Yankees could turn profit

Despite an enormous payroll, it's still possible for the Yankees to turn a profit next season.

Originally Published: February 17, 2004
By Darren Rovell | ESPN.com

You've heard it over and over again throughout the past couple days: The Yankees signing of Alex Rodriguez is a product of owner George Steinbrenner breaking the bank again. That the 2004 Yankees will be the first team with a $200 million payroll.

High cost of winning
The Yankees are likely operating at a close to break even for the 2004 regular season, according to estimates by sports investment bankers. That could all change if they win their 27th World Series championship
Revenues
Ticket sales $100 million
Local broadcast rights $68.5 million
Parking, concessions, suites, sponsorship $60 million
MLB pooled revenue $22 million
Other $40 million
Total $290.5M
Costs
Payroll $187 million
Minor leagues, lease, front office, travel $35 million
Luxury tax $20 million
Revenue sharing $48 million
Total $290M

The problem is, at least as of now, those statements aren't true.

You're only breaking the bank if you don't have the money to cover you're debts. The payroll of this year's Yankees team isn't going to be significantly much more than the $185 million cost to field last year's roster.

Why?

Rodriguez will get paid $18 million this season. But that salary is significantly reduced considering that $3 million of that will be paid by the Texas Rangers, who will also pay Alfonso Soriano's $5.4 million. Then take into account that the Yankees can save almost $5 million by cutting Aaron Boone and another $4 million thanks to Drew Henson, who gave up his baseball career earlier this month. Add it up and the cost to the Yankees is less than a million.

Sure, the Yankees picked up players like Gary Sheffield, Kenny Lofton, Jon Lieber, Kevin Brown, Javier Vazquez and Tom Gordon, but when adding up the salaries, don't forget to account for the millions dumped by not having lockers for Roger Clemens, Andy Pettitte, Jeff Nelson, Jeff Weaver, Nick Johnson and David Wells.

Despite the seemingly exorbitant cost of doing business, four sports banking experts told ESPN.com on Tuesday that the Yankees can make a profit on the 2004 season, if all goes as planned and they make it to the World Series.

The Yankees will likely pull in between $280 million and $300 million in total revenue this season, the banking sources said.

They'll make $58.5 million in rights fees from their own network, YES. But they won't earn much more in local television on top of that since they will not likely see any cash from their 30 percent interest in the network's profits for at least another year.

Aside from a reported $10 million they'll make for their radio deal with WCBS, they'll pull in about $60 million in revenue from concessions, parking, luxury suites and stadium sponsorship deals. Their sponsorship deal with adidas alone is worth more than $9 million annually.

Pluses and minuses
Major additions
Kevin Brown $15.7 million
Alex Rodriguez $15 million
Javier Vazquez $8.5 million
Gary Sheffield $13 million
Tom Gordon $3.6 million
Kenny Lofton $3.1 million
Paul Quantrill $3 million
Major subtractions
Alfonso Soriano $5.4 million
Andy Pettitte $13 million*
David Wells $6 million*
Roger Clemens $10.1 million**
Drew Henson $4 million
Jeff Weaver $4.95 million***
Jeff Nelson $1.5 million
Aaron Boone $4.8 million****
*avg. value of the Yankees offer
**value of 2003 contract
***Includes $1.3 million fee to defray costs
****If cut; would still owe $900,000

Then comes the gate revenue, worth between $95 million and $100 million gross sales, which is kept in entirety by the home team. Last year, the Yankees drew 3.46 million fans, or 42,785 fans per game. Assuming A-Rod's presence is worth an additional 3,500 fans per game, combined with the fact that the average price of a Yankees ticket this year will be up 10 percent to approximately $27.35, Rodriguez's presence is worth about $7 million in ticket sales. That's deducting local taxes on each ticket, which won't go to the Yankees. The $100 million figure doesn't even count what the Yankees could make on a postseason run -- each home game could be worth more than $1 million in profits, the bankers say.

The Yankees also get a take of the pooled national revenues. Each team will make about $17 million from national television deals and about $5 million from licensing revenues. The fact that the Yankees will sell more jerseys due to A-Rod doesn't help them out since a projected $150 million in net licensing profits is split equally among the 30 teams.

Aside from the payroll, the Yankees will likely pay about $35 million in other operating costs including paying for their Yankee Stadium lease, running their minor league system, paying employees and for team travel, according to industry estimates.

After the cost of player salaries, the Yankees will be giving up about $70 million on the luxury tax and revenue sharing, They will pay approximately $20 million -- $8 million more than last year -- by being taxed 30 percent (the second-time offender rate) on every dollar spent above $120.5 million. The team's local revenue will be approximately $268 million. After applying the revenue sharing formula for a team in excess of the average, the total amount given in revenue sharing is about $48 million.

Red Sox fans are already steaming over the fact that they didn't get Alex Rodriguez and the Yankees did. Now imagine if the Yankees beat the Red Sox again in 2004 and they manage to make a profit doing it.

Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.rovell@espn3.com

Darren Rovell | email

ESPN.com Sports Business reporter

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