What almost no one discusses–because almost no one knows–is how much money greedy owners are making. Consider, if you will, George Steinbrenner III, principal owner of the New York Yankees, who complains endlessly about how much he has to pay to get the kind of players that have allowed the team to win three of the last four World Series. Even though the Yankees show only minimal profits, Steinbrenner personally is doing enormously well financially. In a series of maneuvers as complicated as an infield’s trying to foil a sacrifice bunt, Steinbrenner is taking home so much money that he makes even the highest-paid players look like bush leaguers. As part of the maneuvering, the Yankees are hocking themselves to the eyeballs to finance a huge payout for the owners. This at the same time that the team is seeking public money for either a new facility or a major upgrade of Yankee Stadium.
By my math, Steinbrenner will have pocketed $175 million in less than a year if all goes as planned. That payday dwarfs the $125 million contract that star shortstop (and heartthrob) Derek Jeter will reportedly sign soon to become the highest-paid Yankee player in history. While Jeter will have to toil for seven seasons to earn his $125 mill., Steinbrenner’s paydays are spread over only about seven months. And I’m not even counting the money Steinbrenner gets in salary, bonuses and perks for running the team.
How do I know all this stuff? From an offering memorandum being circulated on Wall Street by YankeeNets LLC, which owns the New Jersey Nets pro basketball team, as well as the Yankees. The YankeeNets are trying to borrow $250 million by selling sophisticated investors unsecured seven-year promissory notes that will carry a whopping interest rate of around 11.75 percent. Add fees and other costs, and the money is costing the YankeeNets about 14 percent a year–almost a credit-card rate. The deal is such a stretch that the company has agreed to the highly unusual step of putting $80 million of the proceeds into a restricted account to cover the first three years of interest payments.
What are the YankeeNets planning to do with this high-priced money? Finance a new stadium for the Yankees or the new arena the Nets are trying to extract from New Jersey? Pay for star players? Don’t be absurd. All the junk money–plus an additional $75 million to be raised by selling a YankeeNets stake to new investors–will go into the pockets of existing investors. The total payout: $214 million, give or take a few bucks. Steinbrenner’s piece of that is an indicated $40 million. I keep using words like “indicated” because no one from the YankeeNets would talk to me, so I’m intepreting the numbers as best I can.
In addition to that money, which he’s likely to get by the end of June, Steinbrenner got $135 million from last November’s transaction that created the YankeeNets. That’s because the first step in combining the teams was having Nets owners buy three eighths of the Yankees for $225 million. Since Steinbrenner owned about 60 percent of the Yankees, his take was presumably around $135 million. Then the Nets owners contributed the Nets, valued at $150 million, and their $225 million piece of the Yankees to the YankeeNets partnership. The Yankee owners put in five eighths of the Yankees. That way, each set of owners contributed holdings valued at $375 million for deal purposes. In case you’re wondering, this valued the Yankees at $600 million above their debts, or a total of about $700 million.
According to the YankeeNets’ documents, in order to pay the interest on its new $250 million of debt, the Yankees and Nets will have to bring in lots more money than they currently do. The most likely possibility: getting more money for the Yankees’ local TV rights. (Raising ticket prices is likely, too.) This means the best sports spectacle in town–not counting the Yankees, of course–will be watching the Yankees’ local-TV negotiations. The Yankees are currently in the last season of a 12-year contract with Cablevision Systems, and are getting around $55 million a year. Steinbrenner, one of the shrewdest financial players in the sports world, beat that money out of Cablevision by fomenting a bidding war a dozen years ago. But Cablevision has since bought the rival bidder and joined forces with Fox Sports, the only other natural buyer for Yankee TV rights. With Cablevision as the only likely bidder, it was going to be hard to extract a rich TV deal to replace the current one–which is why Steinbrenner opened talks to sell the Yankees for $600 million to Cablevision’s Charles Dolan. When those negotiations stalled, Steinbrenner pulled the Nets gambit, hoping the two-team combo would attract a new TV bidder or at least help him extract more money from Cablevision. (The Nets can end their TV deal, also with Cablevision, after next season.) Since Chuck Dolan is every bit as shrewd as Steinbrenner, it should be fun to watch.
This is at least the second time that Steinbrenner, whose syndicate bought the Yankees in 1973 for a mere $12 million– one year of centerfielder Bernie Williams’s current salary–has financed a big payday for himself through borrowing. The last time, he raised $100 million by borrowing against the Cablevision contract and paid the loan proceeds to the Yankees’ owners. Of which about $60 million went to himself.
Please don’t think I begrudge Steinbrenner his money–I’m a capitalist, he’s entitled to what he can get. But it’s totally tacky to whine about how much you’re paying players, whose salaries are in the public domain, but to refuse to talk about how much you yourself are getting. It’s even tackier to use up your teams’ borrowing power to finance an owners’ payday, then expect taxpayers to fork over a gazillion dollars to finance cushy new facilities to help you get a start on the next payday. But hey, you’ve got to admire Steinbrenner’s skill and brass. His hardball tactics lend a whole new dimension to that old baseball term: the squeeze play.
