Some thoughts on the Yankees payroll as News Corp. buys YES

A couple of interesting things have come out about the Yankees relationship to the YES Network since I first passed along the info that they were being bought by Ruppert Murdoch’s News Corp.

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.

Hopefully Elvis Andrus, Justin Verlander, and Felix Hernandez are all on the market in 2015 and the Yankees can make up for this. Because the entire thing is getting a little silly.

Some information in this article was taken from Andy Fixmer and Scott Soshnick of Bloomberg News.

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6 Responses to Some thoughts on the Yankees payroll as News Corp. buys YES

  1. BigGuy says:

    Great article !

  2. Keena says:

    Please Lord, please, let Steinbrenner sell the Yankees.

  3. Hardcore Yankee Fan says:

    I might be inclined to agree with you guys if Verlander or Hernandez or Weaver or someone worth spending a boatload of money on was out there. I don't see that and I'm not inclined for the Yanks to give Swisher $15-17 million for 5+ years or Cano anything more than 6-7/$120. I can EASILY live without Cano and reallocate those huge dollars elsewhere and get better bang for the buck IMO.

    If you're going to spend like a drunken sailor, at least spend it on something worth buying. I could see paying Hamilton a ton over 6 years or so but we all know the potential risks there, both personal and physical. No Yankee fans seem to want to sign Greinke. Who else is there that's going to get $100 million+ or is really an IMPACT player? All things considered, the best ones worth signing this year are Kuroda, Pettite and Mo and either Napoli or Martin. And they all coincidentally are Yankees (except Napoli) who are willing to settle for one year contracts anyway. Sanchez might be pretty good but not for $80 million+.

    They're going to spend whatever they need on 2013 and reassess, so it's not even like they aren't spending yet they're still unduly getting criticized. Enough with the talk about the Yanks not spending (which is gaining a lot of traction lately) when there isn't anyone worth spending it on. I certainly don't want them spending for spending's sake so that Hamilton and Cano become 2016-2020 versions of ARod 2.0.

    As for the $85 million they get, that's A LOT less than what the Angels, Rangers and others get per year (like half). And the Dodgers will probably get 3-4 times that soon. It isn't that much. I'm not sure how much they get for their share of YES but there's only so much subsidizing an owner should have to do to placate fans. They've put up $200 million payrolls for the better part of 10 years now and continue to do so and will do so probably forever growing more and more. They need not be criticized for not spending enough. They may need to be criticized for not spending it wisely.

    • Spending for spending sake is bad. Nobody is advocating that. Just kind of rough to see ticket prices and revenue going up while they are in the middle of downgrading in right field and technically the bullpen too.

      • Hardcore Yankee Fan says:

        Well it is a business and we all know that. Every team is going charge as much as they think they can get away with. As for the bullpen, I'd rather have Mo than Soriano personally. As for RF, most Yankee fans don't seem to want to resign Swish at the years and money he wants. We could definitely upgrade that position by giving Hamilton 6/150 making 2013 a better team. Then I would give Cano a take it or leave it 6/100-110 offer and move on however they have to after that.

  4. Chris 33 says:

    Sever ties with ARod, packaging out whatever is owed to him over 20 or 30 years and kill at least 3 birds with one stone. Even employ ARod in the Front Office if that's what it takes. Then start rebuilding with prospects and aim to be in contention in 5 years. With luck they will stay in contention anyway,