Archive for Business of Baseball
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→
According to the New York City Comptroller’s Office and the Economic Development Corporation, the Staten Island Yankees, New York-Penn League affiliates of the Bronx club and owned by the Yanks, owe the city $300,000 in back-rent, unreported attendance totals and improper deductions. The team does not agree, and the SI Yanks plan to bring the issue to an arbitration hearing.
The finer points of the dispute are rather arcane, but Comptroller John Liu lays them out in a press release which accompanies his office’s audit report (PDF). In essence, the terms of the lease deal between the SI Yankees and the EDC make rent payment levels contingent upon game attendance figures, and the team must pay a fee for each now-show complimentary ticket it issues over the course of the season. The team, says Liu’s office, underreported attendance totals for the 2009 season and now owes the city $118,366 in rent and $39,140 in no-show and complimentary ticket fees. Separately, the team took unallowable deductions in calculating money owed to the city through its net-signage revenue provisions and now must pony up $151,058. The EDC, leaseholders of the stadium in Richmond County, say the team owes back-rent and ticket fee payments only but not the net-signage revenue.
To rectify these deficiencies, the Comptroller’s Office has urged the team over the $308,564 it ostensibly owes while instituting better controls for its complimentary ticket policy. Since the various parties disagree, to arbitration this will go. As Frank Donnelly at SILive.com reported, the two sides “want to put the issue behind them,” but the EDC is prepared to go to court to collect its money. And once again, a professional sports franchise with a sweetheart stadium deal from its host seems to be withholding money that should go to fill the city’s coffers.
Lackawanna County, owners of the AAA Scranton/Wilkes-Barre franchise, have agreed to sell the team to the Yankees and Mandalay Baseball Properties for $14.6 million. The new owners will sign a 30-year lease with Scranton and have pledged $40 million for stadium renovations, David Singleton of The Times Tribune reported last night.
The Yankees had originally expressed interest in purchasing the team back in September, but political wrangling held up the sale for a few months. Even still, Luzerne County, passive part-owners of the Scranton franchise, is making noises about holding up the deal. That’s Pennsylvania county politics for you.
As Donnie Collins outlines, the sale will come with new terms attached. In addition to the stadium renovation funds, the team’s rent will increase from $150,000 to $750,000, and the least continues an option that could keep the franchise in place for 50 years. The Scranton stadium authority could repurchase the ballpark if the franchise relocates or ends its Yankee affiliation. New York, however, has been inclined to keep the team in Scranton due to the proximity factor. It is only a two-hour drive from the Majors to the AAA.
Overall, the Yankees are committing $37 million to the region, and while local politicians are wary about chipping in a few million in taxpayer dollars as part of the matching funds for the stadium renovation, they recognize its better than losing the team.
As for the renovations, they are extensive. Stadium capacity will drop from 10,500 to between 8000-8500, and the entire park will be overhauled. David Singleton offers up this take:
Under the proposal, only four elements of the existing stadium would be retained: the lower seating bowl, the playing field, the home locker room and the parking lots, Mr. Schmitt said. Everything else, including the upper-level deck, would be demolished.
The rebuilt stadium would have an elevated single- or double-tier of suites, club seats and media facilities behind home plate, but the rest of the seating would be on or below a concourse that would wrap around the entire playing field like a promenade, he said.
The promenade concept, now popular at many major and minor league stadiums, allows fans to view the game from multiple vantage points, he said. “The idea of a promenade lends itself, we think, to the very leisurely and social aspect of attending a ballgame,” [architect Craig] Schmitt said.
It’s a safe bet to assume that the Yanks will extend their PDC with Scranton well beyond the current 2014 expiration date. For minor league fans in Central Pennsylvania, baseball is seemingly there to stay.
Three billion dollars is no small amount to pay for the rights to baseball games. For any media entity, an investment of that magnitude requires a commitment to the cause, and when two competing media companies throw that much money into one pot as FOX and TBS did in 2006 for MLB rights, the product aired must be of a superb quality.
Last year, as the Yankees marched to their 27th World Series title, TBS’ coverages wasn’t all that. Chip Caray was pilloried in the press, and TBS brass eventually removed him from the broadcast booth. For a game long accustomed to the subpar stylings of Tim McCarver and Joe Buck, the TBS fiasco was just business as usual, and it seemed that baseball would be relegated to an afterthought on the national stage.
But TBS this year is taking its commitment to the game seriously. As I detailed yesterday on Second Ave. Sagas, TBS and MLB have engaged in a groundbreaking advertisement campaign in the New York City subways to promote TBS’ postseason coverage. One of the 42nd St. shuttle trains will be fully branded with baseball superstars, and in-car video screens will show highlights from playoff games and promotions for upcoming contests. While the dollar totals for the deal haven’t been announced, the shuttle branding combined with the display ads represent an aggressive push by TBS to get casual fans interested in their baseball coverage.
“Postseason in New York is always a big moment for sports fans, and this is an opportunity to excite the local fan base and launch a campaign that highlights iconic players in local markets,” Christina Miller, a Turner Sports senior vice president for strategy, marketing and promotion, said.
Over at AOL’s Fanhouse, Andrew Johnson picks up on this theme as he explores how TBS is improving its October coverage. In its fourth season of playoff coverage and with Ernie Johnson’s replacing Chip Caray, TBS is striving to bring a better understanding and presentation of the game to the fans. “It’s really important that we know our roles,” Ron Darling said to AOL. “We’re really custodians of these great athletes and great teams that are gonna be chronicled forever and be on DVD forever, so we do feel a responsibility, with Turner doing these games, that we’re part of it. We’re part of history every year.”
Darling and John Smoltz will join Johnson in the booth. The color analysts in the studio will include David Wells, Cal Ripken and Dennis Eckersley. Their analysis might not stray into sabermetrics and advanced statistical viewpoints, but these are players who are both entertainers and baseball supporters. Eric Byrnes and Kevin Millar they are not.
This push by TBS to do better stands in stark contrast to FOX’s coverage which often seems begrudging at best and downright resentful at worst. FOX too has spent the billions, but they don’t listen to the loud groundswell of disgust for the quality of their broadcasts. They continue to turn to Buck and McCarver as the voices of baseball. They plug football nearly as often as they discuss baseball during the broadcasts, and they haven’t engaged in much advertising to promote their cause.
Baseball writing on the Internet has at times grown on the wings of Fire Joe Morgan, a site dedicated to, well, seeing the dismissal of ESPN’s lead baseball color commentary realized. We can’t bash on the bad coverage without giving a nod to the good, and while TBS still makes its mistakes, it’s doing more to promote the game than other outlets who pay the big bucks. As the Yanks will soon be appearing on TBS, we should sit back and appreciate.
The Yankees’ holding company is currently carrying nearly $2 billion in non-stadium-related debt and $1.2 billion in stadium bond debt, according to a report in the Sports Business Journal. Despite these seemingly staggering numbers, though, Yankees Global Enterprises enjoys a cash flow high enough to make the debt, in the words of one baseball source, “very manageable.”
Daniel Kaplan has more:
The enterprise value of the companies composing YGE is roughly $5 billion, and cash flow at YES alone is expected to hit $208 million this year, sources said. YGE has been using the bulk of YES’s cash flow to reduce the regional sports channel’s debt, which is $1.448 billion, the sources said…
Neil Begley, a media and entertainment analyst at Moody’s Investors Service, which rates the stadium bonds, said ratio of debt to value for YGE was in line with other companies of its kind. “It is a significant amount of debt for a sports enterprise, probably among the biggest there is,” he said. “But if they cleared 2009, I would be hard pressed to think they would have economic pressure more significant than that.”
What also stands out about the debt is how little of it, $97 million, actually resides at the team. MLB’s debt regulations are applicable to the league’s clubs, but not to the clubs’ affiliates. It also underscores how the Yankees have shifted revenue to affiliates like YES and Legends, limiting the already steep revenue-sharing and luxury-fee payments, about $100 million, the club pays to MLB. The team also deducts about one-third of its $64 million annual stadium interest payment from its revenue-sharing commitment.
What makes this story so interesting isn’t necessarily the high debt total but rather the overall picture we get of the Yankees. This is a company that is financially healthy enough to be carrying $2 billion worth of debt, and the on-field product — the New York Yankees themselves — are responsible for just $100 million. By shifting debt to the other YEG holdings, as Kaplan notes, the Yankees are not subject to MLB’s debt regulations.
Going forward, it seems clear that money isn’t much of an obstacle to the Yankees. The team will have a budget, higher than anyone else’s, for the on-field roster because it will make them operate more efficiently, but as, say, Derek Jeter‘s contract comes due, the difference between $15 million and $18 million a year is negligible to the Yankees.
It’s worth also keeping an eye on how the team comes under attack when the collective bargaining negotiations begin next year. The original luxury tax/revenue sharing schemes were instituted to reign in the Yanks’ spending, but the team has kept on spending while making use of smart accounting and corporate practices that allow them to shift the revenue and debt to other affiliates. If the owners again go after the Yankees’ millions, I expect the Steinbrenner family to fight hard against it.
Over the past few weeks, those who follow the Yankees — from the beat writers to the bloggers and everyone in between — has grown concerned with the team’s dollars. From the perspective of a well-run organization, the Yankees are bleeding cash. They’re spending millions on A-Rod for far too many years; they are doling out checks to A.J. Burnett that his pitching can’t cash. They’re going to re-up with Derek Jeter for many millions more than he would get on the open market, and they seemingly want Cliff Lee as this winter’s shiny new toy.
It doesn’t take an economist to understand that the dollars behind these deals are tremendous, but we can see in all of its Spreadsheet-y goodness just how many bucks the Yankees have committed already. Via Cots, we learn that prior to this winter’s anticipated spending spree, the Yankees already have $107 million on the books for 2012, $94 million in 2013 and $73 million in 2014, the season after the free agencies of Joba Chamberlain and Phil Hughes. The Yankees may have a budget, but don’t expect that number to shrink below its current $213 million level any time soon.
But the real question is the one with which I opened this post: Should we be concerned? If we were looking for the next Moneyball, the next financially-constrained team to exploit an inefficient market, we might be worried that the Yankees aren’t fulfilling that criteria. We aren’t, however, engaged in that chase. Instead, we root for the Yankees and accept them for what they are: a financial behemoth that has the spending power and market ability to tower over the baseball landscape. What good is playing in New York City if you can’t take advantage of the fact that you’re playing in New York City?
Apparently, though, a few folks are worried. In the wake of the release of the MLB financial documents, some Yankee writers decided that, in light of Derek Jeter’s and Mariano Rivera‘s contract extension and Andy Pettitte‘s willingness to go year-to-year, Cliff Lee would not be a good investment. The Yankees might have — GASP — a $240 million payroll in order to compensate for the fact that their long-term aging players aren’t living up to their peak numbers.
Yet, the idea that the Yankees would raise their payroll by 10 percent over the next few years is hardly a revolutionary one. In fact, the Bombers’ payroll has risen by over 10 percent since 2007 and by nearly 100 percent since 2000. If I didn’t know any better, I’d almost believe the Yankees are printing money at will behind the marble of their new stadium in the Bronx.
In fact, that’s what Phil Birnbaum at Sabermetric Research says the Yankees are doing. Even though the Yankees claim they’re running a barely profitable business, Birnbaum delves into the figures publicly available and posits that, by delving up the business and selling off certain aspects of Yankee Baseball — including the TV rights — the Steinbrenner family is running a highly profitable venture, and the millions that reap can either be reinvested into the team or taken as a dividend outside of the revenue sharing scheme baseball has in place. If the Steinbrenners want to put a team getting paid $240 million onto the field, the only thing stopping them would probably be pressure from Major League Baseball.
So maybe all of this hand-wringing over Derek Jeter’s worth, value and contract prospects are for naught. Maybe the Steinbrenners don’t really care that they’re saying they’ll “take care” of Jeter because it’s small beans compared to the overall revenue picture. They can still provide for Jeter, sign Cliff Lee and perhaps even put together a decently-stocked benched next year. It is, after all, only money.