Breaking Views

Yankees - The Goldman Sachs of baseball

Both team and bank provoke passion in their fans and critics almost as a result of their winning records, both financially and in their chosen games.

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By Rob Cox, breakingviews.com

(breakingviews.com) -- You're either with them -- or you hate them. That sums up the way baseball fans feel about the New York Yankees. And that's also why the team, which clinched its 27th World Series on Wednesday night, is the Goldman Sachs of American sports.

Goldman (GS, Fortune 500) and the Yankees have both earned their cult-like following -- or passionate scorn, depending on whose bleachers you sit in -- almost solely as a result of their winning records, both financially and in their chosen games.

They also do business together. Goldman has advised Yankees owner George Steinbrenner on deals, including the creation of the YES channel, the team's regional sports network, in which Goldman took a 40% stake. The two are also partners in Legends Hospitality Management, which runs concessions for the Yankees and the Dallas Cowboys football team.

Moreover, both have arguably benefited from public largesse. The Yankees sold $1.2 billion of tax exempt bonds to build their new stadium -- essentially a subsidy from the City of New York. Goldman sold bonds guaranteed by the federal government this year and took (and repaid) $10 billion of funds under the Treasury's bailout program.

Both also command premium valuations. Even before defeating the Philadelphia Phillies at Yankee Stadium, the Yankees were easily the most valuable franchise in Major League Baseball. Forbes has valued the team, owned by Steinbrenner since 1973, at $1.5 billion -- some three times the estimated worth of the Phillies.

Goldman Sachs, too, commands a premium to its rivals. The bank, which has a market capitalization of $88 billion, trades at 1.5 times book value. By contrast, JPMorgan (JPM, Fortune 500) hovers at just about the value of its assets minus liabilities. Citigroup (C, Fortune 500), meantime, trades at a substantial discount to both -- at just 65% of its book value.

This is, of course, a reflection of an ability to generate dollars. The Yankees are expected to bring in some $400 million this year from sales of tickets, merchandise, concessions and broadcast rights. That's almost four times the top line generated by the laggard Florida Marlins.

Goldman is also on course to rack up a stellar year, with revenue hitting $47 billion and net income around $11.5 billion, according to estimates compiled by Bloomberg. That even tops estimates for profits at JPMorgan, one of Goldman's fellow crisis winners and a larger enterprise.

It's this success that allows both teams to pay up for players. The Yankees' payroll this year came in at around $210 million -- or around $9 million for each player on its roster, more than double the major league average.

Similarly, Goldman is on track to set aside some $20 billion for its staff, or an average of more than $660,000 for each of its 31,700 bankers, traders, and secretaries. Of course, on neither team are the spoils evenly distributed. Third-baseman Alex Rodriguez gets $33 million (thanks to a contract worked out with the help of two Goldman bankers). A few Goldman traders may take home even more.

Despite the obvious differences, it is hard to miss the basic business philosophy that Goldman and the Yankees seem to share: pay top dollar for the best talent available so you make more money than anyone else so you can keep the cycle turning. To top of page

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