Are the Yankees for Sale?
In April 2007, a month after George Steinbrenner fired his heir-apparent son-in-law Steve Swindal from the New York Yankees—and Portfolio magazine ran a lengthy story exposing the Boss' failing health—Cablevision Chairman Charles Dolan, sensing an opportunity, flew down to the Yankees' owner's Tampa home for an impromptu lunch meeting. There, in the middle of a friendly meal overlooking the Yankees' spring-training facility, Dolan bluntly told Steinbrenner that he wanted to buy the team if it was for sale.
It wasn't the first time the Dolans, as big a family in the New York sports scene as the Steinbrenners, tried to buy the Yankees. The team has been an object of obsession for the Dolan family for decades, and they have periodically made offers to acquire it, nearly closing a deal in 1998 to add the Yankees to their New York Knicks and New York Rangers sports franchises, before it eventually fell through.
It’s an open secret on Wall Street that the YES cable network that holds the rights to air the Yankees’ games has been on the block for several years.
Now speculation is beginning to mount among sources close to the Dolans that Steinbrenner's death will serve as a "catalyst"—to use Wall Street vernacular for a triggering event—for them to eventually make another offer to buy the greatest franchise in sports.
• 6 Classic Steinbrenner Moments "The Dolans are big-game hunters locked into a single market," says one source who has worked with the family for years. "They can't grow their cable assets in New York, but they can grow Madison Square Garden through acquisitions in the city." A Wall Street source who has negotiated deals for the Dolans adds, "It's only logical for MSG to go after the team."
As in the past, Yankees representatives and executives insist that the team is not for sale. "Absolutely not" was Steinbrenner's typically blunt response to Dolan's sale overtures in 2007, according to the New York Post; "The team will not be sold," a representative for the Yankees emphatically declared yesterday.
This denial carries a ring of truth, courtesy of the dysfunction in Washington. Because of a one-year lapse in the estate tax for 2010, Steinbrenner's financially timely death will likely save his children roughly $600 million—and sons Hal and Hank no longer have an urgent need to raise cash.
Even the source who has worked with the Dolans says a deal is a long shot, saying, "George held Hal and Hank back for so long that now that they are unleashed they aren't going to sell for a while."
Of course, the first rule of business is that nothing is for sale until it is. And though the team's brain trust—which, in addition to Hal and Hank, includes President Randy Levine, Chief Operating Officer Lonn Tross, and General Manager Brian Cashman—adamantly opposes a sale, they can't stop the Dolans, or anyone else for that matter, from making an offer. Moreover, Steinbrenner is survived not just by his two sons, but also by two daughters and several grandchildren, the kind of large family structure that can be perfectly exploited by an aggressive buyer (remember how Rupert Murdoch expertly divided the Bancroft family to buy Dow Jones even though that company technically wasn't for sale either?). After paying just $10 million for the team in 1973, the staggering return-on-investment the Steinbrenner family can make from what in all likelihood would be a multibillion-dollar sale could prove too tempting to dismiss.
"Interests can always diverge when you have a generational change in the ownership of an asset," says a Cablevision analyst who asked not to be identified.
And while the team itself might not be for sale, it's an open secret on Wall Street that the YES cable network that holds the rights to air the Yankees' games has been on the block for several years. In fact, the network is the real prize in any deal, as its $225 million per year in cash flow finances the Yankees' league-high payroll (the team itself actually loses money because of baseball's revenue-sharing and luxury-tax provisions).
Already valued at an estimated $3 billion, the YES network is bound to become even more valuable—the team is worth $1.6 billion on its own, according to Forbes. Its contracts with cable operators expires at the end of the 2012 season, and given the Yankees' resurgent brand and on-field success—the team won the World Series last year and seems poised to challenge for it again this year—the network will likely be able to secure higher carriage fees in renewal discussions, increasing the cash flow it throws off. That's why the Dolans have as much an incentive to make another run at acquiring the Yankees and its accompanying cable network as the Steinbrenner family has in opposing a sale.
In January, the Dolans spun out Madison Square Garden from Cablevision, separating its cable systems and channels like AMC and IFC from its Knicks and Rangers sports franchises and entertainment-venue assets like MSG and Radio City Music Hall. While the move highlighted the strength and predictable earnings in its core cable operation, it also removed the buffer that for years helped prop up the MSG assets.
Now on its own, MSG would ideally offset its unsteady earnings with a network such as YES that generates predictable earnings year after year. That's especially true given that MSG has committed around $850 million to renovate the Garden.
While it is theoretically possible to buy the YES independent without the Yankees, it makes no sense to do so, as their fortunes are intimately tied—YES needs the rights to Yankee games to command high carriage fees, and the Yankees need YES' cash flow to finance its payroll. Adding both the team and the channel to the MSG cable network, which owns the rights to broadcast Knicks, Rangers, and Islanders games, however, would create a regional sports powerhouse for the Dolans capable of generating hundreds of millions of dollars in additional carriage fees. Combined, MSG could charge cable distributors like Comcast rates on par with ESPN's roughly $4 per subscriber instead of the estimated $2 per subscriber it now gets for MSG.
"This is a hypothetical situation and, as a matter of policy, we don't comment on hypotheticals," says an MSG representative.
But then again, as the Dolans have exhibited numerous times in the past, a hypothetical situation is only semantics for a real one that has yet to come to fruition.
Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, and Media Magazine.