The mighty New York Yankees machine just keeps on churning.
While the rest of the baseball world continues to react with shock, anger and amazement over the Yankees’ trade for superstar Alex Rodriguez, two fundamental truths quickly become apparent. First, the Yankees can easily afford Rodriguez, baseball’s highest paid player, thanks to an annual revenue base of $290million and baseball’s best attendance.
Second, the Yankees have no problem doling out unprecedented sums of luxury tax and revenue sharing dollars to baseball’s legion of have-nots. New York paid out a Major League Baseball record $60.6million in luxury tax and revenue sharing in 2003, and the total is all but certain to surpass $70million this season.
Yankees brass yesterday formally introduced Rodriguez, whom New York acquired from the Texas Rangers for Alfonso Soriano and a player to be named. Rodriguez will shift from shortstop to third base and form a star-studded infield with Jason Giambi and Derek Jeter.
“I still feel like someone’s going to pinch me and wake me up,” Rodriguez said.
The trade highlights an economic conflict that has raged within all of pro sports, and particularly baseball, for many years. Sports leagues, by definition, are quasi-socialist entities that rely on the viability of each club to maintain competitive integrity and overall success.
But without a hard salary cap in baseball, well-heeled teams such as the Yankees remain free to spend at will, even to the point of embarrassing their competitors. New York’s projected 2004 payroll of nearly $190million is more than the 2003 outlays for Tampa Bay, Montreal, Milwaukee and Kansas City combined. And that figure is likely to increase this summer should the Yankees seek a left-handed pitcher for the pennant drive.
“It’s very interesting. Here we have a situation where many of the recent signings and payrolls throughout baseball are going down. But this obviously isn’t applying to the Yankees,” said Rodney Fort, a Washington State University economist who frequently studies pro sports. “What the Yankees have been able to do is continue to grow their local revenues to the point where it makes sense to pay the [luxury] tax and continue to acquire talent.”
Enhanced revenue sharing and the return of a luxury tax on top-tier payrolls — both negotiated into the latest labor deal with the players — were designed to curb the free-for-all stockpiling of talent and improve competitive balance. To that end, Anaheim and Florida spent modestly and won the 2002 and 2003 World Series, respectively. And the 2003 pennant chase was by any measure the most dramatic in many years.
But the Yankees’ ever-heightening rivalry with Boston, as well as a three-years-and-counting absence from World Series glory, has pushed New York to new levels of aggressiveness. On top of Rodriguez, the Yankees this winter acquired pitchers Kevin Brown and Javier Vasquez in trades, and signed outfielders Gary Sheffield, Kenny Lofton and relievers Paul Quantrill and Tom Gordon as free agents.
Just four players — Jeter, catcher Jorge Posada, reliever Mariano Rivera and outfielder/DH Bernie Williams — now remain from New York’s 2000 title team.
The Yankees, however, are clearly willing to pay the consequences for their fiscal extravagance. Payrolls above $120.5million this season will be assessed a luxury tax of 22.5 percent on every dollar above that threshold. But since the Yankees will be a second-time payer of the new luxury tax, their tax rate will be 30 percent on every dollar spent above $120.5million. And 34 percent of all local revenues are sent into a central fund for redistribution as part of MLB’s revenue sharing plan.
With several small-market teams such as Milwaukee accused of financial malfeasance or suspected of not spending all their revenue sharing income, the Yankees make the argument they are perhaps the most honest team in baseball. After the Rodriguez trade was approved Monday by MLB Commissioner Bud Selig, Yankees owner George Steinbrenner said “the way New Yorkers support us, we have to produce for them.”
Added Yankees president Randy Levine, “There are never any complaints when we write the check for $60million and that gets distributed,” he said.
Buttressing this attitude is a revenue-generating engine that is arguably rivaled by only the Washington Redskins and British soccer power Manchester United. The Yankees led baseball last year with a home attendance of 3.47million. Their average ticket price of $24.86 last year ranked second behind Boston, with a 10 percent price increase in place for 2004. Adding in a sold-out battery of luxury seats amounts to more than $100million in yearly revenue just from gate receipts.
New York also trumps its MLB competition in its broadcasting contracts, garnering nearly $70million a year in its deals with the YES Network and WCBS-Radio. Steinbrenner also profits handsomely as a YES investor.
Even the Rodriguez trade showed some fiscal ingenuity. The Yankees, which did give up an All-Star in Soriano in the deal, shocked many industry observers by getting Texas owner Tom Hicks to agree to pay $67million of the $179million still owed Rodriguez on his record-shattering $252million contract. Also aiding the deal was the departure of well-paid prospect Drew Henson to football.
Forbes magazine estimates the Yankees’ franchise value at $849million, third in pro sports behind the Redskins and Dallas Cowboys. A new evaluation from Forbes on the Yankees is expected later this spring.