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.

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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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