RIDDLE NO. 1: what is it that wears 25 caps and pinstripes, refuses to go out in the rain and is thought to be a more risky investment than pork-belly futures? Answer: The New York Yankee baseball team.
RIDDLE NO. 2: What is it that has 15 heads and $10 million cash, prefers to live around the shores of Lake Erie, has rarely (if ever) been to a baseball game in Yankee Stadium, feels that Babe Ruth should not have lived in vain and believes that pork-belly futures are not the stuff of which National Pastimes are made? Answer: The new New York Yankee ownership.
RIDDLE NO. 3: What is it that wishes pork-belly futures had been the National Pastime nine years ago? Answer: The old New York Yankee ownership, CBS.
RIDDLE NO. 4: What is it that drives men who are sane and rich to buy baseball teams instead of pork-belly futures? Answer: See below.
February 12, 1973
They are an oddly disparate crowd, with nothing much in common but a way with the dollar and a comfortable relationship with the profit motive. Some wear mod haircuts and bell-bottoms, some cuffed trousers and bifocals. Certainly more of them had shaken the hand of Richard Nixon than of Ralph Houk before they bought the Yankees. They are much more at ease as power brokers than player brokers, and a lot more accustomed to big deals than big leagues. They are rich men who have succeeded in businesses as varied as ships and lipstick, trucks and musical comedy, professional basketball and oil wells. When they line up for a group portrait they could pass as the membership committee of a good country club, or at least as a crackerjack crowd of Rotarians. They shine with affluence and confidence; they embody what might be called the mien of the American managing class.
They—the 15 of them—are the new owners of what has been the premier team in the nation's premier town for most of the 20th century. A couple of them are from New York but the majority are not; they are absentees. Some of them can recall the last time they saw the New York Yankees play; others cannot. They are the largest syndicate ever to buy a baseball team, and they did it with $10 million in cool green money, no credit asked.
So the Yankee heritage of Gehrig's heroics and Mantle's brave agonies have become the property of such fellows as George Steinbrenner, 42, who builds ships in Cleveland, and Jess Bell, 48, who has a cosmetics firm (Bonne Bell, Inc.) there, and Lester Crown, 47, a Wilmette, Ill. building-materials magnate. The managerial legends of Huggins and McCarthy and Stengel are now part of the holdings of Daniel R. McCarthy, 48, a Cleveland tax attorney, and his law partner, Edward M. Greenwald, 38. The House That Ruth Built is being kept in part by Nelson Bunker Hunt, 47, one of the oil-rich Hunts of Dallas, and by Francis J. (Steve) O'Neill, a retired transportation tycoon from Cleveland. The Babe's 714 homers and DiMaggio's 56-game streak and Don Larsen's perfect World Series game are now among the business assets of John DeLorean, 48, a vice-president of General Motors, and Marvin L. Warner, 53, a real-estate developer from Cincinnati, and James Nederlander, 50, who owns playhouses and art centers in Washington, Phoenix, Chicago, Detroit, Baltimore and New York. And the Yankees' 29 American League pennants and 20 World Series titles over the past 52 years now belong to Sheldon Guren, 48, a Cleveland real-estate lawyer, and to his partner, Edward Ginsberg, 55, and to Thomas W. Evans, 42, a partner in the Manhattan law firm of Mudge Rose Guthrie Alexander & Mitchell, formerly the home office of President Nixon.
The question is: What are these fellows, sound and successful and ostensibly sensible businessmen, doing in a game? Shouldn't they know better? Indeed, of the 15 members of the group, only two have been profoundly committed to the baseball business—cool and long-tressed Michael Burke, 54, who ran the Yankees for CBS, and avuncular Gabe Paul, 63, an old-fashioned baseball man who has been in the game almost as many years as Burke has been alive, the past 12 with the Cleveland Indians. So what are we dealing with here? Is it soft-hearted nostalgia or flinthearted business acumen? Are the Yankees a tax shelter or a toy? Are they merely nice small talk at sit-down dinners in Shaker Heights? Box seats to impress business contacts? A midnight table at Elaine's? Have these guys simply bought themselves a living collection of bubble-gum cards?
Well, yes...yes, it is, in a sense, all of those things. George Steinbrenner, an infectiously enthusiastic fellow who has been both catalyst and chief cheerleader for the syndicate, says quite seriously, "Look, it may sound corny, but it's an honor to be associated with the Yankees. Sure, there are 10 other investments that might be better, but this is...it's...well, all I can say is that it's such an honor."
Is this to be an honor without profit? Not necessarily. Investors are encouraged by certain tax benefits to go into such hazardous ventures as sports franchises. By far the most important benefit is depreciation of player contracts. For tax purposes, player salaries can be written off as deductions on personal income-tax returns. Say a man invests $1 million in a team like the Yankees—a 10% share—and he is able lit claim depreciation to the tune of $170,000 a year for the five years this is legally possible—a reasonable example. (After five years the allowance ends, and an owner pays full freight.) Even if the team makes money and our man's share of the profits in a year is, say, $100,000, he will, for tax purposes, emerge with a $70,000 loss. He not only will be able to take home his $100,000 gloriously tax-free, but also be able to write the $70,000 off against other income. If the team breaks even, or loses money, the tax allowance is all the larger, but a man must have a very large income to reap a substantial benefit.
As Sheldon Guren, the lawyer, puts it: "The quick depreciation makes for a hedge against a downside risk. But we're in this for the upside." Steve O'Neill, who once owned a piece of the Indians, says, "It's a speculative investment, but I don't think people go into baseball merely to make money. It's fun." Says Bunker Hunt: "To my way of thinking it's just another business investment." But Mike Burke asserts: "There's a romanticism in the ownership of the Yankees. It means a higher visibility for these guys in New York. There is undeniable public prestige for them in owning the Yankees, and they all know that."
Perhaps so. Ownership of the Yankees is not exactly an item that shifts with the morning wind. In the 70-year history of the club there have been only four changes of ownership. The team first played in 1903 as the Highlanders, an entry in the fledgling American League. It was owned by a pair of unsavory entrepreneurs: Frank Farrell, an ex-saloonkeeper, bookie, poolroom-syndicate king and operator of a gambling house; and "Big Bill" Devery, also a former bartender, who became a champion crooked cop, making a small fortune as a bag man for a prostitution, gaming and graft syndicate. Farrell and Devery paid a scanty $18,000 to bring the franchise into New York from Baltimore. The team changed its name to Yankees in 1913, largely because the city's sports editors complained constantly that Highlanders was too long a word to fit their headlines.
In 1915 Farrell and Devery sold their team—for $460,000—to two rich fellows, a New York brewer, Colonel Jacob Ruppert, and a brilliant civil engineer from Ohio, Colonel Tillinghast l'Hommedieu Huston. Colonel Ruppert bought out Huston in 1922, a year before that magnificent symbol of sporting success, the $2.5 million Yankee Stadium, was dedicated. Ruppert died in 1939 and his estate held the club until 1945, when it was sold to the small, neat partnership of Dan Topping, Del Webb and Larry MacPhail for $2.8 million.
MacPhail sold out in 1947, but the Yankee boom years went on and on and on. Then in 1964 the giant arm of the Columbia Broadcasting System reached out and plucked the Yankees for itself as part of a diversification program that had already profited CBS through purchase of a guitar-making company, a publishing house and the backing of My Fair Lady. Amid an uproar over conflict of interest—the network could simultaneously own the team and sell to itself the televised coverage of games—CBS shelled out $13.2 million for the Yankees. At that time it was the most money ever paid for an American sports franchise, yet it represented only about 2% of CBS's net sales for the previous year.
Mike Burke was then the CBS vice-president in charge of investments. "The purchase fit the CBS pattern," Burke said recently. "We wanted to be associated with first-class operations and the Yankees certainly were that." But not for long.
After an American League championship in 1964, the team began to collapse. It fell to sixth place the next year as the cry of "Break up the Yankees" was heard no more. And then to 10th in 1966. Earnings slumped, too. The Yankees had made a profit of nearly $2 million in 1961. Under CBS they made money in only three seasons (the largest profit being a mere $250,000), broke even one season and ended up deep in the red for four seasons. "God," sighed Burke, "those were some embarrassing, humiliating years."
Despite the darkness around the Yankees, Mike Burke himself prospered, at least in celebrity's coin, for he has become almost as recognizable around New York as John Lindsay, Rudolf Bing, Leonard Bernstein or Joe Namath. And although he has not put up much money ("I offered them my body"), he is a key partner in the new Yankee syndicate and will stay on as president of the club. "I love the winning and losing every day," he says. "My chemistry thrives on it."
Although the Yankees' attendance fell below one million in 1972 for the first time in 27 years, despite the appeal of a phenomenal relief pitcher, Sparky Lyle, and a shot at the divisional pennant, Burke is optimistic about the future. "There is enthusiasm building. We've made good trades this winter"—alluding to moves that brought Cleveland's power-hitting Graig Nettles and the sweet .310 lifetime average of Oakland's Matty Alou to the team. "We've already sold $1 million worth of season tickets."
If it is true that there are good Yankee times just ahead, then why did CBS dump the team for $3.2 million less than it paid nine years ago? Arthur R. Taylor, the new president of CBS, offers this rationale: "There was a growing realization over the last several years that the Yankees did not fit into CBS's plans for the future. We might have sold the team sooner—we had offers constantly—but we wanted first to complete a process by which we would assure that the Yankees would remain in New York City. We did not want CBS to be an instrument through which the team would leave town. That was one of the ingredients that impeded an earlier sale. When the city agreed to purchase Yankee Stadium in August 1972 and lease it back to the team—with renovations—we felt free to sell."
But why at such a bargain price? The Seattle Pilots sold for $10.8 million in 1970! Taylor says: "We knew the value of the Yankees on the current market. We got $10 million—cash on the barrelhead—and there was no doubt in our minds that this was the best we could do. CBS broke substantially even on the deal. There were no other bids and we did not solicit any. Reports that there was a lot of money around to buy the Yankees are incorrect. Absolutely wrong."
However circuitously one approaches the final price and the reasons CBS bailed out of the Yankees, the fact is the team was a dismal investment. As Mike Burke says, "We thought we were buying a world championship team for CBS in 1964. I guess everyone in baseball knew it was on the way down—everyone but CBS."
There is one other reason for the sale beyond the icy finances of it all, however. And CBS President Taylor himself makes the point, albeit in a super-corporate manner: "CBS came to the conclusion that perhaps it was not as viable for the network to own the Yankees as for some people. Fans get worked up over great men, not great corporations. We came to the realization, I think, that sports franchises really flourish better with people owning them."
Indeed, although he would have cut out his tongue before he would have admitted it a few years ago, Mike Burke has come to agree: "I think the public and the press are more comfortable now. That huge shadowy eminence of CBS over the Yankees made people uneasy. The fact that CBS had a lot of tender public-relations surfaces—with the FCC and other places in Washington—was something we had to consider. All the Yankee thinking had to be strained through—uh—CBS situations. As a ball club we had to be alert not to bruise the other surfaces."
Burke pauses, then sighs very deeply, "Let's just say that now it's...it's a kind of re-humanization of the Yankees."
But where did all these new humans come from? Last November, William S. Paley, the CBS board chairman, asked Burke to lunch. "He said he wanted to sell the Yankees," Burke recalls, "and that he'd like for me to stay with the club and did I think I could organize a group of buyers. I did, indeed."
In the spring of the year Steinbrenner had phoned Burke to ask if the Yankees might be for sale. Though building ships was the rock beneath his fortune, he had invested in other sports (a racing stable, partnership in a Cleveland harness track, a piece of the Chicago Bulls) and show business (as co-producer of Applause).
No sooner had Paley tapped Burke to sell the Yankees than Mike, remembering that call, got back to Steinbrenner. He breakfasted with him and in that first meeting suggested they become partners in the New York Yankees. "God," Steinbrenner says, "if you'd told me when I was a little boy that I'd have a chance to own the Yankees someday, I'd have stopped working and just waited, holding my breath, until the day came."
Steinbrenner assembled his syndicate with a minimum of trouble. "I made a list of men I thought a New York franchise needed—top-class fellows. I started calling. I didn't get one refusal. Not one. Getting the money wasn't the problem—I knew I could do that. What I wanted was guys who had something more than money—ideas and enthusiasm."
Once the group was assembled, Burke and Steinbrenner made the $10 million cash offer to Paley. "We didn't go in there to dicker or feint," says Burke. "We decided how much to offer and we did it with no bargaining. I told these guys that was the only way to do it: dealing with CBS isn't like doing business with a bunch of rug merchants."
The offer was made Dec. 19. Paley put it to the CBS finance committee on Dec. 22. On Dec. 29 a memorandum of agreement was signed and on Jan. 3 a press conference was called announcing the deal. It was a whirlwind negotiation, no doubt about it.
Now that it has been consummated, are there any regrets among the doughty 15 investors? No. As Lawyer Tom Evans sees it: "The downside risk is insulated by a number of factors here. The tax write-off is one. Given the relatively fast depreciation of ballplayers—much faster than rolling stock or real estate—it is a definite advantage. Of all the traditional tax-shelter deals, this is clearly the best. But we're not in it for losses, not a bit. We think we have bought at a very good time. The Yankees are definitely on the upturn."
Be they in upturn, downturn or non-turn, the fortunes of the Yankees are in the hands of human beings again. And quite a refreshing group at that. With the exception of Burke and Steinbrenner, who are the general partners, and Gabe Paul, who is to work in a vague advisory capacity with the club (Lee MacPhail continues as general manager), the syndicate has sworn to keep hands off the management of the team. They have, however, anted up an extra $1 million beyond their purchase price for—well, for "a little extra operating money," as George Steinbrenner says, "because this is the 50th anniversary of Yankee Stadium and because we want to get off to a good start."
There is, within the new Yankee ownership, a genuine excitement about its team, although in some cases it is a recent development. Says the Cincinnati real-estate man, Marvin Warner: "I've always admired and respected the Yankees, but I haven't been a fan. I don't remember when I saw them play—in some World Series." Nineteen sixty-four? "No, it was long before then. But I'D be a fan from now on, of course."
MOD ENTREPRENEUR Mike Burke (left), Shipbuilder George Steinbrenner & Friends bought the Yankees for $10 million from CBS, which had picked the team up from Casey Stengel's picture pal, Del Webb, the construction man, and his associate, Dan Topping.
FASTIDIOUS Jacob Ruppert bought the Yankees in 1915 and eight years later, with his partner Tillinghast Huston, built The House That Ruth Built. The first Yankee owners were the two unsavory characters at right, Big Bill Devery and Frank Farrell (in bowler).