YANKEES’ PAYROLL $QUEEZE

The New York Yankees’ decision to commit more than $400 million to high-priced free agents has some fans wondering how the team can continue to bankroll its expensive roster and fancy ballpark without drowning in red ink.

The Yankees rake in an estimated $400 million in revenue a year. The single-biggest source of revenue is ticket sales. Last season, 4.2 million fans packed the stands. Assume $55 a ticket, and that comes out to $230 million.

The team also gets between $65 million and $75 million in rights fees from its share of the YES Network, and a similar amount from sponsorships and advertisers.

But while the Yankees generate a lot of cash, they also spend it. The team has the biggest payroll in baseball, with $223 million in players’ salaries.

The franchise pays about one-third of its revenue – a whopping $100 million – to Major League Baseball under the league’s revenue-sharing calculations. Other expenses, such as travel, training and maintenance, also eat into the bottom line.

Suddenly, it seems like the Yankees aren’t playing “money ball.” Forbes estimated that the baseball team posted a $47 million operating loss in the 2007 season.

In calculating the team’s finances, however, there’s always some degree of confusion. That’s because the baseball team is a division of Yankees Global Enterprises, a private holding company with assets and stakes in other businesses. So the holding company may be operating at a profit even if the team is not.

Regardless, the Yankees just spent big on two pitchers: A.J. Burnett and CC Sabathia. The team continued its spending spree with a $180 million deal for first baseman Mark Teixeira.

The Yankees were able to afford much of that new payroll by shedding between $80 million and $90 million in high-priced players, including Bobby Abreu, Jason Giambi, Mike Mussina and Andy Pettitte. Pettitte may stay with the team under a cheaper contract.

Considering that the new contracts are spread out over eight years, the Yankees’ payroll for the 2009 season should be $20 million or $30 million less than 2008.

“They are not recession-proof,” said Marc Ganis, president of Sportscorp, a prominent sports-consulting firm in Chicago. “The reason why this works is because they’re dropping $85 million from their payroll.”

Still, there’s that $1.3 billion new stadium. The Yankees caused a stir this year when they asked the city to help raise an additional $259 million in tax-free financing to finish the project on time, as well as $111 million in more conventional debt. The team is already on the hook for about $1 billion in bonds to build the stadium.

While it seems like bad timing, there are a couple of reasons why the Yankees believe their baseball economics work.

The team is banking that the new ballpark will bring in more revenue than the old one did. There will be 51 luxury-box suites in the new stadium priced between $600,000 and $850,000, up from 19 at the old ballpark.

The new stadium also gives the team a huge break on MLB revenue sharing. MLB allows teams that build new stadiums to deduct costs, including debt payments, from its calculations. The Yankees will have $60 million in debt payments and $25 million in stadium-related costs – all deductible from its $100 million in revenue-sharing payments.

Between the deductions and new stadium revenue, the Yankees figure they can afford their huge payroll.

There are risks, however. The weak economy will make it tougher for the team to borrow money down the line, while there may be less cash from corporate sponsors and fewer buyers for ever-rising ticket prices.

“There are many people who are saying in this economic climate and with the banking industry being frozen, that this is irresponsible,” said Ganis. “It probably would be for any other team.”