THE BIG PITCH

THE BIG PITCH - When Manchester United and the New York Yankees announced a joint marketing deal earlier this year, heads were scratched on both sides of the pond. What were the Red Devils up to, and what would baseball's top team gain by getting into bed

by MARK LASSWELL
Last Updated: 31 Aug 2010

When Manchester United and the New York Yankees announced a joint marketing deal earlier this year, heads were scratched on both sides of the pond. What were the Red Devils up to, and what would baseball's top team gain by getting into bed with players of a game the US regards as fit only for women and kids? Mark Lasswell reports from New York

Like many visitors to the Red Cafe in Singapore, John Krimsky was amazed by Manchester United's Far Eastern outpost. 'It takes up half a city block - it's magnificent,' Krimsky says of the complex, a sort of Planet MUFC theme restaurant and bar, complete with United museum, two-storey gift shop and possibly the world's largest gathering of flat-screen televisions. But unlike almost any other visitor to Singapore's Red Cafe, Krimsky sniffed over the place and had one thought: baseball.

More specifically, Krimsky envisaged New York Yankees baseball - Yankees' games on the Red Cafe's TV screens during America's Major League Baseball playoffs, and their NY logo on merchandise hawked in the gift shop, presumably to many of Singapore's 25,000 American residents. Krimsky is president of YankeeNets Properties, marketing chief at YankeeNets and a moving force on the US side of the marketing deal announced earlier this year that links two of professional sport's great behemoths, United and the Yankees. YankeeNets also owns the New Jersey Nets (basketball) and Devils (hockey). Krimsky worked out a deal with United and its partner in the region, FJ Benjamin, that would allow Red Cafe patrons to watch the pounds 12 million-a-year Yankees shortstop Derek Jeter on TV while wolfing down the restaurant's Man U FC fish and chips.

It's fitting that the Yanks-in-Singapore arrangement is among the first fruits borne by the United/Yankees alliance - which seems to boil down to the football team telling the baseball team: Give us America and we'll give you the world. The deal struck in February holds out an enormous carrot for United - access to the luscious American market under escort from a powerful resident ally, likely to begin in 2003 with a Man U tour of America. The English soccer outfit is so well developed as a business enterprise that the New Yorkers find themselves in the unaccustomed position of sitting at the knee of a richer (dollars 1 billion as against dollars 635 million, by some estimates) and more experienced sports franchise.

'Quite frankly, we're learning more from them than we've been able to teach them,' says Krimsky. 'It really has been a learning curve for us. They've been great teachers.' He ticks off a litany of Man U endeavours that have entranced YankeeNets, from the football team's financial services and catering businesses to its retail shops and even Manchester United-branded teaching materials that groom a new generation of fans in classrooms. 'They understand a full range of businesses,' says Krimsky, who's particularly impressed by Man U's success in developing an overseas fan base - 14 million in Thailand alone, he marvels.

Envy is not a trait usually associated with the Yankees. The team has been burnishing its reputation for implacable grasping and joyless success for the better part of a century, since the day in 1920 when the club paid the shocking sum of dollars 125,000, plus a dollars 350,000 loan, to the Boston Red Sox for Babe Ruth. The arrival in New York of the 'Sultan of Swat' led to a remarkable era of baseball domination by a team that has won the Major League's World Series championship 26 times - although they lost dramatically last month to the Diamondbacks. In the 1940s and '50s, the team won with such regularity that sportswriter Jim Murray likened rooting for the Yankees to pulling for Standard Oil. In the UK, 50% of kids say they support Man U, a team with enough silverware in the cabinet to make the Yankees look like under-achievers.

So, the Yankees - like Man U over the pond - are not universally popular in their home markets. Microsoft would be the corporate equivalent today. Much to the delight of their bombastic owner George Steinbrenner, whose partnership made a prudent investment of dollars 10 million to buy the team in 1973, the Yankees have won four out of the last six championships and were one of baseball's leading teams again this year. Just as United has steamrollered opposing teams in recent years, the Yankees crush competitors as much with their treasury as with talent, seemingly willing to pay any price to pluck players from other teams and any sum to keep them. In 2000, the Yankees lavished dollars 92.5 million in salaries on a couple of dozen players and won the World Series; the Minnesota Twins paid its players dollars 16.5 million and came last in their division.

The disparity in budgets has obvious parallels in British soccer. United's top earner, Ferrari-driving David Beckham, reputedly earns nearly pounds 3 million a year, while at the other end of the scale players for Scarborough FC were still waiting for their modest wages to be paid as MT went to press. Given the parlous state of bottom-of-the-table Scarborough's finances, they could be waiting a long time. Such gulfs are almost entirely attributable to the chasm between teams in rich television markets and those in smaller, less profitable markets. The difference between the local TV revenue of the richest and poorest baseball teams has grown from 4 to 1 a decade ago to almost 20 to 1 today. And only a team wallowing in the most TV dollars would be Manchester United's best pal in America. For 12 years, the team has feasted on a dollars 486 million fee paid by Cablevision. But the agreement expires this year. Rather than signing up for another rich contract, Yankee-Nets decided that operating its own sports network and keeping all the advertising money it accrues might be even more lucrative.

In September, after a year of wrangling in court and romancing investors, YankeeNets announced its Yankee Entertainment and Sports Network, a 24-hour cable-TV sports provider launching on March 1. Backed by dollars 340 million from investors that include Goldman Sachs and the Quadrangle Group, the YES Network will broadcast between125 and130 Yankees baseball games.

YES particularly covets Man U's matches, as Krimsky is convinced that the time is ripe for footie in the country that still calls the sport soccer. But beyond the fact that every five years someone declares that America is finally ready for soccermania only to be drowned out by a loud national yawn, there's the tricky business of securing rights to televise Man U's games in America. Fox Sports - aka Rupert Murdoch - owns the rights to show Premier League games in the US and could well say no to YES.

In fact, several hurdles bar the way to fixing a marketing agreement that goes much beyond giving Singaporeans the opportunity to buy Yankees-logo'd gear and chilli dogs at the Red Cafe. The only sport that has struggled more than football in trying to crack America has been baseball trying to gain acceptance anywhere beyond Japan and a few Latin American countries. Yes, you can find college students from London to Rome wearing New York Yankees caps, but even the YankeeNets' Krimsky acknowledges that many buyers think the NY logo signifies New York City (if not its heroic fire department) rather than a sports team.

Even if the Yankees/United alliance inspires a groundswell of international interest in baseball, it's not as if the profits from selling Yankees merchandise would pour into the New Yorkers' coffers, with a healthy commission for United. Major League Baseball rules allow teams to keep the profits from sales within a 100-mile radius of their homes. Anything else goes into a pot shared by all 30 teams in the league. Very odd. But it's not about the money, Krimsky says, 'it's brand extension'.

The YankeeNets organization is only two years old. Last year, Forbes magazine published a sceptical article about the firm's prospects, calling it 'asset-rich but cash-poor' and noting that the Yankees, Nets and Devils play in outmoded facilities that have few of the lucrative luxury boxes that feed the budget of other teams. The YankeeNets teams are pushing for new stadiums, but it will be years before the luxury-box revenues begin to flow. Moreover, the very inception of YankeeNets raised eyebrows among financial analysts. The highly leveraged holding company sold dollars 200 million in bonds to pay Steinbrenner for half of his interest in the Yankees; both Moody's and Standard & Poor's gave the bonds a junk rating.

The Yankees' domestic arena, also known as the House that Ruth Built, may not be the host of any baseball for a while if the sport's labour issues are not resolved. The most recent Major League Baseball contract expired in October, and owners would love to implement a salary cap similar to those in American football and basketball, but baseball players have been adamant about keeping alive the golden goose of uncapped spending.

In line with whispering about a European soccer Superleague, there's also a movement to reduce the number of Major League sides - too many mediocre, small-market teams dilute the quality of the product - but the players' union, protecting jobs, resists this as well. Of course, nothing poisons the interest of American fans more quickly than a team that loses too often. The United/Yankees agreement came at a time when both seemed to own their respective league championships, but sports dynasties tend not to last more than a few years and both teams have suffered wobbles of late. For all the Yankees' vaunted history, they've also experienced periods of atrocious play, like the laughable decade from the mid-60s to mid-70s. Man U have also suffered their fair share of title droughts. The years between George Best's booze-fuelled early-70s departure and Alex Ferguson's arrival in 1986 were thin times at Old Trafford, without a single major championship win. If either the Yankees' World Series disappointment or Man U's hesitant league performance this season heralds a serious decline, the deal could suffer: 'Come see Manchester United at Yankee Stadium, home of the indifferent, underperforming millionaires.'

Professor Tom Bowers, co-director of the Kelley MBA Sports and Entertainment Academy at the University of Indiana, says he'd expect the agreement to have an escape clause based on each team's performance. 'If there's not, I'd be surprised.'

One possible stumbling block actually seems to be a non-issue. Observers predicted trouble over Nike-sponsored United aligning itself with the Adidas-sponsored Yankees. But Peter Land, executive vice-president and general manager of Edelman's Sports and Sponsorship Marketing group in New York, dismisses any notion of Nike-Adidas friction. 'I don't think it matters. Those are individual deals with individual teams,' he says. And, indeed, Krimsky shrugs off the supposed conflict, pointing out that gear for teams with differing sponsors are sold side-by-side in sports-goods stores.

So what does the United-YankeeNets agreement mean in practice? As Krimsky acknowledges, no money has changed hands since the deal was struck. 'The financial transactions are future transactions,' he says; the two sides have 'anticipations about commission levels', but nothing concrete. Observes Bowers: 'There are a lot of details to be hammered out. It could all fall apart.'

There are sceptics. Edward Freeman, the former director of marketing for Man United, says the only thing he sees resulting from the deal is the Man U players going mad with jealousy when they see how much the Yankees' sluggers and catchers take home in salaries every year. Despite his recent pay rise, David Beckham still dreams of a Jeter-style dollars 12 million a year pay packet.

Man United prides itself on keeping the annual salary bill down and avoiding what Sir Alan Sugar calls the 'prune juice effect' in the football business: as fast as the cash goes in, it comes out at speed in the form of ludicrously high player's wages. (Deloitte & Touche estimates that more than half the clubs in the Premiership have wage bills that amount to more than two-thirds of turnover. Last year, Man U's were about 39%, and the club accounted for nearly half the operating profit in the entire 20-strong Premier League.)

Still, Stefan Szymanski, associate professor of economics at Imperial College Management School in London, says the agreement makes sense. It's not about peddling baseball in Europe and soccer in the US, he believes, but about the suits at Old Trafford learning to exploit TV revenue further.

Currently, TV contracts for Premier League matches are negotiated collectively, and the spoils divided more or less equally between the teams. Although only about 60 of the 380 league matches played in a season are shown live, the rules don't permit individual teams to broadcast or sell the rights to any of their own games, whether transmitted live or not. So despite the huge potential audiences, about 50% of Man U's league games are not seen in the UK, and the team's own TV channel has struggled because of the lack of live footage to show. Clearly it has much to learn from the Yankees' experience.

In the US, Bowers believes both sides could benefit from combining forces for joint sponsorships of worldwide sports events. They could share the cost of buying into the 2004 Olympics in Greece, for instance, while getting 'full value' from the investment.

Bowers is especially bullish on the prospective Yankees-sponsored United tour of America in 2003. 'It could be a real media event.' It also offers a chance for United's stars to become familiar with the latest craze in American sports collectible merchandise: the bobble-head doll, a squat plastic figure that looks (if only faintly) like a star player, its head wagging when the figure moves. 'I wonder,' says Bowers, 'if there'll be a David Beckham bobble-head doll being sold in the US before too long.'

Only if the manufacturer can persuade the Great One's wife that they can keep pace with his ever-changing hairstyle.

MANCHESTER UNITED

1902: Manchester United FC rises from the ashes of bankrupt Division Two side Newton Heath, formed 25 years earlier by a group of railway workers

1908: [BX] Wins the first of its 10 FA Cups. The club goes on to become the most successful ever in the competition

1958: Munich air disaster. Eight of manager Matt Busby's young stars - the Busby Babes - perish in a plane crash. It takes the team nearly a decade to recover

1963: At just 17, George Best joins United. He soon develops a reputation as a genius on the pitch

1974: Plagued by alcoholism and rows with management, Best quits. United ends next season in second division

1986: Alex Ferguson replaces Ron Atkinson, beginning one of the longest uninterrupted reigns of any manager in the modern game

1991: Stock market flotation values the club at pounds 47m. But more than half the 2.6m shares offered remain unsold

1992: Premier League formed. United wins the inaugural championship and six more in the next eight years. David Beckham debuts for the youth team

1998: Rupert Murdoch's BSkyB satellite TV channel launches pounds 623m bid for United. The deal is approved by the club board but blocked by the MMC

1999: United beats Bayern Munich 2-1 in extra time to win its second Champion's League title and the coveted treble - League, Premiership and FA Cup

2000: Signs pounds 300m deal with Nike to supply replica Man U strips and regalia, dwarfing previous pounds 138m record (paid by Nike) for rights to Brazil's livery

2001: Ferguson pays Lazio pounds 28.1m for Juan Sebastian Veron. A month later he sells Jaap Stam to Lazio for pounds 16.6m. He says he'll quit as manager next summer

NEW YORK YANKEES

1903: Frank Farrell and Bill Devery pay dollars 18,000 for the American League Baltimore franchise, and move the team to Hilltop Park. The High-landers become the Yankees in 1913.

1915: Attendances rise, but because of lack of success the Yankee franchise is sold to Colonels Jacob Ruppert and Tillinghast L'Hommedieu Huston

1920: Babe Ruth is bought by the Yankees from bitter rivals Boston Red Sox for dollars 125,000 - perhaps the most significant deal in baseball history

1923: The nomadic franchise settles into Yankee Stadium ('The House that Ruth Built'). In the inaugural match (a 4-1 win over the Red Sox), Ruth hits the first home run

1945: The club is sold to a private consortium comprising Dan Topping, Del Webb and Larry MacPhail for dollars 2.8m.

1964: CBS moves in on the Yankees, paying dollars 11.2m for an 80% share. The broadcaster later snaps up the remaining 20%

1973: After the Yankees' failure to bring home a championship, a private partnership led by a combative George M Steinbrenner III pays dollars 10m to take over the team

1979: Billy Martin returns for his second of five spells as manager, but struggles to recreate the achievements of his predecessors

1988: The Madison Square Garden Network teams up with the Yankees for the rights to local television coverage in a 12-year deal worth dollars 486m

1997: Yankees sign 10-year dollars 95m sponsorship deal with Adidas. Steinbrenner brings Major League Baseball to heel with an anti-trust lawsuit

1999: Back to their best, the Yankees equal their own record of 12 consecutive World Series wins (dating back to 1927, 1928 and 1932) after beating the Atlanta Braves

2001: Franchise is valued at dollars 500m-dollars 800m, bringing 60% owners Steinbrenner and his wife the biggest capital gain in baseball history. The ageing stadium remains a problem.

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