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Pete Toms Article Archive
Written by Pete Toms   
Monday, 09 March 2009 23:45

Yankees

Could the Yankees brand be
tarnished?

The 2008 postseason was the first since 1993 (1994 excluded due to the obvious) not to include the New York Yankees. The 2009 Yankee season offered much promise, however. A number of expensive contracts had terminated (Giambi, Abreu, Pettitte, Mussina, Pavano), and that, combined with the additional revenues to be generated from the new Yankee Stadium led to much optimism concerning future fortunes, on and off field. The Yankees did the expected and dominated the free agent market, signing Sabathia, Burnett, Teixeira and re-signing Pettitte. The FA spending spree prompted some owners to publicly express their support for the implementation of a salary cap. The “Evil Empire” was expected to rule again.

But somehow, that all seems a long time ago. More recently the Yankees have encountered a series of surprises and disappointments off and on the field.

  • The recession diminished the anticipated demand for luxury suites and premium seats at the new stadium
  • The BofA sponsorship deal – anticipated to generate roughly $20 million per season – collapsed
  • The credit crisis increased stadium financing costs

During the same period, a Yankee backlash spread throughout NYC politics and the Yankee fandom, aided by a cooperative local press. And to top it off, their star player, well....Somehow, the excitement and anticipation that should accompany the opening of the new Yankee Stadium seems lacking. What should be a period of great optimism and enthusiasm has instead been replaced with cynicism and resentment.

The financing and construction of the new Yankee Stadium was expertly conceived and executed. The process played out over many years and in the end the new stadium received very substantial political support.  The Yankees obtained a favourable ruling from the IRS which allowed them to finance the stadium construction through PILOTS. The municipally issued bonds – where the Yankees acquired the financing for the bulk of stadium construction costs – are tax exempt (ie cheaper). The Yankees received public land to build on and NYC bureaucrats were influenced to inflate the real estate value of that land in order to benefit financing. The new stadium does not pay property taxes because it is owned by NYC.  The Yankees do not pay rent to NYC but instead make “payments in lieu of taxes”, which pay for the municipal bond financing. NYC invested hundreds of millions of dollars in infrastructure (transit, parking, replacing parkland) to support the new stadium.

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But again, that seems a long time ago. More recently, NYC politicians are increasingly eager to be disassociated from the Yankees and are sometimes openly hostile towards them. In January, The Biz of Baseball reported on the political backlash in NYC over the second round of municipal bond financing for the new Yankee Stadium. Mayor Bloomberg’s office forfeited a luxury suite at the new stadium after a backlash stemming from the publishing of emails which demonstrated that Bloomberg staffers had vigorously lobbied the Yankees for a suite. City Comptroller and NYC mayoral hopeful William Thompson denounced Mayor Bloomberg over his support of the new stadium. (In 2006 Mr. Thompson voted in favour of issuing the initial – and larger - round of bond financing, approximately $ 1 billion) Last week, State Assemblyman Brian Kavanagh introduced a bill requiring that stadiums receiving public contributions have a minimum percentage of “affordable prices”. The Yankees are the principal (if not sole) target of Mr. Kavanagh’s bill And Assemblayman Richard Brodsky and Yankees President Randy Levine continue a very nasty, very personal and very public feud over the City’s role in financing the new stadium (Brodsky is also aligned with Kavanagh on the “affordable prices” issue)

Of more importance to the Yankees than the admonishments of local politicians is the widespread anti Yankee sentiment amongst rank and file fans. Instead of excitement about the new stadium and free agent signings, Yankee blogs, message boards and newspaper reports are rife with the comments of angry fans expressing their outrage over how and where their seats have been “relocated” in the new stadium. Jay Jaffe, a partial plan buyer at the old stadium for many years, described his reaction to the seating options offered him in the new stadium:

It's not entirely clear what's happening here, but one can hazard a guess that the economic crisis has driven down the demand for those $350-per-game seats among the corporate classes, that the average fan is wary that he'll actually be served a large enough quantity of caviar in a Yankees mini-helmet to justify that kind of three-figure expense for a trip to the ballpark, and that the team is shockingly out of touch with a fan base that it's trying to bully into spending beyond their means during hard economic times.

From Richard Sandomir:

Jonathan Fox of Tenafly, N.J., said he rejected being moved from the upper deck, usually behind home plate, where he had a 20-game plan costing $60 a ticket, to $70 seats near the right-field foul pole in a 12-game plan.

In an e-mail message, Fox wrote: “While cloaking the move to the new stadium in a lot of propaganda about doing it all in the interests of a better experience for fans and a boon to the Bronx, the move was really about selling slightly fewer seats at a gigantic price premium, geared to corporate wallets and hoping to capitalize on the ‘bubble years’ appetite for premium-priced tickets to sports events.”

He added, “We’ll be watching from great seats in our living room.”

The new Yankee Stadium was designed to capitalize on a pre recession NYC economy. Again, that seems a long time ago. The new Yankee Stadium has a much reduced seating capacity but a much bigger footprint. The bigger footprint is, in large part, to accommodate the greatly increased numbers of luxury suites and premium seating. The WSJ reported on how the climate has changed for the Yankees. “When the Yankees broke ground on the new Yankee Stadium in August 2006, home prices were still rising, stocks were still climbing and Lehman Brothers was still a pillar of the Wall Street establishment. Back then, selling 4,300 premium seats to 81 home games a season seemed like a reasonable objective.” Newsday reported, “Lonn Trost, the team's chief operating officer, acknowledged the recession has had an effect on the pace of sales for the 4,000 or so seats labeled "premium," at prices from $350 to $2,500 per game.” The Biz of Baseball reported last week that, “In January the Yankees confirmed that they had contracted with a “Manhattan residential real estate brokerage” to assist in the marketing of premium seating.” Full and half page newspaper ads promoting Yankee tickets is a recent and definite indicator that the Yankees are facing unforeseen marketing challenges.

The negative impact of the recession on the Yankees is not limited to diminished demand for expensive seats. The credit crisis increased the stadium construction borrowing costs. Bloomberg reported on how changes in the municipal bond market affected the Yankees second round of financing. “The New York Yankees sold $259 million of bonds at yields two to three percentage points higher than the baseball team’s first round of city-approved tax-exempt financing to finish its new stadium in the Bronx.”

The recession also cost the Yankees a $20 million per year stadium sponsorship with BofA. Advertising is distressed across all media but the collapse of the Yankees/BofA deal could be attributed to more than just dollars and cents. BofA spokesman Joe Goode said, "We recognize that our decision not to pursue a long-term partnership with the Yankees reflects a lost revenue opportunity for our company, however these are unprecedented times that perhaps call for some very difficult decisions," Mr. Goode was probably referencing the public bailout of BofA (amongst others) and the backlash against “TARP funded” sports sponsorships. From the WSJ, “Bank of America spokesman Joe Goode said the decision to walk away from the negotiations was due in part to the economic environment and "the mood of the country."

On the field, the Yankee brand has been tarnished (rightly or wrongly) by A Rod. A Rod’s $300 million dollar contract was justifiable for the Yankees because of two reasons. 1. He would sell out tickets and luxury boxes at the new stadium during his pursuit of the HR record. AND he would do it as a “clean” player. In short, he would be the next Yankee icon. 2. The same pursuit would be of great value to YES. Again, somehow that seems a long time ago. Now the Yankees have hundreds of millions of dollars committed to an unpopular superstar who they can never portray as “good” to Bonds “evil”. Serious questions surround his long term health, particularly minus PEDs which have been credited with contributing to the extraordinary success of some superstar players at relatively advanced ages (Bonds, Clemens). Subsequent to the announcement of A Rod’s injury, some pundits are suggesting that the loss of the Yankees premier player and arguably MLB’s best player is actually a postive. (See here and here)

In the short term, winning is marketing. Much of the complaining about seat relocations, public handouts to billionaires paying millionaires and a cheating superstar, can be overlooked if the Yankees win. But as defined by Yankee fans, winning means winning it all. Long term, is what the Yankees are selling out of step with the zeitgeist? Tom Van Riper wonders, “Sure, the economic slump will only last so long, but some experts think the shock and suddenness of the global financial crisis may have shifted consumer attitudes permanently. For all but the wealthiest, the luxury sports experience could be out for a long time. That means a lot of $1,000 tickets and personal seat licenses could go unsold and unpopulated for a very long time.” That, not A-Rod, is the Yankees’ biggest problem.


Pete Toms is an author for The Biz of Baseball and a staff member of the Business of Sports Network. He can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 
 
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