Wednesday, March 11, 2009

The Quote Of The Day

...comes from Jason at It Is About The Money, Stupid, and coincidentally is about the money (stupid):
Maybe the Yanks have become a giant Ponzi scheme of their own. Bigger and bigger contracts and longer and longer commitments, all funded by a scheme of a shiny new ballpark with all the bells and whistles. But if the team slumps and that leads to attendance slumps, could we see some major changes due to solvency issues?
God, that is frightening. Unfortunately, it also makes a whole lot of sense. The same things that were seen as tremendous opportunities heading into Spring Training now seem like potential liabilities.

The New Stadium, which was supposed to create a thrust of new revenue, has large vacancies in the most expensive areas. The Yankees aren't divulging the extent to which tickets remain unsold, but the fact that they were advertising them during a Spring Training game is a terrible sign. The plan for the New Stadium was to keep the upper deck seats affordable by charging the corporations who were going to buy the luxury boxes and field level seats through the nose because of their lack of price sensitivity.

That dynamic no longer exists. Companies are pinching pennies everywhere you look, and to many of them, not having to fire an extra employee or two is worth not getting season tickets. What now? The Yankees can't lower the prices for the seats that remain unsold without royally pissing off those who have already paid full price.

There are on-the-field considerations as well. That one guy, the steroid user with 9 years on his contract and the bad hip. I was a lot more optimistic about his future about 40 days ago. As Jason points out in his post, Sabathia and Teixeira were both great acquisitions, but they were acquired at premium prices and are unlikely to look like bargains at any point in their deals. Five years of A.J. Burnett at $16.5M per... ditto.

Could the Yankees, once (and probably still) a blue chip stock, ever fall so far as to deal with solvency issues? Most of that depends on the on-field product. If they are winning, the New Stadium will be packed. However, if the Yanks are drifting lifelessly through August and September like they were last year, they are going to be a whole lot more empty seats this time around.


  1. "God, that is frightening"

    Ain't it?

  2. "...could we see some major changes due to solvency issues?"

    Short answer: No.

    Without getting into all the financial ratios and analysis, just a quick look at their financial statements (2005 is the most recent I found), they generate an insane amount of revenue, not even counting the YES Network.

    Even with inflation, increased payroll, new stadium financing, profit sharing, etc. they will be just fine.

  3. Revenue does not equal cash flow. Citi has lots and lots of revenue but is having credit issues.

    It all depends on how deep this depression sinks and how "off" the gate is from projections.

  4. Not it isn't but there is no indication that there is a cash flow problem.

    You cannot make the comparison to Citi. Citi is heavily involved in the credit markets and last I checked the Yankees are not.
    You cannot finance your ticket package. For example when you spend $4,000 on your Yankee tickets and put it on your Citi card and don't make the payments, the Yankees get paid, Citi does not and I like to think somehow the Mets get fucked.

  5. The problem is that the player's salaries are truly fixed costs. And if revenue starts to decline, which it probably will at some point, there is nothing they can do to adjust those to the market. That's the true downside of long term contracts that the fading economy is just now starting to expose.

  6. "Fresh Maine lobster last night, front row seats tonight.... What recession?"

    The Yanks should sell the remaining seats for a reduced rate for the season. Or, take their chances by selling them for individual games with the prices going up or down based on demand. Or, they can have a cage match (mud wrestling for the ladies) in the parking lot and let the winner get the in-between the bases seats. Either way I am in.

    If current ticket holders bitch they did not get the same deal as the person sitting next to them... remind them that property value has declined in recent months and that sometimes timing affects price too. If that does not work, then they are morons and/or big fucking babies and should move to China where Mao makes sure everyone gets the same deal.

    As far as solvency... no clue... but i will be purchasing a new hat this week, that should help.

  7. Citi (and the rest of the big banks) make gobs and gobs of money. The problem is they have lots of assets that are not worth as much as they were 2yrs ago. Accounting rules force banks to reduce the ledger value of these assets to what they are possibly worth right now. This translates to gobs and gobs of losses- but the money producing revenue stream is still there.

    Citi and the Yankees will be similar when the Yankees are forced to revalue the new stadium at 25% of what it cost to build.

    The revenue to the team from the stadium is insignificant compared to MLB TV money (shared revenue with other teams) and the revenue from YES (all theirs). Unless YES revenue starts to fall precipitiously, the Yankees will be fine.

    Once this crisis passes, the Yankees will sell out all of the new Luxury Boxes and the seats will be filled. On field the team is set for the next 5yrs. More than enough time to make a big dent in the debt burden.