The Yankees Score Big with a $1.5 Billion TV Deal

New York YankeesIt's good to be the New York Yankees. The team that baseball fans across the country love -- or love to hate -- is a money-making machine, even with the highest payroll in baseball.

On Tuesday, the company's television subsidiary, the YES Network, announced it was selling 49 percent of its business in a deal that values the network at $3 billion. That's a lot of scratch for the Yankees and other YES owners. And the numbers get even bigger from here.

According to Bloomberg, the Yankees are now signed with the YES Network through 2042 -- an incredibly long 30-year television contract. The club got $85 million in fees from YES for the current year, and the sale includes a 5 percent increase annually in that rate for 30 years.

That means that by 2042, the club will be making $367 million per year just to have their games shown on TV. At today's salaries for ball players, that's enough to pay the top 16 contracts in baseball -- with enough money left to fill out the roster.

Money Man Murdoch Wants to Build Another ESPN

The one paying for all of this is Rupert Murdoch's News Corp (NWSA), the owner of Fox Sports and a number of other media outlets. Murdoch has spent more than a decade building a sports network with both national and regional reach, and this will be the crown jewel in the franchise.

News Corp will buy 49 percent of the network now with an option to buy another 31 percent at a $3.8 billion valuation in three years.

Conventional wisdom is that Murdoch is trying to build a sports network that can rival ESPN, the sports network Disney (DIS) controls. ESPN has long dominated sports on the national stage and is able to profit from advertising revenue as well as a hefty subscriber fee. Others have tried to knock off the worldwide leader in sports before, but Fox and friends now have a plethora of assets at their disposal.

It's a huge risk for News Corp. Assuming that YES' revenue will grow in excess of 5 percent per year for 30 years is a gamble, and now shareholders are on line for that risk. Maybe Murdoch just made his shareholders the newest Yankee fans.

The Rich Get Richer

The Yankees aren't the only ones cashing in on the YES Network deal though. Goldman Sachs (GS) owns roughly a one-third stake in the network; the former owners of the Brooklyn Nets roughly a quarter of the stock; and Providence Equity owns somewhere between 5 and 7 percent.

Goldman is cashing in on a $335 million investment in YES in 2011 that was announced 11 years ago. At the time, regional sports networks didn't exist, and Goldman was taking a big risk making the Yankees a foundation of their network. With today's deal, the firm will have nearly tripled its money if it sells its entire stake. Not bad in a decade that the stock market has gone mostly sideways.

Implications Coast to Coast

With a $3 billion valuation for the cable network alone, it's now easier to see why Magic Johnson and others were willing to pay $2.15 billion for the L.A. Dodgers earlier this year. The club will be able to cash in on media opportunities like its own network or a lucrative contract with another network when its current deal is up.

Maybe $2 billion for a franchise in Los Angeles isn't crazy after all.

The bottom line here is that this deal shows just how good it is to be the Yankees. Love or hate the fact that they can buy almost any player they want, they'll have the money to keep doing that well into the future. If the numbers hold true and the organization makes $367 million per year from TV rights in 30 years, it's not inconceivable that its payroll would also jump to well over half a billion dollars.

Even for the Yankees, that's a lot of cash.

Motley Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool. Motley Fool newsletter services have recommended buying shares of Goldman Sachs.

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they are on every channel all the time espn every time i whiz by the channel, i guess no one else plays the game anymore
plus... espn, when did playing poker become a sport? or nascar? racing is a hobby

November 25 2012 at 5:36 PM Report abuse rate up rate down Reply

The last sentence of this story is complete idiocy and blatantly untrue. Anybody who is even a casual sports fan should know the Yankees are looking to get UNDER MLB's $189 million salary cap before the 2014 season, The reason for this is teams will face stiff financial penalties for being over that figure. To say the Yankes could have a $500 million payroll is both ignorant and shows the author knows little or nothing about sports.

November 25 2012 at 3:40 PM Report abuse rate up rate down Reply
1 reply to APerfectGentlman's comment

Make that the second-to-last sentence.

November 25 2012 at 3:40 PM Report abuse rate up rate down Reply

I'm happy for the yankee fans What's parking going for these vdays at Yankee Stadium? The last time I went was maybe 10 years ago and I think it was $25 That's not Bad I'm sure lots of people are HAPPY to pay that

November 25 2012 at 8:25 AM Report abuse rate up rate down Reply

I stopped watching spoiled players who don't actually earn this money. Go back to pre 60's baseball, those were real players that really played for the game and earned the money. I don't support any Pro sports anymore.

November 25 2012 at 7:11 AM Report abuse rate up rate down Reply

WOW....and I don't even have enough money to buy a suit for my friends wedding

November 24 2012 at 11:38 PM Report abuse rate up rate down Reply

people still actually watch baseball? watching grass grow, is better than a bunch of crotch grabing,, chew spitting idiots. AND way over paid!

November 24 2012 at 1:05 PM Report abuse +2 rate up rate down Reply

Well, by making this a HUGE event, every wannabee sports agents eyes are going Ka-ching! The Yankees already have quite anumber of mediocre, high salaried players, and now, no doubt they now have more coming! Ticket prices and condiments will SOAR! Goodby Yankees.

November 24 2012 at 1:04 PM Report abuse +1 rate up rate down Reply

Baseball needs a hard salary cap, the only major professional sport without one. I do, however, love to watch my Tigers beat their over rated arses in the playoffs.

November 24 2012 at 10:39 AM Report abuse rate up rate down Reply
1 reply to fdd1901's comment

and it was so much fun watching the Giants beat the Tigers -

November 24 2012 at 2:41 PM Report abuse +1 rate up rate down Reply
1 reply to Happypoolprune's comment

As a San Francisco Giants fan, it sure was fun watching them sweeping the Tigers.

November 24 2012 at 4:41 PM Report abuse rate up rate down

The yanks deserve this. Without the yanks baseball is nothing. Just a bunch of class A teams pretending to be major leaguers. Been a yank fan all my life and that will never change. All you Boston fans eat your hearts out. What I like about this is the yanks can get rid of ARod. His days are over, ship him to Boston with the other losers. When the yanks dont get to the world series the television viewers drop to zero. Now dont tell me you loved this past series between the Giants and Tigers. I know we have only won 27 world series but we cant win them all. We have to let others win once in awhile so the fans will continue to supports baseball.. The yanks will win in 2013. GO YANKS

November 24 2012 at 9:42 AM Report abuse rate up rate down Reply
2 replies to lonnie65l's comment

I'm hoping that they will now expand the game market to other parts of the country - especially since Yankee fans are everywhere.

November 24 2012 at 2:42 PM Report abuse rate up rate down Reply

You take Manhattan, and you can shove it

November 24 2012 at 7:49 PM Report abuse rate up rate down Reply

wow, thats just crazy, betting on the unknown.good luck

November 24 2012 at 7:17 AM Report abuse rate up rate down Reply