10 August 2007

How to have your pinstriped cake and eat it too

A Fortune article shows that the $1.2 billion new Yankee Stadium could bring in a whopping $253 million per year in revenue to the pinstripers.

Think about that. $253 million. They're not even selling stadium naming rights or seat licenses. That's enough to fit the Yankees' current payroll including Roger Clemens plus the inevitable $25 million in luxury tax they'll pay at the end of the year, and still leave enough for a couple of Scott Boras clients and a little profit. All that makes the Yanks' ginormous radio and TV money pure gravy. Scary, isn't it?

Worst of all, the $51 million mortgage will be at least partly deductible, probably 40%. Since they get to hold that revenue back, the other 29 teams get to indirectly pay for the new Yankee Stadium. Of course, the same goes for the Mets and their new digs. And everyone else that has new stadia or renovations on their dockets, including the A's.

Back to the Bombers. Like all teams, they'll pay one-third of their stadium revenues into the big revenue sharing pool. That doesn't mean they'll pay 1/3 of $253 million, they'll probably have some slick holding company/vertical arrangement that allows them to hide some of it. After they've hidden some of that away, they can take the stadium expenses deduction. Only after those two methods of gaming the system do they pay into the pool, plus they get dinged by the luxury tax. But if the stadium expenses deduction effectively or largely cancels out the luxury tax, it's really no skin off Steinbrenner's ass, is it?

Think of it like filling out a long form 1040. You've got your mortgage interest deduction (akin to stadium expenses), charitable contributions, and perhaps other deductions. Then you pay in and because you're in the higher tax bracket, you're supposed to pay more. The poor teams get their own version of tax credits (like our EIC) and head right for the check cashing place. It's not altogether that different from MLB, except in terms of scale.

Cisco Field is a third way, using non-baseball revenues such as housing development rights sales and commercial leases as an outside revenue stream to pay for the ballpark. I can't think of a proper analogy at the moment, can you?


anthony dominguez said...

"Worst of all, the $51 million mortgage will be at least partly deductible, probably 40%." I've read that the Giants enjoy a similar benefit for privately financing AT&T Park; meaning that the $20 million in annual debt service is deductible against revenue sharing. I also read that this deduction will sunset in 2010, meaning the G Men could be in bad shape money wise after 2010 (no Bonds, bad teams, NO DEDUCTION AGAINST REVENUE SHARING). Comment R.M.? I did read an article last year stating this info., but for the life of me I couldn't find it doing a search.

Airblair said...

All that money, and the Yankees STILL can't buy a World Series title. At least in other leagues with wide revenue disparities, like European soccer, you can be assured that the top 3 teams in revenue will always be among the top 5 teams in the standings. How do Yankees fans even enjoy the team, with expectations so high every year?

Marine Layer said...

IIRC, the deduction will sunset in 2010 or thereabouts because the debt service will end around that time. The loan was 15 years, $170 million so that's about the right time give or take a year or two. The Giants should be relatively debt-free, ready to compete with the A's new digs. I expect the Giants to routinely upgrade the facility as they've done in past years. The next step is to remove all the extra seats they've created in the past 5 years, then they can create the additional defined party areas other parks have.

The Giants will still have the deduction in some form, whether it's actual operating costs, property taxes, etc.

anthony dominguez said...

"The deduction will sunset in 2010 or thereabouts because the debt service will end around that time." Thanks for the info R.M.. I'm actually quite surprised; I thought the loan was for 20 years out to 2017. Anyhow, it makes this eternal SJ optimist wonder: if the Giants no longer have to pay out $20 million anually to their investors after 2010, WHY DO THEY STILL NEED TERRITORIAL RIGHTS TO SJ!! (no Rob, I'm not crying, just curious)

SexFlavoredPez said...

Mr. Dominguez,

There is a great site I found on this subject and I highly suggest anyone who reads this blog visit:
Some things I found most interesting were:
Steve Schott was quoted as saying:
"I believe that when Charlie Finley moved the A’s out here, and the Giants were already here, there was no question and no discussions about territorial rights. The only way the Giants ended up with territorial rights was because they were going to build a stadium in San Jose."

MLB had actually GIVEN the Giants rights to two additional counties (Santa Clara and Monterey) but with California politics being what they are, voters shot down a publicly financed ballpark twice ('90 and '92) in San Jose. Magowan bought the team in 94, MLB changed it's territorial rights - but didn't remove the rights they had just given the Giants 4 years prior - and the rest, as they say, is history. I'm not the only who thinks this is absurd especially considering that MLB paid out a HUGE settlement to Angelos for the Nationals. Schott agrees with me. He said, "There was no question about whose territory it was. They had to get permission from the A’s…They didn’t pay for those territorial rights, by the way. Now, in the meantime, they built a stadium closer to Oakland than they were before. And now, if we talk about another stadium down in that area, they go berserk…"

anthony dominguez said...

Thanks SFP,
As myself and others (yes, you Rob) on this site agree on,it's this: after 94 the Giants T-rights became a tool to rid the Bay Area of the A's completely; thus theoretically leaving the entire market in the hands of the Giants. It almost worked: The Uptown Oakland site became housing, Schott & Co. didn't have Fremont on their radar, and San Jose/SC Co. was off limits. Yes, Peter Magowan did state that he had no problem with the A's moving to Fremont, but that was knowing the last A's ownership group had no intentions of relocating there. So Schott and Co. sell the team to outside investors, and the A's become Las Vegas, Portland...and the Giants become "Yankee" rich! Again, it almost worked. Problem is, the Giants never saw Lew Wolff coming and they didn't realize how close Pacific Commons/Fremont was to San Jose/SC Co...their coveted "territory."

Hey R.M., We know that the Yankees are filthy rich in NYC. How do they do it sharing the market with the Mets, and how are the Mets doing money wise?