Yankees Nearly Outspend the Rest of MLB Teams
Why They Make Major League Baseball Win and Lose
Apr 10, 2009
The New York Yankees apparently didn't get the memo that the U.S economy is in its worse condition since the Great Depression. With a new stadium for 2009 and its last World Series title more than five years ago, the Yankees signed five players in the off season for a record $441 million to boost their roster and attendance. This was two and a half times more than the rest of the American League. The Los Angeles Dodgers were number two in spending in Major League Baseball during the off season, committing a paltry $106 million.
The American League's Off Season Spending
Remarkably, the other thirteen American League teams, not including the Yankees, committed only $176 million during the off season. With thirty-seven players signed, that averages just under $5 million per contract. By contrast, the five Yankee players received $88 million per contract. No question the Steinbrenner family, the owners of the Yankees, is looking to buy another championship.
The National League's Off Season Spending
While the sixteen National League teams nearly doubled the spending of the American League at nearly $358 million, they still committed just shy of $100 million less than the Yankees. The NL averaged $6 million per contract, $82 million less than that of the Yankees.
Major League Baseball's Spending Spree
The thirty Major League Baseball teams collectively spent about $975 million during the 2008-2009 off season. The Yankees represent forty-five percent of that total and the Dodgers eleven percent. Two teams, in separate leagues, combined to spend fifty-six percent of all ninety-plus contracts.
Why the Yankees Make Major League Baseball Win
One of the most beloved and despised organizations in all of sports, the Yankees have an unmatched fan base. In short, they drive TV revenues. The Yankees Entertainment and Sports Network, co-owned by the Yankees, Goldman-Sachs, and Raymond Chambers, generate approximately $340 million in revenues per year. Fox, ESPN, NBC, other major networks also generate substantial revenues by airing Yankees games. An undisclosed portion of all of these revenues goes to Major League Baseball as well, allowing the league to reinvest back in its teams through revenue sharing.
Second, the Yankees are consistently required to pay baseball's version of a salary cap, called luxury tax. While fans and baseball purists alike have screamed for a salary cap for years, Major League Baseball and its player's union have failed to come to an agreement on a true salary cap for its players. However, they did reach agreement on a luxury tax. The luxury tax is applied to franchises that exceed a specific threshold in annual payroll, which was $155 million in 2008, of which the portion over the threshold is taxed and redistributed throughout the league's teams. Roger Clemens' contract with the Yankees a few years back was taxed at forty percent because the team was over the threshold, which equated to $7.4 million.
So while the Yankees are often difficult to compete with on the field and hated by fans around the league because of the enormous talent they are able to acquire through large contracts, many franchises like the Kansas City Royals and Florida Marlins would be hard pressed to even exist without the approximately $105 million that the Yankees are required to pay each year in revenue sharing and luxury tax.
Why the Yankees Make Major League Baseball Lose
See the National Football League. By far America's most popular sport, the NFL over the past two or three decades has built a model where running a complete organization, and not necessarily having the most money, is the key to success. The salary cap, league rules, fewer games, and the great relationship the league has with its player's union have catapulted it into a domination position within the sports and entertainment industry. Most importantly, the NFL views itself as an entertainment business first and a sport second, where most other leagues, including baseball, have always put the game first.
In Major League Baseball, much like conservative politics, generally the rich get richer while the poor get poorer. The Yankees on the top end and the Royals on the bottom are no exception. In the NFL, which is more indicative of liberal politics, the wealth is spread and the desire is to have parity amongst the teams.
While the rich don't always win in sports or in life, the odds are certainly in their favor. It's really not ironic that odds makers have placed the Yankees, Boston Red Sox, Chicago Cubs, New York Mets, Dodgers and L.A. Angels as the top six favorites to win the 2009 World Series. They just happen to be the six richest franchises in Major League Baseball. The richest of all, the mighty pin stripers of New York, are the odds on favorite at four to one.
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