New York Yankees and Bonds (not Bobby)

New York Yankees and Bonds (not Bobby)

Guest Post By Robert Malchman (Prof. Robert)

February 5, 2025

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NOTE - Please note that this is NOT financial advice, and I am not a professional financial advisor. 

There was some discussion the other day about the Hal Steinbrenner’s bean counting and the Yankees’ obligations to their bondholders. 

I made the point then that bondholders are paid a fixed rate of interest which does not vary based on the Yankees’ profitability and that Hal’s real concern are the Yankee limited partners -- that is, the equity owners rather than the debt holders -- whose distribution payments are directly tied to the Yankees’ profitability.  That is accurate at a 30,000-foot level, but the comments made me curious about the effect of debt service on Yankee profitability.  The short answer to that is “virtually none.”

In 2020, the Yankees refinanced the original bond issue to build Yankee Stadium with a new $927 million bond issue.  Anyone who is interested in the minutiae can read the 343-page prospectus here: https://edc.nyc/sites/default/files/2021-10/Official%20Statement%20--%20Yankee%20Stadium.pdf 

These are municipal industrial revenue bonds, which means the interest paid is city- and state-tax free, and all but $116 million are also federal-tax free.  New York City is the issuer, but interest and principal payment obligations are limited to the Yankees’ payments in lieu of taxes (hence these bonds are referred to as PILOT Bonds). 

The point of this kind of structure is for municipal issuers to assist a private entity in pursuing a development that would benefit the municipality (here, the City of New York and Yankee Stadium).  Even though bond buyers are relying on the credit of the private entity, they get paid a reduced rate of interest because the interest is tax-free or tax-reduced because the issuer is a municipality.

Pages 2-3 of the prospectus list the face amounts, due dates (though the bonds can be retired early), interest rates and yields.  For our purposes, the interest rate is the relevant consideration because that is the amount of the PILOT payments the Yankees must make.  (The yield is what the investor functionally receives based on the purchase price of the bond. 

For example, a $1000 face-amount bond with a 5% interest rate pays the buyer $50 per year.  But bond prices fluctuate based on interest rates and on the credit-worthiness of the obligor -- this is the place where the Yankees’ profitability could affect the bondholders through changes in ratings of the bonds.  So if rates change such that a similarly bond-rated (that is, similar risk level) obligor has to pay on 1% interest, that $1000 bond will trade for $5000, so the new buyer would still receive $50 per year, but would represent only 1% of their investment.  Conversely, if interest rates rise to 10%, the bond will trade for $500.)

I do not have the patience to multiply each tranche of debt times its interest rate, but inspection suggests the average is around 4%.  Multiply that by $927 million, and you get about $37.1 million in annual interest payments.  That kind of debt service is not going to be a problem for the Yankees.  Moreover, debt service is a deduction from a team’s CBT, so if hypothetically the Yankees had a payroll of $337.1 million, assuming my very rough estimate is more or less right, then they would be at $300 million even for luxury tax purposes.

Finally, Yankeesblog joked in the comments about wanting to become a Yankee bondholder.  Well, he or anyone can with a small investment.  If you go back to the prospectus, you will see each tranche of debt has its own CUSIP number.  You can plug that into a search field to find out most-recent price and effective yield.  For example, the 3% bonds due in 2040, CUSIP No. 64971PKH7, recently traded at between 83.08 and 84.52 per $100 face value, with yields between 4.57% and 4.42%.  It looks like the minimum trade for that tranche is $500, so you could become a holder of 2040 Yankee bonds for around $420.

Please note that this is NOT financial advice, and I am not a professional financial advisor.  There are additional wrinkles I have not mentioned like the effect of an early call of the bonds (the Yankees can do that with the 2040’s in 2030, for example).

Anyone contemplating an investment as arcane as individual municipal bonds should consult a professional with bond expertise. 

Moreover, if any of the readers spots an error or omission here, please correct me in the comments.  But if you want the Yankees to be indebted to you just for the sheer pleasure of it (like playing blackjack or shooting dice in a casino), it is all right there in front of you, as Aaron Boone might say.