I was at my company’s Christmas Party yesterday, which was lunch at a local restaurant, and was speaking to one of my colleagues when he accused me of being “full of shit” when I told him that the Yankees don’t actually make money. He seemed surprised that a team who makes so much money in advertising and merchandising revenue and has the highest attendance in the Major Leagues, could actually lose money. In fact, the Yankees have not made money since the 2003 season. It’s simple – no amount of revenue can make up for the Yankees three biggest bills: Revenue Sharing, Luxury Tax payments and Alex Rodriguez.
“We’re making a lot, but we’re spending more then we’re making,” Yankees GM Brian Cashman said in 2006. It comes down to simple decision making for the Steinbrenner family as to what is more important to them: making money with the Yankees, or fielding a winning team. For the last several years, it has been the latter.
Consider these figures from Forbes. In 2005, the Yankees lost $50 Million while earning a league-best $277 Million in revenue and becoming the first team to be worth more then $1 Billion. In 2006, the team lost $25.2 Million, while earning a league-leading $302 Million (Boston was second with $234 Million). In 2007, the team lost $47.3 Million with revenues totalling $327 Million (Boston was again second with $263 Million, but also lost $19.1 Million in 2007.)
Why would any smart businessman or woman choose to allow their organization to consistently lose money? The answer is VALUE and RETURN ON INVESTMENT. The Yankees are third-highest valued team in the world at $1.3 Billion, behind Manchester United of the English Premier League ($1.8 Billion) and the Dallas Cowboys of the NFL ($1.6 Billion.)
Once the new stadium is officially opened, the Yankees should be able to make over $400 Million yearly in tickets, concession and rental (from restaurants and bars in the stadium) revenues. This does not even include revenues from merchandise and advertising from inside the stadium and out. The Yankees could set a new record for revenue in 2009 at over $500 Million, even with the economy faltering. That’s why it is worth it to lose money for a few years.
So this brings me back to return on investment. George Steinbrenner paid $10 Million for the Yankees in 1973. If he wanted to sell, by 2015, the team should be worth more then $2 Billion.