Winning Yankees Aren’t Faring Nearly as Well at the Ticket Office

Courtesy of the New York Times:

The Yankees are, at the moment, a marketer’s dream. With a spirited start to the season, they can boast of having one of baseball’s best records, bask in the captivating presence of the Bunyanesque outfielder Aaron Judge and nod in approval at some popular changes to their ballpark — with all of these developments wrapped in the team’s rich history.

But even those selling points have yet to turn around attendance at Yankee Stadium, where ticket and suite revenues through last season had fallen by a staggering $166 million since the end of 2009, the year the Yankees christened the new ballpark with their last World Series title.

The financial figures, from the public filings the Yankees are required to make on their stadium bonds, represent a 42 percent loss in ticket and suite revenues over the last seven seasons. And despite the team’s compelling play this season, attendance through the first quarter of their home schedule is down from the same point last year.

The ticket and suite revenues are only a portion of the Yankees’ overall income, which also includes television and radio broadcast fees, advertising and licensing, and a portfolio of ancillary businesses. And indeed, the decline in ticket and suite income has offered some relief from baseball’s revenue-sharing system, allowing the Yankees to pay less into the pot that is distributed among all 30 teams.

But the losses do provide a window into how even the blue-blooded Yankees, who have been largely impervious to the market forces that have affected the rest of baseball, have had difficulty maintaining their audience.

The challenge confronting the team comes at a time when the entire sports industry is feeling the ground move beneath its feet as consumer behavior shifts drastically, with the changes even rattling the broadcasting titan ESPN.

For the Yankees, one of the most prestigious sports franchises in the world, gaining a foothold with younger fans has proved particularly difficult, especially in a period in which the team has lost its championship gloss, failing to secure a postseason berth in three of the last four years.

“Baseball, I think, has somewhat struggled with the millennial problem,” Hal Steinbrenner, the Yankees’ managing general partner, said in an interview before the start of the season. “We recognized in looking at our fan base, we recognized in looking at our viewers on YES, that that age group is not what it could be and not what it should be.”

The drop-off in ticket and suite revenues also comes at a time when the team’s expenses are still among the highest in baseball: The payroll is $212 million (third behind the Los Angeles Dodgers and the Detroit Tigers, according to Cot’s Baseball Contracts, which tracks salaries), the stadium bond payment climbed to $83.8 million this year, and the luxury tax at the end of last season was $27.4 million.

So perhaps it is no surprise that Steinbrenner wants the Yankees’ payroll to dip below next season’s $197 million luxury-tax threshold.

It would be the first time since the tax was instituted in 2003 that the Yankees would be below the threshold and it would come just in time to avoid the onerous penalties for repeat offenders that will kick in next season. Still, Steinbrenner maintained that the decline in ticket and suite revenues had nothing to do with his payroll objective.

“We’re not afraid to spend money,” he said.

Indeed, as much as Steinbrenner is preaching more responsible spending, he would not rule out again blowing past the luxury-tax threshold if the situation calls for it — as he said it did after the 2013 season, when the Yankees committed more than $450 million in a free-agent spending binge.

“Every year is different,” Steinbrenner said. “I wish I could kind of sum up my overall philosophy, but I tend to roll with the times and really take a look at the team every year and what we need.’’

It does help Steinbrenner’s payroll quest that the Yankees have two substantial salaries coming off the books at the end of this season — with pitcher C. C. Sabathia ($25 million) and the released, and now retired, slugger Alex Rodriguez ($21 million) in the last year of their lengthy deals. Both players are relics of the Yankees’ last championship.

It also helps over all that the Yankees have been at the fore in building a broad reservoir of income streams that can be used to help underwrite club expenses, a business strategy that the Boston Red Sox and the Chicago Cubs, other teams with strong national brands, have begun to emulate.

For the Yankees, business interests include Legends, the sports concessions and marketing company founded with the Dallas Cowboys that recently won the naming rights and ticket sales contract for the new N.F.L. stadium in Los Angeles; a handful of New York Yankees Steakhouses; a stake in New York City F.C., the Major League Soccer club that is affiliated with Manchester City and is a tenant at Yankee Stadium; and the YES Network, in which the Yankees team up with Fox Sports.

The Yankees also joined forces last year with a longtime adversary, the ticket reseller StubHub, in a deal that could earn the Yankees as much as $100 million over six and a half years.

Still, all these deals and the income they generate have to be set against the very expensive stadium the Yankees are financing, and the problems they have filling enough seats and suites. And some of that problem may have its roots in pricing.

“When the Yankees went into the new building and set pricing, it was clear to me that they priced a perennial contending team into their tickets and suites,” said Vince Gennaro, the director of the Columbia University graduate program in sports management. “They’ve come off that some, but I was always a firm believer that if the Yankees faltered on the field with this economic formula, there’s no question attendance would drop more than another team because of the aggressive pricing.”

Last year, ticket and suite revenues declined $46 million. It was a sharper-than-expected drop that was cited by Moody’s, the bond rating service, as a factor in its decision this month to downgrade the outlook of the $1.2 billion in stadium bonds to negative from stable.

The negative outlook indicates a higher likelihood that the bond ratings — currently Baa1 — could be downgraded in the next 12 to 18 months, which could then make future borrowing by the Yankees a costlier proposition.

The main reason for the Moody’s downgrade was the Yankees’ decision not to refinance the bonds. The Yankees had received approval by the city to refinance last September, but shelved the plans when interest rates climbed. Under the refinancing, the Yankees had forecast $16 million in savings on their debt service in 2018, $11 million annually from 2019 to 2030 and $6 million a year beyond that until the bonds mature in 2046, according to Moody’s.

The refinancing “would have saved us significant money,” said Randy Levine, the Yankees president. “Then Trump got elected and interest rates went up, so you don’t save any money. There’s no reason to do it.”

But what the Yankees have done is try to alter the atmosphere of a still relatively new stadium. The famous building it replaced was often raucous in the championship era that began in 1996. The new stadium, in contrast, has too often had a desultory vibe.

For instance, it was striking last September when several thousand Los Angeles Dodgers fans congregated in the left-field corner of Yankee Stadium and all but made the ballpark their home — boisterously mimicking the right-field Bleacher Creatures’ ritual roll call and unrolling a tifo, the enormous banner prevalent at soccer matches.

And this month, a game in the Bronx against the Toronto Blue Jays drew an announced crowd of 25,556 — the smallest for a Yankees home game in 13 years.

Even with a young, vibrant team that is playing beyond expectations, attendance has continued to fall this season. The Yankees’ per-game decline of 3,793 over the same number of games last season, through Tuesday, is the third-sharpest in baseball, according to Baseball Reference, trailing just Kansas City and the Mets. And the average attendance of 34,642 represents a decline of nearly 12,000 from the new stadium’s peak.

To be fair, the Yankees’ average attendance this season is diminished in part by a rainout that caused them to play a single-admission Sunday doubleheader — two games for the price of one — when the team retired Derek Jeter’s jersey. Additionally, the Yankees had hosted the rival Boston Red Sox by this point last season, but have yet to do so in 2017.

But even factoring in those two elements, an attendance dip would probably still exist.

In addition, the Yankees reported last week in their first-quarter filings that ticket and suite revenues had declined nearly $14 million from the first-quarter filing of a year ago. The team noted in the filing that a three-month delay in invoicing and a home schedule that began one week later had affected cash collections.

But if these numbers are frustrating for the Yankees, they are not necessarily that surprising. The Yankees, internally, were acknowledging a problem well before now.

By the end of the 2015 season, when the Yankees made their lone playoff appearance of the last four seasons — a wild-card loss to Houston — Steinbrenner and his top executives had come to understand that an older team whose most renowned player was the polarizing Rodriguez was not resonating with young adults.