Audit Report On The Compliance Of The New York Yankees With Their Lease Agreement

AUDIT REPORT IN BRIEF

In 1972, the New York Yankees, Inc., and the New York City Department of Parks and Recreation (Parks) entered into a 30-year lease agreement for the rental and exclusive use of Yankee Stadium during the baseball season. In March 1973, New York Yankees, Inc., assigned its interest to the New York Yankees Partnership (Yankees). The lease agreement, which is monitored by Parks, has been extended to December 31, 2008. The agreement allows the Yankees to sell tickets and provide food and souvenir concessions and restaurant and catering services for five restaurants, 19 luxury suites, and 15 “Hall of Fame” suites. The Yankees are permitted to offer parking for season-ticket holders, broadcast baseball games on cable television, and conduct post-season baseball games, if applicable. The agreement also allows the Yankees to operate or subcontract the concessions. The Yankees subcontract their concessions, which include the stadium’s restaurants, catering, and souvenir operations.

The agreement requires the Yankees to pay the City the greater of either an annual minimum rent of $200,000 or a percentage of revenues from gross admission, concessions, and wait service. The Yankees are also required to pay the City fees from a portion of cable television receipts and prepaid parking. The agreement allows the Yankees to deduct payments to Major League Baseball and all sales taxes before calculating rent payments to the City. It also allows the Yankees to deduct from their rent payments new-stadium-planning costs incurred up to $5 million each year for eight years (2001 to 2008) and 25 percent of property insurance premiums for Yankee Stadium.

The audit’s objectives were to determine whether the Yankees:

• accurately reported their gross receipts in accordance with the lease agreement,




• paid the appropriate fees due the City, and whether they paid these fees on time,
• submitted the appropriate allowable new-stadium-planning costs under the eight and tenth amendments of the lease, and
• complied with certain other requirements of their agreement (i.e., maintained the required insurance, and reimbursed the City for its utility use).

Audit Findings and Conclusions

Our audit found that the Yankees owe the City $11,388,155 in additional rent resulting from the inappropriate deduction of $9,035,636 in new-stadium-planning costs from their 2006 rent payment to the City and a total of $2,352,519 consisting of the improper inclusion of $860,595 in the new-stadium-planning costs submitted to the City in 2005, and the understatement of $27,900,230 in gross revenue reported to the City from 2003 through 2006 that resulted in additional fees of $1,491,924.

The Yankees submitted their Rent Statements and related payments to the City on time and generally adhered to the other non-revenue requirements of their lease agreement with the City, such as maintaining the required property and liability insurance that named the City as an additional insured party and reimbursing the City for their annual electricity, water, and sewer use. In addition, the Yankees paid the prior audit assessment of $3,559,575.

Audit Recommendations

We make six recommendations, that the Yankees:

• Pay the City the balance of $6,388,155 representing the difference between the $11,388,155 assessed by our audit and the $5,000,000 in principal paid on March 10, 2008.
• Ensure that revenue from gross admissions, cable television, concessions, and wait-service is accurately reported to the City and that all appropriate fees are paid.
• Correctly allocate payments to Major League Baseball that relate to gross admission receipts and local cable television receipts in their calculation of rent due the City.
• Submit only appropriate and allowable credits for new-stadium-planning costs that are deducted from rent due.

We recommend that Parks ensure that:

• The Yankees pay the remaining $6,388,155 in additional fees recommended in this report and comply with the audit’s other recommendations.
• The Yankees submit the proper documentation in support of any credit claim against rent payment to the City.

Discussion of Audit Results

We received written responses from the Yankees and Parks on October 16, 2008. In their response, the Yankees agreed with the report findings and agreed to pay Parks the $11,388,155. At the conclusion of our audit fieldwork, the Yankees paid $5,000,000 (plus an additional $635,132 in interest) and agreed to pay the remaining $4,035,636 on March 10, 2009. Subsequent to the written responses from the Yankees and Parks, we received a copy of a check for $2,352,519 paid by the Yankees to Parks.