'It's about controlling your dollar': The inside story of how the New York Yankees and the Dallas Cowboys became the most valuable franchises in sport.
- The Dallas Cowboys and the New York Yankees are the two most valuable franchises in sport, with Forbes valuing them at $5 billion and $4.6 billion respectively.
- Markets Insider investigated out how the two franchises came to be so dominant in the world of sport, with an exclusive interview with Randy Levine, New York Yankees president.
- View Markets Insider for more stories.
With a combined value of $9.6 billion the Dallas cowboys and the New York Yankees have become the biggest franchises in sport, dwarfing any other NFL, MLB or soccer team in the world.
In fact, they're so huge that the New Orleans Saints, Jacksonville Jaguars, Liverpool FC and LA clippers combined don't add up to the value of the Yankees and Cowboys.
But, what's weird is that neither team have been that successful on the field, recently. An ordinary person would think that the best teams are the most valuable but the Cowboys last won a Superbowl in 1996, and the Yankees a World Series in 2009.
But commercially, both seem to be scoring aplenty. The Cowboys are the only team worth $5 billion dollars currently, with the Yankees not far off at $4.6 billion, far bigger than any of their rivals in terms of value.
Markets Insider spoke exclusively to the Yankees President Randy Levine, sports economists, and marketing experts to understand how the two franchises separated commercial and sporting success to position themselves at the top of global sport.
Becoming a global brand
The first thing to note about both the Yankees and the Cowboys is that - obviously - they are huge global brands. The Yankees "NY" brand is recognizable world over, while the Cowboys even have a TV show just for their cheerleaders.
"The Yankees are historical here in the United States and all over the world, only because it has an unparalleled history. That's basically blended into American culture," says the Yankees' Levine.
Levine says that part of the Yankees success has one being a good team but also keeping a constant identity. "We've had the same uniforms, and they're very famous - the pinstripes the interlocking NY, it's seen all over the world. It's this culture that has stayed a very long time, and you see it all over the world in places like Japan, Central America and London.
"The brand is something that we believe stands for excellence and a winning tradition. And that's something that we every day work very, very hard to encourage and make sure that it's protected," said Levine.
It's this brand development and recognition that marketing experts say is one of the reasons the Yankees stay on top. "Both the Yankees and Cowboys were very astute with business," said Emilio Collins, chief business officer at Excel Sports Management, in a phone call.
"The Yankees especially have a big celebrity following with the likes of Jay Z and Denzel Washington that associate with the brand, which helps ingrain the franchise in popular culture and add value," said Collins.
The Cowboys likewise put branding at the forefront of their business. "Dallas was the first team in the United States to basically go all-in on its stadium," says Victor Matheson, professor of economics at the College of the Holy Cross in Worcester, Massachusetts, who specialises in sports economics.
"They built what some people refer to as 'Jerry world,' but it was the first billion-dollar stadium in the United States. And they made this the greatest palace and monument to professional sports in the United States is that had ever seen," he adds. That's a reference to Jerry Jones, the Cowboys' owner. Jones bought the franchise in 1989 for $140 million. Since then he's put a lot of money and time into the Cowboys, so much so that he's revered amongst Dallas football fans. His AT&T stadium cost $1.2 billion to build.
"There are hundreds of restaurants, museums, and luxury sites that get people to spend. Unlike the old stadium where you got a beer, popcorn, here there is everything under the sun catering to 100,000 fans in the stadium.
"And this is the stadium that is now being emulated by other people now, because they built this first stadium to generate as much money and the whole point of that stadium is to figure out every single way that you can part a fan with their dollars."
Emilio Collins added to this saying that Jones was the first to really understand the power of the Cowboys brand.
"Jerry had a good sense for entertainment, making cheerleaders was widely popular move, and it's these decisions that help them brand as America's team."
Collins said that it was Jones' awareness of how to do business - first carving out their own merchandising agreement, the only independent in the NFL to do so - and also with sponsorships, and then also the value of sponsorships, landing three times as more in Dallas than the NFL average, put them aside from the rest.
"Jerry had the vision to do things differently - the Cowboys are very focused on their female fans as they account for 44% of NFL fans - so created their partnership with Victoria Secret Pink signifies that," said Collins.
Knowing your market
One thing to note that may be quite obvious is that both teams are American, and that's no coincidence.
With soccer having more fans worldwide, some may expect Manchester United or FC Barcelona to top the list, but Forbes' top 50 sports teams is predominantly American. In fact only eight of the 50 are from Europe.
"The No.1 thing that is a huge deal is in the United States, the professional sports are closed leagues rather than open," said Matheson.
Matheson explains that "open" leagues such as the English Premier League, where teams can be promoted or relegated, actually act as a bar for investors to put their cash into a franchise, because the team may not be there the year after.
Comparatively, if an owner buys an NFL franchise they have a team in the most lucrative league in the world for life. So when Terry and Kim Pegula bought the Bills in 2014 for $1.1 billion, it was a much safer investment compared to Chinese group Fosun International buying Wolverhampton Wanderers - in the English Premier League - for £45 million ($54.5 million.)
Matheson also notes: "In closed leagues, in the United States, the existing owners get to decide who the new owners will be, and have a huge amount of say about where those pieces are going to locate. What that does for the teams is give them a huge amount of local monopoly power."
For Dallas, which has a metropolitan area of seven million, the Cowboys have total control over their market in which they sell to. This only helps when Dallas isn't competing with other sports, given the popularity for other sports like MLB or NBA in the city isn't comparable.
As Matheson notes: "Texas, is the place in the country that loves football."
Comparatively, the Yankees do have competition in New York. There's another baseball team, NBA teams, football teams, ice hockey and two soccer teams.
But, Matheson says that's not a problem. "There's only one other baseball team there in New York, the Mets, and there's no other professional baseball teams, you know, big, big league teams within 200 miles either direction. So it gives the Yankees this gigantic monopoly on their local markets, way more than you see in Madrid, or London or the European leagues."
Rights sharing?
Obviously bringing people into the stadium is one thing, but income from television rights has been one of the major income streams for NFL and MLB teams - and having a market monopoly really boosts income when it comes to TV rights.
Take the example of the Yankees, their monopoly of the area helped develop a revenue stream now used by all other professional baseball teams - the YES network.
"We created a model which everybody has tried to replicate, but nobody has done it as well," said the Yankees President.
"It's the most-watched regional sports network in the world, most successful in the world, and we're in the process of buying it back along with Amazon and Sinclair Broadcasting who is making a big investment into sports," Levine said.
According to Forbes, the Yankees local revenue (media and ballpark) was the highest in the league - $712 million. In a separate Forbes piece, analysts said that YES creates about $400 million in revenue in EBITDA, with a good portion of that going back to the Yankees.
How YES works is fairly simple, unlike the NFL, baseball teams own the rights to distribute their games and sell that on. The YES networks means that people who watch the Yankees go directly to the Yankees to watch their games and so revenues stay in-house.
Under half of TV rights revenue is shared across the MLB so, the fact that the Yankees have a potential market of 20 million people who have to go to the Yankees directly basically gives them a monopoly of people wanting to watch Yankees baseball.
"You got to control your product and your content that's the key," says Levine.
The Cowboys on the other hand benefit from the NFL's sharing of TV rights. "In the National Football League, every single game in the NFL is being sold and marketed by the league, not by the teams," says Matheson.
Adding, "The league takes all of those TV revenues and then equally divides the revenues and gives it back to all of the teams in the league and even share."
What this means is that the Cowboys get is the exact same amount as the Bills or the Bengals. But while it might not seem fair as more may tune in to a Patriots game than a Packers one, the income for each team alone is $255 million a year from the league's revenue sharing system. It's this system that puts American teams at the top of revenue, because even the smallest teams are earning millions from TV rights.
Diversify your revenue streams
The other major point to make is both teams looked outside of NFL and baseball, and actually did it working together through their joint venture of the "Legends" hospitality suites.
Both teams were building their new stadiums at the same time and felt that there used to be a lot of concession and merchandising companies which were expensive and didn't offer a great service. "That's how they made their money back the understand the old adage, you know, warm beer and cold hot dogs," said Levine.
"So we decided to be partners, us, the Cowboys, and originally Goldman Sachs, and we built our own company, with a a fundamental message of it was you are part of a company, but you control your own venue, you decide what's the best food,you decide how you want how you want to run it. Today, Legends has become really, really successful," added the Yankees President.
What Legends does is offer premium seating in stadiums and also other venues like the Freedom Tower in New York as a hospitality venture. In doing so seats which say wen for $30 before now can go up for up to $10,000 - a major mark up compared to an ordinary seat at the baseball.
Legends now is in stadiums all across the world, Manchester City FC, Roma FC, Wimbledon, The Los Angeles Stadium to name a few. Essentially what this means is a seat sold in Manchester or Rome will result in income for the Dallas Cowboys.
The Yankees also are partners with Hard rock cafe, and New york City football club, again meaning the baseball isn't the only thing the Yankees count on for income. While the Cowboys have their own partnerships, bringing soccer to the AT&T stadium is just one of those signing a partnership with the Mexican soccer team in June.
As Levine said "It's about controlling your product and your dollar", and that's exactly what both franchises have done. Identify what made their product special and took ownership of it - to the tune of millions of dollars in revenue.
For both teams, this process is still ongoing, and despite no trophies in sight just yet, it still does seem that they are both well on their way to their next financial win.