Monday, April 23, 2007

The Yankees Win, the Yankees Win, the Yankees Win

One of the more popular phrases New York Yankees broadcaster John Sterling utters after each Yankees win “"Ball-game over! Yankees win! Theeeeeee Yankees win!!"

Sterling’s famous line has no connection whatsoever with Forbes annual financial Major League Baseball valuation, but while Yankees owner George Steinbrenner does his best to put the Yankees in a position to win each baseball season, its likely the Yankees continued domination of Forbes annual list has Steinbrenner thinking of Sterling’s celebrated broadcast line.

George Steinbrenner. Never imitated, never duplicated, George Steinbrenner remains what he has been since he purchased the New York Yankees for $10 million in 1973, a man driven and committed to success on every possible level of his life. Since “The Boss” took control of the Yankees, the Bronx Bombers have won six World Series, ten American League titles, 16 American League east titles and managed to win the American League wild card twice. Under Steinbrenner’s stewardship, the Yankees have become the model franchise for the entire sports industry. Steinbrenner is the owner which all others should be judged by.

Consider this. Last week when Forbes Magazine released their 2006 financial valuation for Major League Baseball franchises, after becoming the first MLB organization to suppress $1 billion in value according to Forbes subjective but well respected annual MLB list of teams’ value last year, Forbes pegged the Yankees value at $1.2 billion.

Factor in these mind numbing numbers when it comes to the business of the Yankees. Forbes believed the Yankees had a value of $362 million in 1998, $491 million in 1999, $548 million in 2000, $636 million in 2001, $752 million in 2002, $849 million in 2003, $950 million in 2004, $1.026 billion for 2005 and a staggering $1.2 billion for 2006. That is an amazing return on investment, for what was a $10 million purchase 33 years ago.

According to Forbes 2007 business of baseball report, the Yankees value continued its steady increase in value – despite the Yankees (with the highest payroll in baseball) actually managing to decrease their team payroll last year. And how surprised was Forbes? The publication reported that: for the first time in at least twenty years, the Yankees cut their payroll. The Yankees lopped $5.5 million off their payroll last year and had their luxury tax bill cut $8 million, to $26 million thanks to the lower payroll and higher tax threshold. The fiscal restraint came on the heels of a $50 million loss in 2005. Revenues for the Bombers surged to $25 million in 2006, thanks to a team-record 4.2 million fans attending games at The House That Ruth Built. The Yankees new stadium, scheduled to open in 2009, will increase revenues by at least $50 million annually.

Did that mean in anyway The Boss (as Steinbrenner is often called by those who respect, loathe and fear the man) was fully financially committed to the Yankees success? What took place on July 30, 2006 served as the perfect example as to Steinbrenner never letting the dollar get in the way of the Yankees success.

The New York Yankees did what they do best that Sunday afternoon – robbing their own cradle to feed the big club. The Yankees traded four prospects (none of whom may ever amount to anything in the major leagues) to the Philadelphia Phillies for Bobby Abreu and the late Cory Lidle. Baseball fans from 29 other teams once again had to stare and watch as George Steinbrenner’s annual shock and awe campaign proved once again, at least when it comes to the business of baseball -- Darth Steinbrenner is The Boss.

The rationale for the Phillies at the time may have seemed so simple – the Yankees were the only MLB franchise prepared to assume the financial obligations the Phillies had to both Abreu and Lidle. The Yankees assumed one-third (the remaining two months of the 2006 season) contractual obligations owed to Abreu (4.5 million) and Lidle (1.1 million). The Yankees also took on Abreu’s $15 million 2007 contract. The Yankees also agreed to pay Abreu $1.5 million to waive his no trade clause.

Financially the Yankees did more then add 7.1 million to their 2006 team payroll. Because the Yankees surpassed the MLB team salary payroll threshold of $136.7 million, and because the Yankees surpassed the team payroll threshold level for the fourth consecutive season, Abreu and Lidle cost the Yankees an additional 40 percent ($2.82 million). The Yankees 2006 opening day payroll was projected at $198,662,180. The Yankees may have reduced their payroll but Yankees General Manager Brian Cashman believed the Yankees needed Abreu and Lidle to win in 2006. When the Yankees made the trade they were .5 game behind the Red Sox. Two months later when the season ended the Red Sox were 11 games back, the Blue Jays finished second in the AL East, but still ten games behind the Yankees. Yes, the Yankees lost their American League Divisional series to the Detroit Tigers in four games, but the bottom line – Steinbrenner added value once again to the Yankees by putting the needed pieces in place.

The New York Post offered an interesting look at the business of the Yankees last year. Among the ‘interesting’ points the Post raised in their report:

*TV: The Yankees own the majority of the YES cable TV network, which launched in 2002. YES, which also televises New Jersey Nets basketball games, has been valued at more than $1 billion. The network has two major sources of revenue, affiliate fees and advertising sales. Affiliate fees are paid to YES by the cable operators. The fees run $2 per cable subscriber, per month and total $188.5 million, according to John Mansell, senior analyst with Kagan Research. Mansell said in addition to those fees, YES also takes in more than $38 million in advertising sales, giving the network $227 million in revenue. The Yankees also get money from baseball's national TV contracts with Fox and ESPN. That works out to about $18.6 million per team.

*Ticket sales: The Yankees have already sold more than three million tickets for this season and are expected to top last year's record home attendance of 3.7 million. The most recent figure for gate receipts is $119 million for the 2003 season, and analysts say the team is well ahead of that figure. Carter at The Sports Business Group also said there are even more dollars generated by the sales of hot dogs, soda and beer and other concessions and souvenirs.

*Sponsorships: The Yankees have benefited from some of the biggest sponsorship deals in all of sports, including a 10-year, $94 million deal with Adidas. "Everybody wants to back a winner and it's obvious that you're going to get more bang for your buck," with the Yankees, Jim Andrews, editorial director with IEG Sponsorship Report, said.

*Luxury Suites: Yankee Stadium has 35 suites that lease for an average of $280,000 each per year, according to Jim Grinstead, publisher of Revenue from Sports Venues. It's difficult to pin down an annual amount of revenue generated by the suites since some are rented on a per day basis for anywhere from $2,600 to $4,500, Grinstead said.

The best may be yet to come for the Yankees. On June 15, 2005, just four days after the New York Mets announced their plans to replace Shea Stadium, Steinbrenner announced the Yankees would build a new Yankee Stadium at a cost of $800 million. While $200 million in infrastructure costs will be borne by taxpayers, the Yankees will cover the cost of the new ballpark and any cost overruns.

According to the information the Yankees released to the media: Tradition and the look of old Yankee Stadium prior to its renovation in the 1970's will be incorporated into the new stadium. The new Yankee Stadium will seat approximately 51,800 fans.

The main grandstand will consist of four levels that stretch from foul pole to foul pole, with nearly 30,000 seats in the first two levels. The third level will contain 60 luxury suites and the fourth level will be the upper deck. Additional seating will be beyond the outfield fence as it is today at Yankee Stadium. Many elements will be incorporated into the new stadium that were lost when Yankee Stadium was renovated in the 1970's.

The stadium will be comprised of two separate structures: one, the exterior wall, constructed to replicate the original Yankee Stadium, built in 1923, and the other the interior stadium itself, rising over the top of the exterior. From the outside the structures will look like one building, almost identical in materials and design to the original stadium.

The signature frieze, the lattice work that once rimmed the original stadium roof and was recreated in the outfield of the current stadium, will be added to the new stadium's roof. The famously cavernous concourses will give way to open spaces with sightlines to the field from nearly every vantage point. Monument park will be moved to a new location beyond the outfield fence once the new stadium opens. The new stadium will have the same dimensions and bullpen placements as the old Yankee Stadium had.

The key differences between the current and the new ballparks – the 60 suites. The current Yankee Stadium has 17 suites. Those 43 additional suites will represent millions of additional dollars in revenue for the Yankees each year. Then factoring in a majority of the new ballparks seats being located in the lower deck, the Yankees who have already surpassed 4 million tickets sold for the 2006 season (marking the second consecutive season the Yankees have achieved that attendance figure) the slight drop in capacity from 54,000 to 51,000 will drive Yankee season ticket sales and again result in millions of dollars in additional revenues with an increase in premium seating.

2002 an epic year when it came to the Business of Steinbrenner. He started the YES Network, Sporting News recognizes the feat by naming him the Most Powerful person in sports (he was number two in 2001). Before YES launched their network in 2002, Steinbrenner reached a marketing agreement with Manchester United, bringing together two of the biggest brands in sports.

Steinbrenner moved forward with YES after making a reported $64.5 million (that according to MLB’s Blue Ribbon report) with the Yankees between 1995 and 1999. Unlike far too many professional sports owners, Steinbrenner time and time again has taken the money he’s made from the team he owns and invested those profits directly back into the Yankees. Should that not be the standard which professional sports owners are not judged by? Too many owners today have either a take the money and run belief as to how their team should be run or are simply not prepared to invest in their business.

The Yankees $26 million plus luxury tax bill for 2006 brought their four year to $97.75 million. The Yankees paid tax in all four seasons of the recently-expired collective-bargaining agreement: $11.8 million in 2003, $26 million in 2004 and $34 million for last year.

The Yankees had been floundering during their years under CBS ownership, a regime that started in 1965. In 1972, CBS Chairman William S. Paley told team president Michael Burke the media company intended to sell the club. As Burke later told writer Roger Kahn, Paley offered to sell the franchise to Burke if he could find financial backing. Burke ran across Steinbrenner's name, and Paul, a Cleveland-area acquaintance of Steinbrenner, helped bring the two men together.

On January 3, 1973, a group of investors led by Steinbrenner and minority partner Burke bought the Yankees from CBS for $8.7 million. "We plan absentee ownership as far as running the Yankees is concerned," said Steinbrenner, according to an article in The New York Times reporting on the sale. "We're not going to pretend we're something we aren't. I'll stick to building ships."

The message was that Burke would continue to run the team as club president. But Burke later became angry when he found out that Paul had been brought in as a senior Yankee executive, crowding his authority, and quit the team presidency on April 29, 1973, but remained a minority owner of the club into the following decade. It would be the first of many high-profile departures with employees who crossed paths with "The Boss." At the conclusion of the 1973 season, two more prominent names departed: manager Ralph Houk, who resigned and then signed to manage the Detroit Tigers; and general manager Lee MacPhail, who became president of the American League.

The 1973 off-season would prove to be controversial when Steinbrenner and Paul sought to hire former Oakland Athletics manager Dick Williams, who had resigned immediately after leading the team to its second straight World Series title. However, because Williams was still under contract to Oakland, the subsequent legal wrangling prevented the Yankees from hiring him.

Free agency and George Steinbrenner were made for each other. First signing Jim ‘Catfish’ Hunter to a then unheard of 4-year, $2.85 million contract in 1974, to the signing of Reggie Jackson in 1976, and Steinbrenner bought success back to the Bronx. And for the record it’s well worth noting that Steinbrenner was against free agency when Marvin Miller and the Major League Baseball Players Association managed to secure that right for baseball players in the mid 1970’s. However once that door opened, again playing within the rules, Steinbrenner used the opportunity to his advantage to build a Yankees dynasty.

While the Yankees didn’t win a World Series in the 1980’s they had baseball best record. Steinbrenner turned the teams failures of the 1980’s into four more World Series between 1996 and 2000, and two more American League pennants. He helped create unparallel success and under the leadership he has provided the Yankees are baseball’s premier brand, all again working within baseball rules. Is that not again what outstanding ownership of a sports franchise should be judged by?

Steinbrenner has had serious issues outside of baseball while he has owned the Yankees. Notably in early 1990's after the Yankee owner came under fire from owners around the league denouncing his "overly dominating" business practices. In 1990, baseball Commissioner Fay Vincent ordered the Yankees owner to resign as the club's general partner and shockingly banned him from the day-to-day operations of the team for life. The ruling came as a direct result of Steinbrenner's $40,000 payment to confessed gambler Howie Spira for damaging information about the since-traded Dave Winfield. Later Spira was sentenced to 2½ years in prison for attempting to extort $110,000 from the Yankees organization, but regardless of the motive, the suspension still remained. In his absence which was repeatedly under appeal, Vice President and Chief Administrative Officer Joseph Molloy, (Steinbrenner's son-in-law), was appointed as the "acting" managing general partner of the club.

Steinbrenner paid a terrible price, being forced to be nothing more then become an observer of the Yankees day-to-day operations of the Yankees, Steinbrenner returned as Yankees Managing Partner three years later. One of his first decisions, negotiating a ten-year $93 million sponsorship agreement with Adidas (one that was recently renewed).

Steinbrenner moved forward with YES after making a reported $64.5 million (that according to MLB’s Blue Ribbon report) with the Yankees between 1995 and 1999. Unlike far too many professional sports owners, Steinbrenner time and time again has taken the money he’s made from the team he owns and invested those profits directly back into the Yankees. Should that not be the standard which professional sports owners are not judged by? Too many owners today have either a take the money and run belief as to how their team should be run or are simply not prepared to invest in their business.

Should George Steinbrenner be welcomed to the Hallowed Halls of Cooperstown? Yes, yes and yes again. If members of the Baseball Hall of Fame are to be based on how one contributes to the game then open up the doors to Steinbrenner (and Marvin Miller at the same time). Is Steinbrenner likely to ever be considered, of course not!

We live in a society where all too often success isn’t rewarded or recognized it’s resented. Is George Steinbrenner a perfect person, are you kidding he’s been called Darth Steinbrenner by yours truly for years, but that doesn’t mean George Steinbrenner hasn’t earned respect and admiration. George Steinbrenner future Hall of Fame member, great sports owner, and a person who’s made some terrible mistakes. Enough with those jealous of the success George Steinbrenner had enjoyed. Better the sports world looks to George Steinbrenner for the examples he has offered, not simply the overspending, mistakes he’s made.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: Forbes 2007 MLB Business of Baseball report

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