Yankees’ record valuation fuels debate over MLB’s financial health

The New York Yankees take on the Los Angeles Angels at Yankee Stadium in the Bronx, April 20, 2023. The health of the baseball industry — and by extension, what the Yankees’ $2.6 billion investment deal with a private equity firm says about it — remains hotly debated as the players and team owners barrel toward a lockout that could threaten the 2027 season. (Hiroko Masuike/The New York Times)

By EVAN DRELLICH / THE ATHLETIC

To top player agents, Apollo Sports Capital’s $2.6 billion investment in the parent company of the New York Yankees shows MLB is doing well as a business. But the health of the baseball industry — and by extension, what the Yankees’ deal with a private equity firm says about it — remains hotly debated as the players and team owners barrel toward a lockout that could threaten the 2027 season.

The Apollo deal, announced earlier this week, gives the firm a mix of equity and debt in Yankee Global Enterprises and values the baseball team at close to $10 billion, according to two people briefed on the transaction who were not authorized to speak publicly.

That appears to be a record valuation for an MLB team in a realized transaction and fits with the upper range of estimated values the news media has given the club. Sportico this spring estimated the Yankees to be worth $9.4 billion, while Forbes projected an $8.5 billion price.

Hal Steinbrenner and his family maintain control of the Yankees. Apollo’s percentage stake in the team was not disclosed, but, per MLB rules, it cannot exceed 15%.

It’s unclear exactly what motivated the Yankees to sell at this moment, be it the valuation they received or a different desire for increased cash on hand. It’s also unclear how the Steinbrenners intend to use the money, but player representatives hope it will be used to add talent.

“It’s great for the fans and the sport to see a team take an aggressive step to compete,” said Joel Wolfe, who leads the baseball division at the Team, an agency. “The constant drumbeat from the commissioner’s office complaining about baseball’s decline has become stale.”

Scott Boras, another top agent, said: “The one thing this indicates is that the appreciation of baseball franchises has been immense in the last six months to a year. Private equity is not paying $2.6 billion for a small percentage of the Yankees unless they’re doing quite well. The private equity analysis is strictly based on profit.”

But the argument inside MLB ownership circles remains that baseball valuations could be doing better overall, particularly when compared with leagues such as the NBA and NFL.

MLB owners also continue to believe the gap between marquee franchises such as the Yankees and their smaller-market counterparts has grown too large, in club value and annual revenues.

MLB and the players’ union declined to comment immediately. Apollo and the Yankees declined additional comment beyond statements issued in a news release on Tuesday.

Through its investment in the Yankees’ parent company, Apollo also appears to gain a small share of other companies in the Yankees’ umbrella, including Yankees Entertainment and Sports TV network (YES, for short) and a pair of pro soccer teams, New York City FC and AC Milan.

MLB, like other sports leagues, limits how much of a team can be sold to private equity. Beyond the 15% maximum for a single firm’s stake in a team, multiple firms can own no more than 30% of a single club.

Those limitations are intended to reduce how much sway private equity firms, which represent a large number of investors, have over a club’s decision-making.

“The rules surrounding private equity investment, they don’t even get information, let alone have an opportunity for influence,” MLB Commissioner Rob Manfred said last month. “We pay a lot of attention to what is actually going on.”

But with the Yankees, Apollo will nonetheless carry at least some say: As part of the transaction, Apollo CEO Al Tylis, who made his name in real estate, will have a seat on Yankee Global Enterprises’ board.

Several motivations could have influenced the Yankees to sell a slice of the team.

Having additional funds available throughout a potential lengthy work stoppage next year might be appealing.

Even a family as successful as the Steinbrenners could want additional liquidity, which institutional investors can more readily provide. Franchise values have grown so large that private equity firms are often a necessary part of club transactions because the prices are too high for many individuals.

“The leagues are very conservative with the amount of debt that they allow teams to take on,” said Daniel Render, a partner at the law firm Katten who advised Apollo on the regulatory components of the Yankees’ transaction, including compliance with league rules. “That, combined with the rise in valuations, has made it in some ways more challenging to find investors to invest in clubs.”

Render said he could not comment on the Yankees’ specific motivations. But in general, he said, there are several reasons a team will sell a minority stake to a private equity firm, including a strong valuation.

“Let’s say you’re a controlling investor, and you own 80% of a team,” Render said. “You’re sitting on an asset that’s appreciated a lot in value, and there might be other things in your life that you want to use the money for. That could be a reason to sell down in part, and have nothing to do with cash needs of the team or anything other than sort of making an investment decision.”

Render said team owners sometimes also want to create exit opportunities for current minority investors.

None of this will necessarily influence roster decisions. The Yankees are projected to have a payroll of about $341 million this season, the third highest in the majors, per Cot’s Contracts.

A private equity firm investing in an MLB club today could believe, or hope, that the league’s next labor deal will bolster the worth of its investment.

A salary cap, which MLB is aggressively seeking, would limit the league’s labor costs. MLB believes too that a cap would make smaller-market teams more competitive and, therefore, enhance the value of all of the league’s clubs.

“If you look at professional sports, I think investors now see that as a separate category of investments that is significant in terms of diversifying your overall portfolio,” Manfred said last month. “I also think that, particularly given some of the issues that we’re dealing with right now, people are thinking that the game could be on an upswing in terms of its investment potential.”

The players’ union believes MLB’s cap proposal would cost players billions of dollars over the course of a new collective bargaining agreement. The current deal expires in December, at which time owners are expected to start a lockout. What’s unknown is whether the fight over a cap will lead to canceled games in 2027.

In baseball and other sports leagues, franchise values have always risen over time.

“Sports has traditionally been a noncorrelated asset with other public companies or private companies,” Render said. “So whether the market is up or down, sports has tended to go up. That’s not something you can predict for the future, but that’s just how it has worked out over the past 20 or 30 years in sports.”

Going forward, leagues could always change those rules to allow greater institutional ownership of teams. Whether MLB and others do precisely that over time — and whether the influence of private equity firms increases, either way — is to be seen as a new era unfolds in New York City and elsewhere.