“We can go from having one of the lowest payrolls in the league to a top five or 10, depending on the year. It’s going to be such a remarkable change in our business and I think with the business acumen of Billy Beane and David Forst, giving them that type of resource is going to be incredible and that’s what we’re striving to do. Hopefully, people can get on board and see the ballpark is the solution for the concern (being able to spend on players) and will enable us to retain our players for longer and that will be a positive thing for our fans.”
That was a quote from Oakland Athletics president Dave Kaval, on the importance of the A’s getting a new stadium.
Presumably, he said that with a straight face.
We know that the A’s are not going to take their newfound financial windfall and put it back into the product on the field, certainly not to the extent Kaval said. We know this because teams very rarely do. The Rangers, Braves, Marlins, and Twins have all been gifted new stadiums since 2010 — the Braves come in at 14th in MLB payroll, the highest of that group.
What new ballparks do is incentivize teams to collect and save profits, not necessarily spend them on players. If fans are going to come to a new stadium at a higher rate with higher ticket prices simply because it’s a new stadium, why would a team need to spend money on the payroll? Certainly not to win, as we know most teams in MLB make no secret of the fact they aren’t even trying to win, while a few others give a partial effort. It’s even less of an incentive in the case of the A’s, who’ve been proving for the better part of two decades that they can compete at a high level, even with a comically low payroll.
However, neither the A’s nor the other teams mentioned above play in a big bad market like New York City. The Yankees were gifted a money printing new venue in 2009, still pretty recent in MLB stadium terms. What did the Yankees do with the profits from their new cash cow in the Bronx?
Your first reaction may be to assume they increased payroll significantly. After all, just prior to opening the new digs, they committed almost a half-billion dollars to CC Sabathia, Mark Teixeira and A.J. Burnett combined. Opening the checkbook worked out, as they won the 2009 World Series, their first since 2000 (and their last, which we’ll circle back to). The reality, however, paints a somewhat different picture. Let’s look at the Yankees salary and team revenue for the four seasons prior to moving into the new stadium, then the first four seasons after:
(Numbers shown represent amounts in millions of dollars.)
Payroll vs Revenue
Unsurprisingly, team revenue — which was on the rise anyway — rose significantly with the new stadium in 2009. Again, people are going to come to a new stadium simply because it’s a new stadium even with higher ticket prices. What may be a surprise, is that the average annual payroll for the four years after moving into the new stadium was almost exactly what it was the four years prior — $205.5 million per year average from 2005-2008, $205.75 million per year average from 2009-2012.
If you’re curious about whether or not the luxury tax was a factor during that stretch, it was not. The penalties were the same over that span of time and the Yankees were over every season on the chart anyway, so that didn’t affect spending behavior.
Are you wondering if their expenses rose significantly with the new stadium? After all, even the business amateurs among us know that increased revenue doesn’t mean much if expenses rise with them equally. That’s likely to be a negative, too. As we know, teams are never fully forthcoming about such matters, but we do know that although the Yankees paid for the construction of the new stadium, they didn’t pay for anything else. Demolition and removal of the old stadium, construction of new parks and fields, re-routing of train lines and water lines, construction of parking facilities — all of those tabs were picked up by taxpayers, among other significant expenses.
Additionally, construction costs for new stadiums are deductible from team revenue that’s counted towards MLB’s revenue-sharing system. (For example, if your team had $400 million in gross revenue, and you spent $300 million on construction, you only had $100 million in revenue as far as MLB was concerned.) Therefore, the team’s construction costs weren’t taxed by baseball’s taxation system, which saved them a big chunk of cash — I bet Kansas City and Milwaukee weren’t happy about receiving smaller redistribution checks.
Furthermore, the Yankees do not own the land the stadium is on, so there is no property tax bill, and as of 2008, the agreement was they’d pay no rent on the stadium, which is technically owned by New York City. Again, we’ll never know for sure, but it’s possible — maybe even likely — that the team’s non-payroll expenses went down after moving into the new building.
Since 2012, the Yankees’ payroll has become a smaller and smaller percentage of their gross revenue: From 2016 through 2019 (the last four full seasons), their average annual payroll was $189 million while the average annual team revenue was $624 million — a significantly bigger gap than in the years listed above. Although the luxury tax did evolve to be slightly more punitive, we see the Yankees started cutting costs over a decade ago, so the pattern was in place.
The irony is that the Yankees — one of the most valuable sports franchises in the world, and known across baseball as the “Evil Empire” in part because of their prodigious spending — may not be in a position to win a World Series this season because of their concern for expenditure management. The roster, as currently constructed, is one that no one expects to win a World Series — it needs help. Yet with only marginal amounts available before exceeding the luxury tax threshold (something that has been widely reported the team won’t do), where is help going to come from? Aggravating the situation is the fact that anyone on the roster who makes significant money is either very valuable to the team or not desirous to others, so shedding payroll to fit a new player in will be next to impossible.
The problem for fans is that MLB has created a system in which there is no financial incentive to win because a profit will be turned regardless. If you’re wondering why I haven’t mentioned the different Yankee ownership as a factor that’s why — for the most part, George Steinbrenner owned the team when it was harder to turn a profit without winning. He viewed payroll as an investment on which he’d get a return, not as an expense. The current shot-calling Steinbrenner has no such concern, as vast profits are coming win or lose.
There are many factors that have created this situation, but new stadiums are a big part of it, even to the extent that the New York Yankees are only moderately inclined to use their considerable resources to win.