Like everyone else on the planet with a mortgage, the New York Yankees owners are looking around at record-low interest rates and considering refinancing, in their case on their stadium debt. The twist here is that it’s not actually their debt — in order to take advantage of an IRS tax dodge, the team had the city Industrial Development Agency issue bonds and pays them off with rent payments labeled “payments in lieu of taxes” — so they’d need the city to reissue the debt to take advantage of lower interest rates.
That could actually be tricky, since the IRS loophole was partly closed several years ago: Any new bonds would have to be paid back based on the actual year-to-year property taxes that the stadium would be paying if it paid taxes, not based on an annual flat fee. That would likely mean somewhat higher interest rates since bondholders like certainty in their bond payments, and could wipe out any benefit from a refi. Also, there’s a new mayor since the original stadium deal was put in place, one who might not rubber-stamp a new bond deal quite so quickly, at least not unless the Yankees, say, turn some of their unused parking garages into affordable housing that isn’t necessarily all that affordable.
And if you’re wondering why the Yankees need to save money on their bond payments, take it away, New York Post:
Shaving perhaps as much as $10 million annually from the stadium loans could make the team profitable, said a source familiar with the team’s finances…
The Yanks are roughly breaking even now. That’s just the team and doesn’t include other businesses, such as the YES Network or Legends Hospitality.
Now that’s what we expect from a business whose owner once hid profits by paying himself a consulting fee to negotiate his own cable deal. Keep on keeping on, Steinbrenners.
How do the Yankees have any leverage here? What would they do if the city tells them to piss off, move to New Jersey?
Exactly. The benefit of public ownership of a stadium is that the representative of the public has the final say. The municipality has the clout; it needs only to elect to use it.
What interest rate is the City Industrial Agency currently paying?
I realize sportswriters aren’t the most broadly educated group of people, but it takes a special kind of person to take a comment like the “Yankees aren’t profitable right now” at complete face value with apparently no follow up question.
What’s particularly funny is that the Yankees needed a $1bn stadium to be profitable, but now the whole enterprise depends on the interest rate of the parking garage?
No, this is the interest rate on the stadium itself. The parking garage was fobbed off onto a nonprofit shell corporation that is all but bankrupt, so nobody is paying off those bonds.
What is that interest rate?
Ranges from 3.2% to 7%, not sure which ones they’re refinancing:
http://comptroller.nyc.gov/wp-content/uploads/documents/Individual_Development_Agency_Financial_Statements.pdf
Oops! Either way, despite the usual accounting games I’m sure the stadium took the Yankees from “wildly profitable and successful” to “even more profitable, not so successful yet.”
The Yankees sure deserve to not be profitable when you look at their payroll that includes five $100 million+ contracts:
Alex Rodriguez – released and still owed $21 million for next year – 2017
Mark Teixeira – playing out the string in his last year of his contract and batting a whopping .204!
CC Sabathia – playing out his last year with an 8-11 won/loss record and ERA of 4.31 and who hasn’t been a good pitcher since 2012.
Jacoby Ellsbury – batting .267, 2-0 points below his lifetime average.
Masahiro Tanaka – have a good year with an 11-4 won/loss record and 3.12 ERA.
Well one of of five ain’t bad.
The Yankees would love for people to focus on that (of course they’re not profitable, look at all the bad contracts they’ve saddled themselves with) rather than the fact that their broadcast network and the stadium perks that they charge extra for (as well as the ability to charge more for concessions moving into a new stadium) leaves them with a higher team value than they’ve ever had.
The moral issue of “they are bad at business, so they should not make a profit” doesn’t come into play here.
I’m not convinced it’s a moral issue, though. The team is underperforming (though watching the standings of late a whole bunch of teams that we thought were out of the playoff picture are back in again… thanks Selig…) as constituted certainly.
Historically, however, even during the “winning” years, the Yankees often posted very small operating profits. Whether that is because they were investing all revenues back into the team because they love their fans or because the Steinbrenners are really good a hiring people who can syphon money out of the business and into family pockets without anyone noticing, is a matter for discussion.
I don’t think they are ‘bad at business’. They just know how to make things look worse than they are. As you noted, the team value has never been higher (like all major sports franchises really). At least some of that has to be due to something other than luck or stupid politicians…
Exactly.
There are many ways in which the Yankees could “become profitable”. Better salary management would be one… and in all honesty, it looks like a significant amount of money will come off the salary books in the coming years (not sure how long some of the 40 year olds will continue to be paid…), so maybe they’ll get there.
After all, they didn’t sign either Prince Fielder or Albert Pujols to decade long deals, so it’s not like they’ve scooped up every mid thirties fading superstar seeking a decade long contract.