Let’s be honest, if you have a problem with the Yankees, you have a problem with capitalism. It’s one thing to dislike the team because you root for a rival squad or prefer pulling for underdogs, but to say the Yanks “cheat” or “buy championships” is another. They play within the rules of a system, and if you don’t like it then you can move to Russia circa 1918.
The Yankees are a business. The baseball team is a subsidiary of a parent company, Yankee Global Enterprises, which also owns the YES Network and several real estate holdings. The YES Network is the largest and most successful regional sports network in baseball, and likely in all of sports. Because of the worldwide fan base, the YES Network can sell ad space at a premium on its 24-hour Yankee-based programming channel. This is what we in the biz call a “cash cow.” So all the money is funneled up through YGE and gives the Yankees access to unmatched amounts of capital. The team itself has actually been running at a loss in recent years, but it doesn’t matter because the team is only one branch of the company. Plus it’s privately owned, not public, so the gain or loss only truly affects the owners. Some seats in the new Yankee Stadium have not yet been sold, but even still the increased ticket prices over the life of the Stadium show a great revenue increase. And the way to justify higher ticket prices? World class facilities and world class athletes. The Yankees are providing both in 2009.
Since the rules in baseball promote a free market system, why do people get fired up when the Yanks spend money? If they have the most money, why can’t they spend the most? I made this point in a blog last year—if a company has excess cash, it can either pay a dividend (the baseball equivalent would be giving money back to the fans through ticket price decreases) or reinvest (purchasing new assets, ie players). The Yankees have chosen to reinvest in risk-associated assets with the hope of making a good return. Would you rather the owners sit on the cash and get richer? They could easily do that, but then they would be the Kansas City Royals. The Yanks can afford to shell out money for players because the money is there and a spending limit is not. Paying a player millions of dollars hurts a salary cap-bound NFL team more than it does a baseball team.
And for the communists out there, baseball even installed a Joe the Plumber-esque revenue sharing program that forces all teams in the league to spread the wealth amongst each other. MLB taxes teams over a certain payroll threshold and distributes the money among the less financially savvy--err...fortunate teams. So what do the Yankees do every year? They hand over a check to MLB for millions of dollars that owners of competing organizations stuff into their pockets. Do these other owners use that money to go purchase free agent contracts? Some do, but most don’t. Instead, they sit on the money, cover losses from bad management, and complain about another team overspending.
It’s hard to dispute that the free market system works, too. In the last 9 years, 8 different teams have won the World Series. In the same time frame, only 6 different teams have won the Super Bowl, 5 different teams have won the NBA championship, and 6 teams won the Stanley Cup. With those results, how can anyone argue that baseball teams play at a disadvantage?
The Yankees have a business plan like everyone else. Does it always work? Of course not—it clearly hasn’t worked in recent years. But it’s just another way of doing business well within the rules of the capitalist system, and there is simply no disputing that.
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