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Baseball: Investing In The Evil Empire

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I have a confession to make. In some towns there is a danger to this. In other places lies ridicule and harassment. But I don’t care because I have long been a fan of the New York Yankees. I am not talking about the championship years that featured the core four of Jeter, Posada, Pettitte and Rivera. My interest began over 45 years ago and it goes to the heart of what it means to be a New Yorker and a businessman.

When I started my business career as a junior Wall Street investment analyst the state of New York City was a mess with financial Armageddon looming. The New York Yankees were in the same miserable shape, a forgotten part of a corporate parent named CBS. The core four of that era: Mickey Mantle, Yogi Berra and Whitey Ford and Elston Howard were long gone. CBS couldn’t figure out what to do and worse yet could not find anyone wanting to buy the team.

And then from a bankrupt shipping business in Cleveland came this guy George Steinbrenner with a bid. Reports have since place a $4 million price on the sale but my recollection was a much lower amount. Either way, what was Steinbrenner getting for his money?

First off, he didn’t get ownership of Yankee Stadium. Instead he inherited a long-term high cost lease on an aging depleted structure that dearly needed major work. In the aftermath of his bankruptcy George wasn’t exactly flush with cash.

In addition, he inherited a roster of players that weren’t much better than their cross-town rivals the miserable New York Mets. So in the final assessment, Steinbrenner was paying for the rights to the New York Yankees name, the uniforms, bats and balls in the locker room and not a lot more.

To take on risks of this magnitude requires more than a bold vision and loads of luck. It helps to be totally insane and that is what many thought at the time. This image of madman followed him for the next three decades. George was bold, brash, demanding and threatening in his manner. George was Donald Trump before Donald Trump was Donald Trump. George invented the term “Your fired”.

He was part businessman, part showman, a regular PT Barnum.

One of his first bold steps was to take full advantage of the newly created business of free agency signing Jim “Catfish” Hunter to a contract that paid an astonishing $500,000 a year (today the league minimum is over $510,000). His free agent deals were often on field disasters but were great at getting advertising and filling seats in Yankee Stadium. After all, who wouldn’t want to see Danny Tartabull? The more bluster, the more news headlines and that intern filled more seats. George had just the right formula. He demanded a World Series Championship every year but was building the long-term franchisee on smoke and mirrors.

Using his threatening tactics he forced New York City into a major two-year renovation of Yankee Stadium at a princely cost at that time of $74 million.

The real plumb for revenues was turning the Yankees into a worldwide-recognized brand. The plan began with setting up a cable TV YES network that had the ability to broadcast Yankee games about anywhere in the world. When the core four arrived in 1995, everything was set.

Yankee fans started popping up everywhere. Subscriptions to the YES Network and merchandise sales went through the roof. George was no longer borrowing and threatening; he was living off the houses money. And that money was flowing big time.

Today the New York Yankees are valued at $3.2 billion representing one humongous return on investment for the initial investors. In 1975, Catfish Hunter earned about $2932.09 (after agent fees) for each of 162 games. In 2017 it will cost approximately $2500 for a single game seat behind home plate.

Today the Yankees are baseballs most valuable franchise and the third most valuable sports team in the world. Not bad for a four million investment. Love him or hate him George build one magnificent evil empire.

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