2018 was a banner year in the Bronx, at least from a financial standpoint. Although the Yankees didn’t perform as well on the field as fans might have hoped, the team’s accountants had plenty of reasons to celebrate. According to the latest Forbes study of the business side of baseball, the Yankees won a financial triple crown, as net revenue increased by 8%, operating profit doubled and the franchise’s enterprise value increased by 15%, more than any other team in the league.
Yankees’ Financial Snapshot, 2003-2018
Note: See below for relevant footnotes pertaining to financial metrics.
Source: Forbes.com
A big reason for the Yankees’ financial successful was a significant reduction in payroll. In 2018, the Yankees slashed player salaries by over 12% to dip below the luxury tax threshold, thereby eliminating a further expense and reducing the team’s overall investment in players to a minuscule 27% of revenue. Only the Chicago White Sox invested at a lower rate in 2018, making the Yankees one of the chief culprits in terms of under investment in payroll. In real dollar terms, the Yankees would have had to have spent over $100 million more to just reach the league average rate of 42.8%.
Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2019E
Note: Revenue is
based on Forbes calculations and net of revenue sharing and stadium debt
service. Payroll is based on final figures (not AAV) for each year released by
MLB plus reported luxury tax payments. The final figures do not include
benefits. For 2019E, revenue is based on a 5% increase to Forbes 2018
figure, and payroll is set at the current final projection of base payroll +
luxury tax (see above for a proprietary tracking calculation of the Yankees
2019 payroll).
Source:
bizofbaseball.com and MLB releases published by AP (final payroll), MLB
releases published by AP (luxury tax), Forbes (revenue), proprietary
2018 Discretionary Player Cost (Payroll/Luxury Tax) as a Percentage of Team Revenue for all 30 Teams
Note: See below for relevant footnotes pertaining to financial metrics.
Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)
It’s often argued that the Yankees’ significant reduction in relative payroll is partly the result of a more financially secure league that has mitigated the Bronx Bombers’ financial advantage. However, over the past few years, the Yankees have experienced revenue growth well in excess of the MLB average, leaving the team with almost 7% of league-wide net revenue, a rate above many of the organization’s highest spending years.
Yankees’ Payroll and Revenue versus the Rest of MLB, 2001, 2013-2018
Note: See below for relevant footnotes pertaining to financial metrics.
Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)
Another reason often cited for the Yankees’ under investment in payroll is the team’s lower operating profit compared to several other big market teams. With payroll declining and revenue increasing, one would expect the Bronx Bombers to historically be near the top of the league in terms of EBITDA, but that hasn’t been the case. This contradiction in financial logic deserves a closer look.
Comparison of Yankees’ Revenue, EBITDA and Total Player Cost (Payroll + Luxury Tax)
Note: See below for relevant footnotes pertaining to financial metrics.
Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue and EBITDA)
Using Forbes data and other public sources, we can get a decent idea about the sources of the Yankees’ net revenue. Unfortunately, the operating expense side is not as transparent. Only payroll figures are publicly available, and Forbes does not breakdown its EBITDA calculation, leaving conjecture to explain why the Yankees’ operating profit seems relatively low.
Yankees’ 2018 Revenue Build
| Local Revenue | $ 712,000,000 |
| Estimated Gate | $ 284,000,000 |
| YES Rights | $ 127,950,599 |
| Other Local | $ 300,049,401 |
| Debt Service (PILOTs) | $ -94,000,000 |
| Revenue Sharing | $ -42,000,000 |
| Net Local Revenue | $ 576,000,000 |
| Central Revenue | $ 92,000,000 |
| National TV | $ 50,000,000 |
| Other Central Revenue | $ 42,000,000 |
| Net Total Revenue | $ 668,000,000 |
Note: All figures are Forbes estimates or derived from Forbes estimates, with the exception of : Debt Service, which is contained on continuing disclosure documents filed with the MSRB; YES rights fees, which is proprietary based on reported figures; and National TV rights, which is proprietary based on reported figures.
Source: Forbes, Municipal Securities Rulemaking Board, proprietary
The cost of doing business in the New York market as well as a higher relative investment in scouting, technology and front office personnel are likely factors that weigh on the bottom line, but they don’t seem significant enough to explain the Bronx Bombers’ deflated profit. What are other possible factors? Anything from salaries paid to executives (including Hal Steinbrenner) to leveraged investments that yield revenue in related businesses (e.g., YES, NYCFC, Legends Hospitality, etc.) instead of the team could also explain why the Yankees’ estimated EBITDA seems low by comparison. So, while the Yankees likely do spend more than most teams on non-payroll related items that impact on-field performance, it’s hard to imagine those expenses coming close to filling the gulf between the team and the league in terms of payroll under investment. Besides, if the Yankees were spending exponentially more than other teams in other areas that impact performance, you’d think they’d be eager to tell that story to their fans.
This year’s dynamic free agent class was supposed to be when the Yankees re-emerged as the game’s biggest spender, but now, it seems clear that those days are long gone. The organization’s win at all cost mentality has been replaced by a profit-driven business model that values championships principally on the basis of how much they add to the bottom line. As a result, the Yankees have abandoned their perch as the perennial team to beat and traded financial security for an increased risk to on-field performance. As the 2019 Yankees struggle amid a spate of early season injuries, that’s something fans should keep in mind before throwing their hands up and cursing the cruelness of fate.
Footnotes
Forbes’ revenue figures “include the postseason and are net of revenue sharing and stadium debt payments for which the team is responsible. Revenues include the prorated upfront bonuses networks pay teams as well as proceeds from non-MLB events at the ballpark. The nonrecurring $50 million each team received in 2018 from the sale of a stake in BamTech to Walt Disney was excluded, as were profits or losses from team-owned RSNs.”
In addition to team-specific net revenue figures, Forbes also estimated total gross revenue at $10.05 billion ($2.76 billion in central revenue and $7.29 billion generated in local team markets).
Forbes uses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measurement of operating income. Although usually defined as EBIT, Forbes not only adds back interest and taxes, but depreciation and amortization expenses as well. As a result, Forbes operating profit can appear higher than stated figures.
Forbes’ franchise valuations are enterprise value calculations that “include the economics of the ballpark but exclude the value of real estate itself.: Forbes also prorates the value of the “league’s ownership in Major League Baseball Advanced Media (100%), BamTech (15%), the MLB Network (67%) and its investment portfolio”. This results in a $400 million increase in enterprise value per team.
Payroll is based on final figures (not AAV) for each year released by MLB and does not include benefits.
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