Archive for Business of Baseball
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.
With the Yanks’ radio deal with WCBS AM 880 expiring after the end of the 2011 season, rumors of a potential switch to another station along the dial are swirling. As Bob Raissman reported in the Daily News this weekend, the Yankee brass would like to cash in on the value of their radio rights, and other prominent media companies — including ESPN — are prepared to enter the bidding.
This isn’t the first time this winter that Raissman has broached the topic of the Yanks’ radio machinations. In November, he questioned the futures of John Sterling and Suzyn Waldman. If the Yankees switch frequencies, the new station managers may opt to bring in their own on-air talent. Sterling and Waldman, after all, elicit strong reactions — few positive — from Yankee fans, and fresh blood could drive up the ratings.
But before the personnel decisions are to be made, the Yanks must secure a good deal for themselves. They currently earn $13 million a year from WCBS, but as Raissman notes, the club would rather get Red Sox money — $18 million a year. In a bad market for radio, could the team cash in? If the right outlet enters a bidding war, they certainly could, but the fans might lose out.
Raissman notes that ESPN-1050 with its weak and confined signal could be a likely landing space. He writes:
ESPN-1050 will be a player for Yankees rights. It could play the role of the “desperate” outlet. Acquiring Yankee baseball would instantly fill a huge void for a station hustling for ratings, bringing it higher visibility from a vast audience that has no idea ESPN-1050 even exists. A 1050 partnership with the Yankees would instantly turn up the competitive heat on WFAN, home of the Mets, by increasing – probably significantly – 1050′s ratings.
There’s a major stumbling block for ESPN-1050 – its weak signal. Two Dixie Cups attached by a string is a powerhouse by comparison. Seriously though, Yankees brass probably doesn’t want its games airing on a station with – literally – no juice.
ESPN can alleviate the problem by purchasing a station with a strong signal. Industry sources say ESPN has shown interest in buying RXP 101.9, an FM station owned by Emmis Communications. Emmis was asking $125 million for the station, but the price has apparently dropped to $100 million. If ESPN does not acquire a station with a big-time signal, but comes in with the highest bid, would the Yankees decide to glom the money at the expense of being stuck on 1050?
The Cardinals tried a similar move in 2005, but it backfired. Fan complaints pushed them back to the KMOX powerhouse this year, and the Yanks were certainly watching that saga unfold. Meanwhile, Raissman notes that the Yanks could try to push the Mets off of WFAN or they could buy their own radio station spots by purchasing time on another network.
No matter how this ends, two off-field storylines here are worth watching. The first concerns Sterling and Waldman. Older fans seem to enjoy Sterling’s histrionics while younger fans would prefer a better broadcaster. Will the next radio broadcaster opt for traditional or change? Second, will the Yanks flip to a weaker signal? Fans in Connecticut and New Jersey simply cannot get ESPN 1050 over the air, and the Yanks would alienate a significant portion of the fan base if they do. Such a change could have far-reaching ramifications for the club looking to cash in on valuable broadcast rights.
Millions of tourists from all over the country walk through Times Square every year, and odds are good that most of them hate the Yankees. Now, they’ll be greeted with 2000 square feet of the Yankees right in the Paramount building. As the Wall Street Journal reported yesterday, the team has signed a 15-year lease for the storefront next to the Hard Rock Cafe at 1501 Broadway. The team store, says reporter Dana Rubinstein, will open “within the next few months,” and I have to believe the club will shutter the much smaller team store on 42nd St. between 7th and 8th Aves. in exchange for this massive space on the Great White Way.
The business of baseball is alive and well right now. The sport is drawing in well over $6 billion in revenues; attendance is at an all-time high; and the players and owners are enjoying unprecedented riches. In fact, considering the game’s prosperity, a casual fan would be hard-pressed to know that the Collective Bargaining Agreement between the players and owners expires this year.
In essence, it’s a good time for the CBA to come due. While players might agitate for a higher minimum salary and bigger cut of those billion-dollar revenue totals, the biggest complaints concerning the game’s economic structure right now involve draft pick compensation for free agents and, of course, knocking down the Yankees. The Bombers have not been deterred by revenue sharing or luxury tax payments, and in fact, they’ve kept on spending at higher and higher levels.
But the Yankees are a minor issue in the grand scheme of the game. As David Pinto noted earlier this week, baseball’s big issues “seem to be settled.” Pinto instead wonders if the CBA negotiations might be more macro in scope. How would a group of owners and players redesign the game if they were starting from scratch today? Can, he asks, baseball restructure itself to “give teams more of a chance of making the playoffs?”
It seems as though one of the ways baseball will try to reinvent itself is with another playoff seed. Toward the end of 2010, we heard that a fifth team from each league would qualify for a playoff game or series against the traditional Wild Card team. This would allow more teams to reach October and would sustain interest in the game throughout the fall. Would it help?
Out of idle curiosity tonight, I took a look back at the recent AL playoff picture. While baseball on the whole doesn’t really have a major competitive balance problem, the AL does, and right now, the American League East is ascendant. A team from the East has reached the ALCS in each of the last four seasons. In three of those four years, the AL East team has reached the World Series, and in two of those four years, the AL East has won the World Series.
The Wild Card lately too has been dominated by the American League East. Since 2003, an AL East team — the Yankees, the Red Sox or Rays — has won the Wild Card every year except 2006. Three times since 2003, the two AL East teams have faced each other in the American League Championship Series. In other words, nine of the last 16 ALCS teams have come from one division, and based on the distribution of talen within the American League, it’s tough to see this outcome changing over the next few seasons. The Yankees and Red Sox have the clear financial edge, and the Rays have put together a front office capable of building perennial contenders on a budget. Only the fact that these two teams play each other so often will give anyone else a slight opening.
The extra Wild Card would solve this problem to a certain extent. Only in 2010 and 2008 would three AL East teams have reached the playoffs with a second Wild Card. The AL West would have captured the crown four times and the Central once with a split in 2007. The second Wild Card then would generally ensure that some team that isn’t the Yankees, Red Sox or Rays reaches the playoffs.
So is that a solution to improving baseball? I’m not in love with the wild card nature of a Wild Card playoff, and it would open up the field to a bad team having a hot month. But absent a tricky realignment based perhaps on economic clout or a steeper penalty against the rich teams, it might be the best baseball can do right now. Either way, hearing about creative ways to improve the game will be far better than rumors of a strike. I can easily live with labor peace.
When George Steinbrenner died in early July, many commentators noted his perfect timing. The Boss passed away during the one year in which Congress had allowed the estate tax to lapse, and it seemed to be the perfect Steinbrenner coda to a long and controversy-filled life in baseball.
Of course, at the time, we knew Congress wouldn’t be silent on the matter forever. Even though the estate tax would been restored by default in 2011, Congress acted to restructure the estate tax and make it retroactive for 2010. For the next two years, the estate tax will be collected at 35 percent of all probate assets with a $5 million exemption. Only around one-half of one percent of Americans will have to pay the tax, but with the way the new tax bill is structured, the Yankees and its owners will have to pay something even though George passed away while the tax had lapsed.
Paul Sullivan of The Times explained what this means for those who died with large estates in 2010. He wrote late last week:
Under the estate tax wording in the bill, the heirs of people who died this year will have two options for a tax bill. If they chose to treat the estate by the tax laws in place in 2010, they will have to calculate the capital gains on all assets in the estate to determine if the value is above a level the Internal Revenue Service is allowing. This “artificial step-up in basis” is $1.3 million to any heir and $3 million to a surviving spouse.
The other option is to apply the 2011 law, which would exempt the first $5 million of the estate and impose a rate of 35 percent on anything above that. This is far more generous than the 2009 law — a $3.5 million exemption and a 45 percent tax rate — which many people thought would be reinstated.
Leading estates lawyers, including Ed Koren, a Holland & Knight attorney who represented Steinbrenner, said that folks with estates over $10 million would opt to pay the capital gains tax at 15 percent. Koren spoke to the point about the Yankees as well, and it sounds as though the team and family were well prepared for the Boss’ death.
“I can assuredly say that the Yankees wouldn’t have been on the block this year if there was an estate tax. It has to be an aggressive and ongoing approach,” he said of insulating as much a portion of a large estate as possible from the tax. “I represented George for 22 years.”
George had become, for better or worse, the poster child for the lapsed estate tax, but even as Congress has restored the tax, the Yankees and the family should be just fine. They have money and access to very good lawyers. I’m not at all surprised.
Long after the playoffs are over, Major League Baseball totals up the gate receipt from the various postseason games — the first three LDS games of each series and the first four LCS and World Series games from each series — and distributes them to the victors. Each playoff team gets a share based upon how far they made it and the four second-place non-Wild Card teams share in the action as well. (I’m sure that’s a bittersweet reward for the Padres.)
Today, MLB announced the totals. While the Giants get a playoff pool of over $19 million and the Rangers took home $13 million, the Yanks’ players had to split $6.588 million amongst the club. Ultimately, the Yanks awarded 43 full shares of $110,302.97 each, 15.75 partial shares and one cash award. While that’s a far cry from the $365,000 World Series share the players enjoyed in 2009, that 100 grand isn’t a bad reward for losing the ALCS.
The Yankees unveiled their 2011 ticket prices this afternoon, and while most prices will not go up, the team announced increases for six price points including the bleachers. While most tickets that are witnessing an increase will go up by $5, the $12 bleacher seats will now cost $15 for both season-ticket packages and single-game sales. The $5 obstructed-view seats will remain as such, and the Yankees are not cutting any ticket prices this year.
Yankees’ COO Lonn Trost spoke this afternoon with Mike Francesa about the rationale behind the ticket increases, and he explained how the team used the secondary market to gauge demand. Since the Yanks routinely saw bleacher seats sold at 175 percent mark-ups, the team determined they could raise the prices and opted for a 25-percent mark-up. The 2011 ticket prices are listed at the Yankees’ website, and I’ll try to summarize the key increases.
While 54 percent of Yankee Stadium seats will still be priced at $50 or less, a good portion of the seats in the lower levels will see increases. In the Main Level, Sections 205-209 and 231-234, prices are increasing by $5 from $45 to $50 for a full season and $50 to $55 for partial ticket holders. Seats in sections 210-212 and 228-230 will rise from $60-$65 for full packages, but partials will stay at $70. Main level seats in sections 213-214b and 226-227b will increase from $75 to $80.
At the field level, rows 12-30 in sections 116-124 will increase to $260 full plan holders. Game-day ticket prices for these seats will increase from $300 to $325. Season tickets for the field level, rows 15-30 in sections 112-113 and 127b-128 and rows 1-14 in sections 108-11 and 129-131 will now cost $110 for a full plan holders and $115 for partial plan holders. Rows 15-30 in sections 108-111 and 129-131 will now cost $80 for full plans.
In addition to the prices that are going up, Trost mentioned that the team will soon be selling ticket packages for multiple seasons that are locked in at the purchase price. For example, fans who buy tickets for three years at the 2011 price point won’t have to pay for price increases in the years that covered by the initial purchase contract.
Of course, no one wants to see ticket prices increase, but Trost’s claims bear out the increase. He says that the Yanks are constantly playing to 95 percent capacity, and even when the seats appear empty on TV, the tickets have been sold. Either fans are no-shows — which happens a small percentage of the time — or they are wandering the stadium. The Yankee Museum, Trost said, has been a very popular in-game destination, and the various bars and restaurants have drawn fans away from their seats as well.
Essentially, the increases are a prime example of ticket economics at work. The Yankees might be increasing their payroll and know that the secondary market supports higher prices. The team wants to and can capture that revenue. Thus, many people will be paying more for their tickets come 2011.
Yanks “expecting a sell-out” for Saturday’s Army/Notre Dame game
During his interview with Francesa, Trost spoke about the debut of college football at Yankee Stadium. Because the new stadium cost so much to build, the Yankees need it to become a year-round venue, and Trost has spent a lot of time working to ensure a smooth game on Saturday. If ticket sales are any indication, he will succeed.
The team has sold 51,000 tickets for the game, and while a few seats remain, the club is “expecting a sell-out.” Astute readers will note that Yankee Stadium’s baseball capacity is under that 51,000 mark, and Trost says they’ve added seats by installing temporary bleachers in the bullpens and on the field. For those heading to the game, Metro-North is running extra trains as well.
We reported last week on the impending sale of the Scranton/Wilkes-Barre AAA franchise to the Yankees and Mandalay Bay. At the time, the details included a $40-million stadium renovation plan and a $14.8-million price tag on the franchise. But since then, more information has come to light that sheds a less-than-flattering light on the stadium shenanigans.
Currently, two parallel disputes have the potential to plague the project. The first is a lawsuit brought by Luzerne County officials. They claim that because they ponied up $1 million in 1986 — or half of the purchase price for the franchise — they are now owed half of the money from the impending sale. Lackawanna County, the physical home of the franchise and selling party, filed a countersuit requesting $20 million or half of what it has spent on baseball. The impending lawsuits will derail immediate plans to use the proceeds from the stadium sale.
Meanwhile, the sale and sweetheart terms of the agreement — more on that in a second — seem to be the product of intense lobbying by Pennsylvania Governor Ed Rendell. As The Times-Tribune reported yesterday, Rendell was a driving factor behind the sale and pledged $20 million in state money to fund the ballpark renovations as well. He didn’t do anything wrong or illegal, but his actions have led to the tensions in Northeast Pennsylvania.
Furthermore, now that details of the lease agreement have leaked, this deal is looking more and more like a losing proposition for the taxpayers of Pennsylvania. The $14.7 million the county will receive from the purchase of the franchise is to be reinvested in stadium upgrades, and the state will add in another $20 million. Neither the SWB Yankees nor the purchasing entity — the New York Yankees and Mandalay Bay — would have to chip in any additional money for the stadium upgrades. If the renovations come in under budget, the remaining dollars will be held in a sinking fund for future improvements and repairs.
And so what we have is yet another municipal stadium mess. Lackawanna County contends that baseball will depart from Northeast Pennsylvania without this investment while Luzerne County claims the sale price of the franchise is too low. More than $7 million from the purchase of the team will be held by the court, and the battle — and state’s and city’s willingness to fork over $40 million in taxpayer dollars with dubious fiscal returns — will loom over the 2011 AAA season.
After the jump, I’ve posted the Memorandum of Understanding between the Multi-Purpose Stadium Authority of Lackawanna County and the Scranton/Wilkes-Barre Yankees. It highlights how much of a good deal the franchise is getting in this sale. Read More→