New York Yankees redefined Baseball’s Business Model
As the sports world mourns the loss of George Steinbrenner, let us reflect on just how much he changed the business model of professional sports. When George Steinbrenner purchased the New York Yankees from CBS for $10 million in 1973, the team was a mess. Today, the Yankee’s business model and club is valued at $1.6 billion. Most of the credit for the dramatic transformation in value goes to Steinbrenner. He redefined the role of the owner as well as overhauled the traditional baseball business model.
Jerry Jones is credited with improving the NFL’s business model. However, Jones was simply extending the innovations created by Steinbrenner. Here are some of the business model innovations created by Steinbrenner:
- 1st owner to use free agency to rapidly improve the team. Catfish Hunter and Reggie Jackson in particular.
- 1st owner to create his own cable network. In 2001, Steinbrenner, along with Goldman Sachs, started the YES (Yankees Entertainment & Sports) Network, which now is said to be worth more than $3 billion.
- In 1997, Steinbrenner inked an unprecedented 10-year, $95-million sponsorship deal with Adidas to advertise in highly visible areas of Yankee Stadium and link its name to the team. To protect the deal, Steinbrenner filed suit against each of the other 29 teams and MLB properties, challenging on antitrust grounds the longstanding agreement under which clubs equally share revenue from licensing and sponsorships. The move worked and the case was settled out of court, to Steinbrenner’s advantage.
- Good or bad, Steinbrenner’s active role in day-to-day baseball operations changed the Yankees business model and that of an owner.
- Teaming with Cowboy’s owner Jerry Jones, Steinbrenner formed a catering company call Legends Hospitality that services both teams’ stadiums.
Bottom line, Steinbrenner brought an improved business model to baseball and an improved business model to sports. He understood under-valued assets and he had a business model to leverage them.
Most business owners have the same set of circumstances. They are sitting on vastly undervalued assets. Much like CBS in 1973, it is difficult to see your own under-valued asset. Typically, it takes an outsider like Steinbrenner. How can we business owners get the perspective of an outsider to see the dramatic business model changes like the Yankees?
A great place to start is what we call Gasoline, Cigarettes and Soda. Take the Business Model Evaluator to learn more about this technique. Applied to the Yankees, CBS was using the Gasoline, Cigarettes and Soda model wrong and Steinbrenner ran it to perfection. The model is based upon the premise that every business has a portion of it (gasoline) that is hard, unprofitable and necessary to procure customers. Gas pumping is a lousy business. However, the cigarette selling business model isn’t bad. It is high turnover and decent margin. The soda fountain business model is terrific. It has super-high margins and good volume, if you have gasoline customers. Many businesses only sell gas. This was CBS’ problem. They were in the baseball business. Steinbrenner realized that baseball was only the gasoline to get them to buy cigarettes (catering, signage, licensing), and soda (his cable network which is worth more than the Yankees themselves).
