Follow the Yankees
Despite a solid, early-season winning record, the New York Yankees were selling grandstand and bleacher seats for $5 this week, according to a dispatch on Yahoo. It’s not just because Jeter and A-Rod are on the disabled list and who-knows-who is in the line-up to replace them and some of the other big name stars. Attendance is down, because the average fan just cannot afford the price tags the Yankees envisioned for seating when they formulated plans for their new billion dollar stadium—those $2,500 box seats around home plate, tailored to the Wall Street expense account crowd—have always gone wanting since the new stadium opened in 2009 and now Yankees tickets are always available for online resale at a fraction of face value. The Yankees, meanwhile, are trying to get out from under the salary cap after paying egregiously outlandish salaries to A-Rod and others before the Era of Less took hold. If Average Joe cannot keep up, eventually the guys at the top of the compensation pyramid will make less too.
So what a surprise? After sequestration (government layoffs and layoffs related to government funded programs) and payroll tax increases, we’re told the economy hits another “soft patch.” The stock market likes corporate earnings, but those are boosted by low-labor cost offshore operations and financial alchemy enabled by low interest rates, engineered by government bankers trying to shore up a fragile system. In the latest example, Apple—totally flush with cash—takes out low cost debt to lift its fallen stock price.
But back to the Yankees—their financial model was based on pre-crash assumptions. The big new stadium and All-Star line-up would be supported by high priced tix and food tailored for corporate expense accounts and fans who could buy season tickets from the lucre of refinanced homes and inflated bonuses. When fans didn’t go to games they could watch on the Yankees very own YES network, which cable companies would pay up for through added subscriber fees.
In the new world order, most companies make money by bean counting and that means dropping season tickets and shaving expense accounts. When 90% of the nation’s workforce sees their wages barely keeping up with minimal inflation and the unemployment rate near 8%, the market shrinks for Dads and Moms willing to fork over hundreds of dollars on an excursion with two kids to see Brett Gardener take on the Houston Astros or the Minnesota Twins. And enough with the $8 hot dogs let alone the sushi bar on the mezzanine. The Cable companies still want YES, but they are now in competition with phone companies in a bidding war to keep subscribers—their revenues are down and more people capture entertainment for free over the internet anyway—they are less willing and able to pay for extras in higher cable bills .
So the Yanks follow the lead of other businesses—cutting payrolls and saving on expenses. The players on average will make less and the ticket prices will come down to rational levels or the big ball yard in the Bronx will see more empty seats.
And that’s what’s effectively happening in the real estate world too. The Average Joes can only pay so much in rent or for a house, and the wealthy elite at the top end of the market who make their money ultimately off the Average Joes eventually get hit in their bank accounts too. It’s a slow process, which gnaws away at making big gains and moderates big pay days except for a few, who can play the odd trade right.
For the Yankees, it could be worse. They could be the Mets.
For an irreverent take on the macroeconomic environment, check out GlobeSt.com's Chief Economist authored by Dr. Sam Chandan.