The Yankees' stadium windfall

NEW YORK (Fortune) -- Talk about the rich getting richer. Already the most valuable team in baseball, the New York Yankees will tap a whole new revenue gold mine when the team's new stadium opens in 2009.

To be sure, its $1.2 billion price tag is enormous - about $400 million more than the one the crosstown Mets are now building in Queens. The Yankees are footing the entire $800 million cost of construction. (New York State and New York City are kicking in the remaining $400 million in the form of land acquisition, infrastructure improvements, and tax breaks.) Yet as expensive as the new stadium will be, nearly everyone we interviewed believes it will dramatically improve the Yankees' value, should the team be sold. "The cash flows coming out of the new building as compared with the old one are going to be ridiculous," says one Yankees source. (This is an excerpt from a story that ran in the August 20 issue of Fortune. Read the full story.)

How ridiculous? A window opened into the normally secretive world of Yankees finance last year when, in conjunction with New York City's Industrial Development Agency, the team sold $940 million in tax-exempt municipal bonds to finance the stadium's construction. The bond prospectus provides a rare if partial look at the Yankees' stadium revenues.

From 1997 to 2005, growth in stadium revenue far outpaced the rise in attendance. Annual attendance rose 58 percent, from 2.6 million to 4.1 million, whereas ticket and luxury-suite revenue soared 202 percent, from $52 million in 1997 to $157 million in 2005. The new stadium will boast more than three times as many luxury boxes as the old, and as a result, ticket-and-suite revenues are projected to soar to $253 million when the new ballpark opens in 2009.

They will probably be much higher. The $253 million figure in the prospectus assumes attendance in 2009 of 3.4 million, which is the equivalent of 79 percent of the new stadium's 53,000-person capacity over 81 regular-season home games. Given that the Yankees sold 90 percent of their tickets last year, 88 percent in 2005, and are on pace for another 90 percent showing in 2007, it's hard to imagine ticket sales sagging when the new stadium opens.

And the ticket-and-suite figures don't include two other sources of stadium revenue - concessions and sponsorships - that Yankees president Randy Levine expects will get a boost from the new ballpark. The Yankees' current concessionaire, Centerplate Inc., obtained 9.6 percent of its 2006 sales - the equivalent of $62 million - from its contract with the Yankees, according to SEC filings. Hal Steinbrenner, George Steinbrenner's youngest who appears to have stepped in as his father's chief lieutenant, tells Fortune that the Yankees are considering handling concessions on their own in the new stadium. Were the Yankees to go that route, the team could conceivably net $30 million annually on gross concession sales of $100 million, estimates former Yankees marketing director Joseph Perello.

As for sponsorships, Levine says the Yankees are not planning to sell traditional naming rights: "It's going to be called Yankee Stadium." Nevertheless, according to the bond prospectus, the team's lease with New York City (which will own the new stadium) stipulates that the Yankees keep "all cash and receivables" related to "naming rights" and "advertising" and specifically raises the possibility of the Yankees' selling naming rights "for parts of the stadium." In other words, fans may enter a building called Yankee Stadium but find themselves sitting in the Bank of America bleachers or purchasing snacks at the Pfizer food court. Perello, now a sports consultant, thinks the Yanks could collect $50 million to $75 million a year in sponsorship dough this way.

What will New York taxpayers get in return for all their Yankee largesse? Very little - unless you're a local pol with a hankering for hardball. The Yankees will pay a mere $10 a year in rent in the new ballpark, down from about $10 million in the old one. No, we didn't leave off some zeros; it's typical of the sweetheart deals cities make to keep teams in town. And this one comes with a cherry-on-top kicker: According to the prospectus, city officials get their own luxury box "for all regular-season team home games."

Of course, the Yankees are responsible for $51 million a year in debt service. Yet even that expense comes with a silver lining: It will help reduce the Yankees' revenue-sharing obligations. Baseball's 2002 collective-bargaining agreement permits teams to deduct stadium debt service and construction costs when calculating revenue sharing. Bottom line? Baseball's 29 other teams will effectively bear a third of the cost of the Yankees' new ballpark. "It's a classic tax shelter," one baseball insider says. "Not only do you get the benefit of added revenues, but you get a major revenue-sharing deduction as well."