Good for the Boss, Bad for Baseball?

Yankees owner George Steinbrenner stands to make millions from his new cable network, furthering the sport's yawning rich-poor divide

New York Yankees owner George Steinbrenner is proving again why they call him the Boss. Along with his $120 million first baseman, Jason Giambi, Steinbrenner has just debuted his own TV network, Yankees Entertainment & Sports (YES). It's a shrewd move by Steinbrenner and will surely make him even richer because he can collect cable fees and ad dollars directly rather than splitting these revenues with a distributor. Already, the network is up on most New York-area cable systems, except Cablevision.

From Major League Baseball's perspective, Steinbrenner's gambit came at the worst time. That's because the organization is smack in the middle of delicate negotiations to fix the lopsided economics that nearly killed two teams in the off season -- and perhaps still will. Baseball pundits worry that YES will just widen the gap between haves and have-nots by putting more money in the coffers of wealthy team owners such as Steinbrenner, who can buy top talent such as Giambi without blinking.

"When the strong get stronger, the weak get weaker," says Rick Burton, director of the James H. Warsaw Sports Marketing Center at the University of Oregon. "Is this good for Steinbrenner? Yes. Is it good for baseball? Nope."


  In December, the league released proposals to even out the increasingly divergent revenues of big- and small-market teams. They included a new formula for existing revenue sharing that would send more money to smaller teams. While 30 clubs shared about $167 million in local revenue last year, MLB's new plan would have put $253 million into the pot. Meanwhile, the players' union has its own strategy for spreading the wealth.

For now, all parties are looking for a compromise, just as Steinbrenner airs his first games on YES. "I'm sure there'll be a backlash to this network," says John Mansell, a cable-TV analyst at Kagan World Media.

Certainly, other teams owned by media companies have connections to the outlets that show their games and get to keep more of the TV profits. Tribune Co., proprietor of the Chicago Cubs, owns superstation WGN, and Dodgers parent News Corp. owns Fox. And from 1964-73, the Yankees belonged to CBS. But never has a team with such a storied history, strong brand, and deep pockets started a network with such heavy earning potential.


  One reason the Yankees are so rich -- and stand to become more so -- is that they're in the nation's priciest media market. The team made $56.7 million in TV, radio, and cable revenues last season. The Montreal Expos, by contrast, pulled in a mere $536,000. The difference: The Yanks could charge Cablevision Systems' MSG channel, the cable network that has carried its games for years, as much as $52 million for rights to broadcast the majority of its contests.

YES is the result of an impasse between Steinbrenner and MSG, apparently involving a disagreement about the price of a new contract. After the falling-out, the Yankees' owner decided to go it alone. His holding company, YankeeNets, which also controls the New Jersey Nets pro basketball team, has a 60% stake in YES. Goldman, Sachs & Co. and former Global Crossing exec Leo J. Hindery Jr. (also YES's CEO) own the rest.

Yankees games are just part of the offerings on the 24-hour network, says Hindery. "You can't build a network on one team," he says. YES also plans to broadcast Nets games, United Manchester soccer matches from Britain, and some programming from CBS Sports.


  Assuming Steinbrenner locks up cable deals for the entire New York market soon, YES could make an estimated $200 million in 2002, according to some media analysts. Indeed, if Giambi gets hot with the stick, Steinbrenner stands to make more from a few juicy ad deals on YES than the team owners in Kansas City, Minnesota, or Milwaukee will bring in from their total TV revenues.

How much of the $200 million will be funneled back into baseball? Steinbrenner isn't saying, but Andrew Zimbalist, economics professor at Smith College, wonders if some "of this revenue will be kept off the Yankees' books" and not used for revenue sharing. Steinbrenner has no obligation to prop up the rest of baseball. But if the playing field doesn't get more level, it could be just a matter of time before baseball's problems become the Boss's problems, too.

By Tom Lowry in New York

Edited by Douglas Harbrecht

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