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“When you have a question, follow the money, and you will find your answer.”
This old business adage also rings true when trying to uncover how professional sports teams like the Yankees almost always have such a dominant team.
The Yankees are so good year in and year out because they have the highest payroll in Major League Baseball year in and year out. This allows them to pay some of the best players in the game money that other teams simply can’t afford to pay them.
There is no doubting that the Yankees are not afraid to spend money, but how did they reach the point where they have so much of it to spend?
Why Do They Have So Much Money?
Every year when the Yankees offer a star player a contract that no other team in the league can afford, it begs the question: How do they have this much money?
Their winning tradition, their brand, and the fact that they play in one of the biggest markets in the entire country have made the Yankees not just the biggest moneymaker in all of baseball, but one of the biggest in all of professional sports.
The Yankees were purchased by George Steinbrenner in 1973 for $8.8 million. The team’s value as of March 2021 was estimated at $5.25 billion.
One of the most basic concepts when it comes to business is having a quality product to offer customers. When consumers are pleased with the product, they often come back for more.
The same goes for fans and sports. When fans consistently see a quality team on the field, they typically come back for more. According to Forbes, almost 75% of the Yankees’ value comes from the money they bring in from baseball (i.e. ticket sales, tv contracts, etc.).
They haven’t just done a great job putting together a quality team over the years. Their marketing staff has done an excellent job in making the Yankees’ logo one of the most recognizable symbols in all of sports.
Their brand alone, according to Forbes, is worth over $1 billion. Every time they sell a hat, jersey, or are offered a spot in a commercial, the Yankees’ brand gains value.
The market in which they play contributes to around $1.5 billion of their value. New York City is one of the biggest markets in the country, and the fact that the Yankees have been a staple there since 1913 has led many New Yorkers to become Yankee loyalists.
People in New York City have money to spend, and they love spending it on their beloved Yankees.
All of this contributes to the Yankees’ financial success, and being that there is no salary cap in Major League Baseball, they can spend as much as they want on building a great team.
What is the Luxury Tax?
As mentioned, Major League Baseball does not have a salary cap that limits how much a team can spend on payroll.
In place of a salary cap, the MLB has a luxury tax threshold. Any team that exceeds the threshold is taxed at a higher rate by the league. In 2021, the number was set at $210 million.
With a total payroll of $205 million for 2021, the Yankees actually came in under the threshold this past season. That is unusual for the Yankees as they are often one of the teams who spend more than they are allotted simply because they can.
This surplus won’t last for long though as they are set to spend $229 million in payroll in 2022 which is more consistent with their history.
Since 2003, there have only been two seasons in which the Yankees did not exceed the luxury tax threshold: 2018 and 2021.
For more information about the luxury tax, check out our article “Why Doesn’t the MLB Have a Salary Cap?”
Who are the Highest-Paid Yankees Ever?
Everyone would assume that Derek Jeter, also known as “The Captain”, is the highest-paid Yankee of all time. He does have one of the richest contracts in Yankee history, but his contract from 2001-2010 comes in at number three on the list.
Here are the top five Yankee contracts of all time:
- Gerrit Cole – 9 years, $324 million
- Alex Rodriguez – 10 years, $275 million
- Derek Jeter – 10 years, $189 million
- Mark Teixeira – 8 years, $180 million
- CC Sabathia – 7 years, $161 million
While all of these players were at the top of their game when they signed these long-term deals, only Derek Jeter was considered to still be early in the prime of his career.
The others were considered to be at the height of their prime and would likely be far out of it before their contract was up. These types of long-term contracts for older players would have scared most teams away. Not the Yankees.
At the end of the day, they knew they had more money to work with than any other team in the league and that these contracts would not put them in a bind.
Who has the lowest payroll in the MLB?
The Cleveland Indians only spent about $50 million on payroll in 2021. One would assume that they finished as one of the worst teams in the league. While they did not make the playoffs, they did finish 16th out of 30 teams in win percentage.
Which World Series-winning team had the lowest payroll?
In the Wild Card era, only one team has ranked in the bottom half of the league in payroll and won a World Series. The Florida Marlins ranked 25th in payroll in 2003 when they won the World Series proving that while it is difficult to win a championship with a low payroll, it is not impossible.