Poor Poor Pitiful Me

by Russ Roberts on August 24, 2006

in Sports

The poor Yankees. Turns out they’re losing money. Bloomberg reports:

The New York Yankees are losing
money even as they’re winning games, General Manager Brian
Cashman said.         

The team’s highest-in-baseball payroll, revenue-sharing
outlay and other expenses eclipse its revenue, Cashman said in
an interview on Bloomberg radio’s “On the Ball,” to be aired
this weekend.         

“We’re making a lot, but we’re spending more than we’re
making,” Cashman said. He declined to say how much the team is
losing.

One possibility is that it’s not true. Could it be that the comments are slightly self-serving rather than an open confession?

His comments come a week after the team broke ground for a
$1.2 billion stadium project next to their current home in the
Bronx that is funded mainly through municipal bonds. It’s
scheduled to open in 2009.

And now for a reality check:

The Yankees this year became Major League Baseball’s first
team worth more than $1 billion, according to Forbes magazine’s
annual valuation published in April. The team had a baseball-
best $277 million in revenue, Forbes said.

So I guess that losing money thing, even if true is probably not a long-term problem. It’s unusual for a money-losing asset to be worth ONE BILLION DOLLARS.

This assessment also conflicts with Cashman’s assessment of the motives of his boss, George Steinbrenner, altruist:

Cashman said owner George Steinbrenner’s desire to give
fans a winning team led to New York’s acquiring high-priced
players including Alex Rodriguez, Jason Giambi, Gary Sheffield,
Johnny Damon and, in July, Bobby Abreu.

More on the new stadium:

Cashman said the new stadium, which will triple the number
of luxury suites to 60, is “vital” to helping the team return
to profitability.         

The Yankees issued about $967 million of municipal bonds
through the New York City Industrial Development Agency to help
finance the stadium. The bonds are to be repaid with money from
ticket and luxury box sales at the new stadium.         

“The team needs to be a viable enterprise,” said Moody’s
analyst Thomas Paolicelli. “There’s only so much time where
they can run a deficit before it would start impacting their
obligations.”         

Paolicelli said Moody’s will monitor the situation. He said
bondholders are protected because the Yankees would risk
foreclosure on the stadium if they didn’t repay the debt. Also,
he said, the team estimates that revenue from ticket sales and
luxury boxes should be four times as much as the annual debt
payments due bondholders.         

“We think the incentive to pay the bonds is going to be
very strong,” Paolicelli said.         

Unless they’re losing money. Then they won’t be able to pay. Then all the Mayor will have to do is threaten to foreclose. That will be very popular among all those Red Sox fans living in the Bronx. But the natives would probably get very restless.

In addition to the tax-exempt bonds, the taxpayers are chipping in a modest $200 million. (HT: Volokh Conspiracy.) Taxpayers must be comforted to know they’re helping a worthy cause —a struggling small business like the Yankees.

For the record, the Yankees may be worth a billion bucks, but they have not won a World Series title in this millennium.

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{ 3 comments }

EclectEcon August 24, 2006 at 3:36 pm

It is possible that the team, itself, is losing money if you look only at gate revenues and subtract all the expenses. And it is also possible (likely?) that the team is undercharging its media affiliates for broadcasting rights, and these affiliates (also owned by the umbrella firm) are making nearly $100m/year.

Hiding team profits in the balance sheets of ancillary and auxiliary operations is an old trick. Too bad politicians still fall for it.

Forbes August 25, 2006 at 10:40 am

Not mentioned herein is the fact the the so-called luxury payroll tax that the Yankees pay into league coffers for distribution to the lowest payroll teams will be used to fund the new stadium, i.e. stadium costs are an offset against the calculation of the payroll tax.

In other words, the Yankees are substituting the expenses of the new stadium for the expenses of the payroll tax, rather than incurring the expense of the new stadium on top of the existing cost structure.

Undoubtedly EclectEcon's comment above is correct, as the Yankees revenue advantage has always been its broadcast rights. With the rights funneled through an affiliate, the affiliate should be able to capture the profits associated with the sales of broadcast advertising.

Half Sigma August 25, 2006 at 4:41 pm

The Yankees (notice the plural) are making LOTS and LOTS of money.

What you all mean is that the owners of the residual profits made a bad deal with the employees and other stakeholders.

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