SBD/November 21, 2012/Franchises

Is Yankees' Decision To Stay Under Luxury Tax Threshold In '14 Worth It?

Hal Steinbrenner hopes to avoid penalties for having payroll above $189M in '14
Yankees Managing General Partner & co-Chair Hal Steinbrenner insists the team "can stay a championship contender with a huge payroll, but one south” of $189M, however the N.Y. POST's Joel Sherman wondered if Steinbrenner is "risking a brand worth billions to recoup the millions that would come from being under $189 million in 2014.” The “fixation to drop under $189 million is financially motivated by two potential streams of money.” The first “involves the luxury tax,” for which they “currently pay 40 cents on every dollar over the $178 million threshold.” The threshold “rises to $189 million in 2014 and -- as a repeat offender -- so do the penalties, to a 50 percent tax.” Thus, a $10M-a-year player would “cost the Yankees $15 million.” By going under $189M, the Yankees would “save the difference between that payroll and their familiar $200 million-plus outlay.” The second inducement is “in the CBA’s revenue sharing refund program.” It is a “complicated concept and formula, but what is important to know is the Yankees would be rebated a percentage of what is the highest revenue-sharing payment in the sport, but -- and this is key -- only in years they are under the luxury tax threshold.” If not, they “forfeit the rebate.” Some “initial projections had the Yankees getting between $5 million-$8 million after 2014 with a steady climb afterward.” Between lower payroll, no tax and the steadily climbing rebate, the Yankees “could save real money, $30 million-plus annually perhaps” (N.Y. POST, 11/18).

LOOKING INTO THE CRYSTAL BALL: With News Corp. acquiring 49% of YES Network with a chance to own 80% in a few years, SportsNet N.Y.'s Jonas Schwartz noted many fans are "starting to wonder about the motives of the Steinbrenner family” and whether this is “just good business or a precursor to eventually selling the Yankees.” The N.Y. Daily News’ Pat Leonard said the move “sets the table for them to have more options going forward if they were to want to sell the team." But the sale of a piece YES Network at this point is a “way to make more money, and then to partner with other networks who can then cross-promote.” Leonard: “It just seems like sound business.” N.Y. Daily News’ Bruce Murray said the current Steinbrenner family does not “love baseball." Murray: "George loved baseball. They are bottom-line businessmen who happen to own the Yankees right now.” If the team “becomes valuable enough to sell it to somebody else, I think they’ve set themselves up to do that.” The N.Y. Daily News’ John Harper said, "I wouldn’t be surprised if they ended up selling it because every indication that you get is that (Hal Steinbrenner) is just a businessman and he looks at the Yankees as a business” (“Daily News Live,” SportsNet N.Y., 11/20).
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