The business of the Sox/Yanks rivalry

Professional sports teams continue to replace antiquated stadiums with modern, awe-inspiring facilities, designed to attract more fans, bigger sponsors and better players. Yet, there remain several historical structures that regularly accommodate scores of cheering crowds.

One of the greatest rivalries in all of sports is between the Boston Red Sox and the New York Yankees. And two of the most legendary parks in baseball belong to these teams in Fenway Park and Yankee Stadium.

This year, the Bronx Bombers play their final season in Yankee Stadium. The building served as home to players like Ruth, Mantle and DiMaggio and decisive championship moments forever etched in our memories. Like them or hate them, the Yankees’ home is one of the most storied ballparks in America.

So why is Yankee Stadium being torn down to be replaced by a new park? What pressures did the owners succumb to? Or what financial benefit do they see in the move? And, in that case, why are the Red Sox not following with their own new stadium?

There are six main ways baseball teams generate revenue: corporate sponsorships, luxury box sales, general ticket sales, concessions, local television contracts and merchandise.

Let’s compare Fenway Park to the new Yankee Stadium and see which team is mostly likely to have the strongest financial performance in each category.

Corporate Sponsorships: Even

The Red Sox and the Yankees are the most popular teams in baseball and both national and local companies are looking to sponsor with these clubs. Companies will line up to partner with these two teams, regardless of where they play. Revenues are strong for both clubs in this category.

Luxury Box Sales: Yankees

The new Yankee Stadium will contain three times as many luxury boxes as the current venue, far surpassing comparable boxes in Fenway Park. The Yankees are building more boxes at the expense of regular seats because the revenue from each box is larger and more consistent. The boxes will sell out and the Yankees will collect revenue whether or not the ticket-holders show up.

General Ticket Sales: Red Sox

The Red Sox have one of the smallest seating capacities of any MLB stadium, while the Yankees have and will have one of baseball’s larger venues. At first glance, it would appear that this is a win for the Yankees, but it may not be. Seats do not generate revenue; people in those seats account for ticket volume and the amount they pay for those seats drives ticket revenue.

Entering the 2008 season, the Red Sox sold out 388 consecutive games-a trend that does not appear to be ending any time soon. The Bombers do not always sell out. They do fill all the seats during big games and weekends, but typically leave thousands of seats empty during weekday contests.

The Red Sox also have the highest ticket prices in baseball and will be raising tickets an additional 9 percent for the 2008 season, according to the Boston Globe. How can the Red Sox charge so much? It is a matter of supply and demand, or scarcity as CNN Money refers to baseball ticket sales.

A team like the Yankees knows it will not sell out every game and therefore must keep prices lower to encourage those price-sensitive fans to come to a mid-week game. The Yankees are controlled by the supply, meaning that in order to optimize revenue, they can only charge as much as the last person is willing to pay.

The Red Sox, on the contrary, have a surplus demand. With more people willing to pay for every game than seats are available, the Red Sox can continue to raise prices until exactly the same amount of people are willing to pay the premium price as there are seats in the stadium. (This is not entirely true because tickets for sporting events and concerts are kept artificially low to allow more people the opportunity to afford the tickets).

Therefore, what revenues the Yankees generate from high ticket sales, the Red Sox match and will arguably surpass with revenues from higher ticket prices.

Concessions: Yankees

The Red Sox charge more for ticket prices, but a team can only charge so much for a beer and a hot dog before fans say “enough” and do not to eat at the game. Since prices are even, concession sales are then dependant primarily on attendance volume. This benefits the Yankees who have a larger stadium and will have more people to potentially purchase concessions.

Local Media Revenue: Yankees

The Yankees received more than $91 million in local media contracts, including $67 million from the YES Network to broadcast games on television, Forbes.com reports. While the organization will not keep all of that money due to the league’s revenue sharing agreements, they still retain a significant share.

The Bronx Bombers benefit from a larger market, as the New York metropolitan region is by far, the most populous in the country. The Yankees also have a higher net worth than the Red Sox and can demand larger contracts. While the Yankees and Red Sox have roughly equal numbers of national fans, the fact that more people live in the New York area benefits the Yankees.

Merchandise Sales: Red Sox

Unfortunately, no census is taken of all Yankees fans and Red Sox fans. ESPN reports that since winning the first of two World Series championships in the past four years, Red Sox merchandise sales have skyrocketed. Sales from Sox and Yankees gear account for more than half of all MLB merchandise revenue. USA Today reports, that when on the road, attendance at the opposing ballparks is about 1,300 fans more when the Red Sox are in town than the Yankees.

There are several other reasons why I give the edge to the Red Sox. First, international sales should be up for the Sox. The New York squad has better name recognition, but the Sox have won the Series more recently and played a pair of games in Japan to begin the season. Second, the Red Sox are not involved in the steroid controversy. Roger Clemens’ jerseys are not flying off the shelves this spring.

The Verdict?

Both teams have a distinct business strategy and both are positioned to perform very well.

The Red Sox, by not building a new stadium and leveraging Fenway’s small seating capacity to produce more ticket revenue, are positioned to yield higher profits and retain more of their earnings.

The Yankees are growing their revenues, but also are incurring costs of higher player salaries and financing a new stadium. They have positioned themselves to generate higher overall revenue to supplement their costs. Each strategy compliments the team’s business model.

Regardless of where they play, the Red Sox-Yankees rivalry will continue, escalating with the advent of October. Yankees fans will learn to love their new stadium and Red Sox fans will continue to fill every seat of every game at Fenway Park. A baseball stadium is, after all, is more than a home-it is the soul of a team and its fans.