dollars that they get from us in revenue sharing the last few years. Take some of that money that you get from us and use that to sign your players.
“The question that should be asked is: Where has the hundreds of millions of dollars in revenue sharing gone?”
In one sense, Levine has missed the boat here. Since purchasing the team for $223 million in 2005, Attanasio has increased Milwaukee’s payroll from the meager $27 million the Seligs spent annually to $80 million. The team draws approximately 3 million fans a year, and in a weak NL Central, the Brewers can, more or less, contend deep into the season every year. Attanasio has put his money and the revenue sharing dollars to good work, and in that sense, Levine’s charge rings false.
But in another, the Yanks’ president is right on the money. The Yankees have access to a media market far bigger than that of Milwaukee’s, and the team virtually sells out its entire 81-game home stand. They have paid, according to Maury Brown’s Biz of Baseball, $175 million in revenue sharing and are playing by the rules, as Levine says. Until Major League Baseball changes the rules, the Yankees should continue to play by those rules. Spend if you can. Spend if you have the money.
This isn’t the first time Attanasio has targeted the Yankees. He was not a happy camper when CC Sabathia turned down the Brewers’ $100 million offer to sign an even richer deal with the Yanks, and he knows that teams in Milwaukee’s position can’t compete, on a dollar for dollar basis, with the teams in Chicago, New York, Los Angeles, Boston and Philadelphia. This clash might just be a media-driven war of words, but the big-market and small-market teams are gearing up to face off. I don’t know how they’ll fix what many perceive to be a competitive balance problem, but you can be this won’t be the last we hear from the Brewers or Yankees.
Damn it feels good to be a Yankee
Posted by: | CommentsAs Opening Day dawns, MLB and its Players Union have each unwittingly taken a step closer toward the looming Collective Bargaining Agreement negotiations. The current CBA is set to expire in December of 2011, and as baseball economics for the 2010 season have come into focus, a few running themes have emerged.
First, it’s good for the wallet to be a Yankee. Just last week, the UK-based Sporting Intelligence published its first Annual Review of Global Sports Salaries. Although the report itself costs a pretty penny, the company issued a release summarizing their findings, and the Yankees came out on top. According to the report, the Yanks’ first-teamers — generally, their starters — earn an average of over $7 million a year topping the $6.4 million figure that Real Madrid’s front learn earns annually. Nice work if you can get it.
Meanwhile, within baseball, the Yankees obviously come out on top. USA Today released its own annual salary survey today, and the results place the Yanks first and the Red Sox second. Interestingly, 14 of the 30 teams have cut their Opening Day salaries from 2009 to 2010, and the average Opening Day salary increased just one percent from $3.26 million to $3.27. According to USA Today, that one-percent jump is the game’s smallest since salaries decreased in 2004.
The Yankees and the Red Sox, though, continued their war atop the AL East. Scott Boeck and Bob Nightengale write:
The New York Yankees retain their lead with a payroll of $206.3 million, a 2% increase, while their chief American League East rival, the Boston Red Sox, are second at $162.4 million, a 33% increase. The Yankees, whose payroll is nearly six times that of the Pittsburgh Pirates’ $34.9 million, are led by third baseman Alex Rodriguez‘s $33 million salary. New York’s starting infield will earn $85.2M, more than 16 teams.
“We’re struggling to sign [first baseman Prince Fielder],” Milwaukee Brewers owner Mark Attanasio said, “and the Yankees infield is making more than our team.”
Therein lies the rub. The Yankees entire roster averages $5.5 million per player this year, and the Red Sox are at $3.75 million. The rest of baseball will be gunning for these two teams next year, but the real question is whether or not the Yanks’ and Boston’s relative wealth is a problem.
On the one hand, the money gives these two teams a clear competitive advantage. The Yanks and Red Sox have appeared in six of the last ten World Series, and these two teams made 15 combined postseason appearances during the decade of the double-zeroes. The Phillies, the NL’s representative in the previous two World Series, have the second highest payroll in the Senior Circuit. Money, it seems, has become a proxy for winning over the long haul.
On the other hand, the game is enjoying unprecedented economic success. New stadiums, most of them government-funded, dot the country, and revenues topped $6 billion in 2009. Fans flock to see the Red Sox and the Yankees travel the country, and the game is better off for it. Teams won’t agree to a salary cap or a salary floor, but the players and owners will still try to limit the perceived economic — if not competitive — imbalance in the AL East.
Today, we celebrate Opening Day on the field with the pomp and circumstance it deserves. The Yanks may have walked away from an ugly game with a bad loss last night, but that hardly dulls my excitement for the return of a full slate of regular season baseball. On the horizon, though, looms economic machinations, and as good as the Yankees have it on the field and in their savings accounts today, all of baseball will be gunning for the top dogs both on and off the field over the next two season.
YES, Time Warner reach in-market streaming deal
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Those Yankee fans who are cursed with rely upon Time Warner for their YES Network access will now have the ability to purchase live streaming of all YES-broadcast Yankee games this year. The deal — announced this morning by MLB Advanced Media and the YES Network — now means that nearly every cable subscriber in the YES Network territory now has the option to purchase in-market streaming upgrades as well.
The Yankees offered up more details via a press release:
The Yankees on YES Live Game Streaming in-market package will launch in conjunction with YES’ Sunday, April 4, season-opening Yankees-Red Sox telecast (8 pm ET). YES Network will offer the package to eligible Time Warner Cable customers for $69.95 for the entire 2010 regular season, or $19.95 for any 30-day period this regular season. All games will be delivered in true high definition, the highest-quality live streaming as pioneered by Major League Baseball Advanced Media.
YES Network will allow eligible Time Warner Cable customers to purchase this package and use high-speed Internet access to watch YES’ Yankees telecasts live on their computers throughout the Yankees’ entire home broadcasting territory. They also will be able to watch YES’ Yankees telecasts live on laptops or other portable computers via WiFi. Time Warner Cable has reached an agreement with the YES Network to cooperate with Major League Baseball Advanced Media to ensure that only eligible Time Warner Cable customers may subscribe to the package.
As Maury Brown notes, with Time Warner now on board, the 127 games the YES Network airs are now available for streaming through all of the city’s major content providers. FiOS and Cablevision had signed deals with the Yankees last season, and millions of in-market fans can now purchase this live game streaming package.
For the future of online streaming of live baseball, this is clearly a deal big. The most popular team has made its games available online in the country’s biggest media market, and the revenue from this deal should be substantial. I have, however, a question: Will people purchase it? As far as I can tell, the streaming option is available only within the Yankees’ home broadcasting territory. Since the streams won’t work outside of that area, do people in New York — those who have access to YES via their standard cable subscriptions anyway — purchase this? In my view, until the requirement that only those who already have YES are eligible to purchase the streams are lifted, live in-market game streaming will not replace cable subscriptions.
And so a poll, if you will:
Jeter wants to ‘call the shots’
Posted by: | CommentsDerek Jeter would like to own a baseball team, he told the Associated Press yesterday. In an interview that probed Derek’s post-retirement plans, Fred Goodall of the AP talked ownership with the Yankee Captain, and Jeter made it clear that he wants a real piece of the action a la Michael Jordan and not just a token share of a team. “The only interest I have in ownership is to be able to call the shots. I’ve said that time and time again,” Jeter said.
This isn’t the first time we’ve heard talk about Derek’s interest in team ownership. In fact, just a few weeks ago, I talked about how Jeter could become a part-owner of the Yankees. Suddenly, that zany idea doesn’t seem as far-fetched as it once did. Whether Jeter would be a good savvy owner obviously remains to be seen, but he has spent his career around some pretty powerful sports business figures.
Guest Post: Baseball, the Yankees and the Great Depression
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The following guest post comes to us from baseball historian Daniel R. Levitt. He is the author of Ed Barrow: The Bulldog Who Built the Yankees’ First Dynasty, a book I reviewed in 2008 which is now available in paperback
Baseball, like all businesses, responds and adapts to its economic environment. The greater the disruption, the more profound the adjustment. The economic disorder of the Great Depression shocked the baseball owners: total profits of major league baseball collapsed from $1,335,742 in 1929 to a loss of $1,651,530 in 1933. Some of the less well capitalized owners were forced to sell their best players to raise capital. This expedient reached its apex in 1934 when Washington sold future Hall of Fame shortstop Joe Cronin to the Red Sox for $250,000, an amount greater than the entire 1933 player payroll of 14 of the 16 teams.
But the most lasting effect of the Great Depression on baseball was the realignment of the major and minor leagues. Like today, teams were limited to a 25-man roster of players during most of the season and a 40-man roster overall. The 15 players not on the 25-man roster were typically on option to minor league teams for continued development. Today, of course, teams control many, many more than 40 players though their farm systems. Prior to the Depression, however, this was not generally possible; all players on minor league teams controlled by a major league club counted against the 40-man roster. Some of the smoother operators, such as St. Louis’s Branch Rickey managed to skirt the edge of these rules, but on the whole having a farm system offered few advantages.
The economic imperatives of the Depression led to rules that allowed for the modern farm system. The major leagues had always resented being limited to the control of only 15 minor leaguers, but the minors liked it. The setup allowed minor league owners to control most of the best prospects and sell them to the major leagues for large prices once they were ready. The Depression, however, decimated minor league baseball–the number of leagues went from 25 to just 16 between 1929 and 1933–and the minors came to major leagues looking for financial relief. The major league owners agreed to invest in and help recapitalize minor league teams. In return, however, the major league owners demanded a rule change so that players on a minor league team controlled by a major league club no longer counted against the 40-man roster. Although the specific structure of the player control rules took several years to fully evolve, the new arrangement encouraged the development of the farm system as we know it today.
The Yankees were uniquely positioned to take advantage of this new environment. Like all capitalists, owner Jacob Ruppert saw his wealth severely curtailed in the economic downturn. But Ruppert had one unique advantage; he was a brewer, and with the repeal of prohibition in 1933, Rupert had an expanded and valuable source of income outside of his baseball franchise. Furthermore, unlike most other owners, Ruppert did not take distributions from his team’s profits; he reinvested them into the team.
Today the Yankee run from 1921 though 1964 is often remembered as one long dynasty. In realty it consisted of several distinct phases; one of the greatest began in the later years the Depression. Ruppert and general manager Ed Barrow quickly recognized the far-reaching impact of the new rules on minor league ownership and player control, and with Ruppert’s money built the best farm system in the American League. Supplemented with purchases of top minor league talent from many of the still independent minor league teams, the Yankees built one of the greatest sports dynasties of all-time. In the eight years from 1936 though 1943 New York won seven pennants and six World Series Championships and laid the groundwork for continued post-war success.
So what might the current economic downturn bring? Most obviously player salaries will stabilize or fall slightly as revenue falls off. So far, though, overall revenues have not declined. According to Forbes’ estimates, total baseball revenues actually increased from $5.5 billion in 2007 to $5.7 billion in 2008. Of course, the recession hit hardest in 2009, and those revenue figures are not yet available. Even if revenues fall slightly, however, it will not be enough to materially impact the structure of the game.
The largest impact may prove to be at the ownership level. Although team values have held up, the total wealth of many owners has been significantly reduced due plunging asset and hedge fund values. The baseball franchise itself, therefore, has become a greater proportion of the overall net worth of these owners. As their outside resources decline, they will have less financial flexibility to smooth out seasonal ups and downs in their team’s operational cash flow.
While baseball has always been subject to a diversity of wealth at the ownership level, the difference with this economic crisis is two fold: in the volatility of the relative wealth of the owners and in that market size will no longer be as important as ownership solvency. We have already begun to see this with Tom Hicks’ financial troubles in Texas and the Tribune Company’s bankruptcy in Chicago. The finances of both the Dodgers and Padres were recently thrown into confusion by the divorce proceedings of their principal owners. The fate of teams, and their willingness to spend on players, scouting, and marketing, is no longer as dependent on the fortunes of the team and its market size as on the changing economic circumstances of the owner.
Just 6 days 'til pitchers and catchers report.
