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Yankees' Spending Spree Defies Laws Of Economics
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Yankees' Spending Spree Defies Laws Of Economics



The time between Christmas and New Year's Day is usually quiet for major league baseball. This year, baseball may use the free time to process the signing spree undertaken by the New York Yankees. During the off-season, the team spent well over $400 million to sign three players. Now, if this seems impossible during a period of economic austerity, NPR's Mike Pesca reports that there is an explanation for the Yankee's contract frenzy.

MIKE PESCA: Basketball fans used to wonder if Michael Jordan defied the laws of gravity. Now, baseball fans are wondering the same thing about the Yankees and the laws of economics. The Yankees have signed slugger Mark Teixeira to a $180 million eight year contract, pitcher CC Sabathia, $161 million over seven years, and A.J. Burnett got $80 million for five years. For the record, the Yankees are trying to win the American League pennant, not single-handedly stimulate the U.S. economy. But their enormous outlay seems to serve up a Ruthian asterisk on every statement you've heard over the last few months about the world financial crisis. One is tempted to amend the words of the president-elect.

President-elect BARACK OBAMA: We are facing an economic crisis of historic proportions.

PESCA: Not the Yankees.

President-elect OBAMA: Most experts now believe that we could lose millions of jobs next year.

PESCA: The Yankees won't.

President-elect OBAMA: Our economy is trapped in a vicious cycle. The turmoil on Wall Street means a new round of belt-tightening for families and businesses on Main Street.

PESCA: But 161st and River Avenue in the Bronx is pretty safe. That's the address of the new Yankee stadium which will open next year. The stadium cost between $1.3 and $1.5 billion and is the driving force behind the Yankee's spending spree, says Mike Kramer who teaches sports business at NYU.

Professor MIKE CRAMER (Sports Business, New York University): The Yankees have no choice. Once they decided to build this stadium, and I think it was a smart thing to do, they have to go out and spend money in order to generate the revenue that they need to pay for the stadium.

PESCA: Cramer, who's the former president of the Texas Rangers by the way, says the Yankees simply must pack the house that Ruth built and George refinanced. And the free agents they signed will go a long way to ensuring that the team is at or near first place in the standings. Of course, if fans choose to watch the Yankees on TV, that's not the worst thing for the team because it owns its own cable network. Still, Cramer warns that fans might eventually cut back on the number of games they attend.

Professor CRAMER: If they used to go to five, maybe they'll go to one now. And that's a combination of ticket prices and the economy. And I think that this hurts a little bit for the Yankees to be out there having to publicly disclose that they're spending half a billon dollars on three players.

PESCA: Though unavoidable, disclosing the details of the contracts does make it seem like the Yankees aren't just fighting the Rays and Red Sox, but striking out against the entire zeitgeist. The day after the Teixeira signing was announced, New York's three tabloid newspapers ran, by my count, 39 economics-related stories. From Madoff vic commits suicide to GDP falls, all were negative or neutral, with the exception of one item about the concert business being up. But the backpages were dominated with the image of this one New York business, flush with cash, spending freely, forecasting good times to come. Kenneth Shropshire, director of the Wharton Sports Business Initiative at the University of Pennsylvania, says that fans should feel better about paydays for athletes than a lot of the executives they've been reading about.

Professor KENNETH SHROPSHIRE (Director, Wharton Sports Business Initiative, University of Pennsylvania): I think it sends a message that baseball is OK, that there's not this huge decline in revenues that has taken place in other sectors of society. There's not the same questions that you got when you start hearing about the bonuses that were being paid to executives where the company has just gotten huge government bailouts.

PESCA: Yes. Baseball fans know the names Jeter, Rodriguez, Sabathia, Teixeira, and Bernett, and can debate if they're worth on average more than $20 million a year. But the Goldman Sachs murderers row of Blankfein, Winkelried and Cohn, each made over 70 million in 2007, the last year for which SCC filings are available, and they took a piece of the government's multi-billion dollar bailout. So even if the Yankees seem recession-proof, they do stick to the economic law of supply and demand. They supply a great storyline for baseball by demanding that every non-Yankee fan has at least one deep-pocketed nemesis to root against. Mike Pesca, NPR News, New York.

HANSEN: And while we're on the topic of baseball, we have a correction. Two weeks ago, we mentioned that the Yankees had signed pitcher CC Sabathia to a $161 million contract. That's right, but our description of Sabathia was wrong. We referred to him as a relief pitcher, but he is, of course, a starting pitcher. For that kind of money, the Yankees will certainly want him to pitch as many innings as possible.

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