The first is that they are buying Goldman Sach’s share which is a 49 percent stake in the company. Since the YES Network is valued at $3.8 billion it is expected to be slightly less than half of that although terms of the deal were not disclosed. After three years, though, News Corp. can increase it’s share to 80 percent.
As part of the deal YES extends its rights to broadcast Yankees games through 2042. They will pay $85 million a year for the right to Yankees broadcasts starting next year and that figure increases five percent each year until 2042 when the YES Network will pay out $350 million.
Since this sale one particular news source covering the Yankees has begun speculating whether or not this is a sign that Hal Steinbrenner is preparing to sell the Yankees. However, that seems to just be an attempt to drum up hits to their website. This is Goldman Sachs selling off their shares and not Steinbrenner and Co. In fact, this is helping to ensure a huge revenue stream for the Yankees for years to come. I don’t see why this signals a possible sale unless you are trying to drum up traffic and controversy on your website.
When hearing numbers like $85 million a year in TV rights, that’s money that YES pays out to the Yankees and does not include profits the Yankees get from their share of YES, it makes you wonder how silly the $189 million payroll goal is. That’s a lot of money the YES Network pays out each year, and when you consider that’s just on top of the money they make off the most expensive tickets in the sport with an average attendance that is second in baseball, it makes the entire thing feel so arbitrary.
In a recent article by Joel Sherman of the NY Post, he tried to guess at how much they would save annually by ducking under the luxury tax threshold even once. Here is an excerpt from that:
By going under $189 million, the Yankees would save the difference between that payroll and their familiar $200 million-plus outlay. They also would pay zero tax. Also, vitally, by going under, the tax resets to the lowest penalty level (17.5 percent) the first year a team returns over the threshold. Thus, if the Yankees go back over in 2015 because, say, they sign Andrus and Verlander, the tax is far less prohibitive.
The second inducement for going below $189 million is in the CBA’s revenue sharing refund program. It is a complicated concept and formula, but what is important to know is the Yankees would be rebated a percentage of what is the highest revenue-sharing payment in the sport, but — and this is key — only in years they are under the luxury tax threshold. If not, they forfeit the rebate.
There is debate about how much the rebate is worth since it is tied heavily to the revenue that, in particular, Atlanta, Houston, Toronto and Washington generate. Some initial projections had the Yankees getting between $5 million-$8 million after 2014 with a steady climb afterward. So between lower payroll, no tax and the steadily climbing rebate, the Yankees could save real money, $30 million-plus annually perhaps.
So the Yankees are going through all these hoops. They’re missing out on free agents, saying goodbye to Nick Swisher, potentially saying goodbye to Robinson Cano and Curtis Granderson too for a mere $30 million when they own a portion of a company valued at $3.8 billion and that pays out their team $85 million next year and then a five percent raise each year until they are getting payments of $350 million. All of that and they’re cutting corners to save $30 million in 2014 and roughly $10 million or more after thanks to the luxury tax rate being reset.
All of that money certainly adds up, but how fast does it really add up when the revenue coming in seems to dwarf it?
What the Yankees are doing is commendable. For years they were blasted for simply outspending the competition and now that teams are catching up to their payroll they are going through the effort to lower it. Even at $189 million they should be able to contend as long as it’s done intelligently, which so far GM Brian Cashman has been able to pull that off.
But when the average price of a ticket is running at $64 and the Yankees are cutting corners, throwing the word budget around everywhere, it gets a little hard to hear them saying that they can’t afford this free agent or that free agent.
Some information in this article was taken from Andy Fixmer and Scott Soshnick of Bloomberg News.