Audit Report on the Compliance of the New York Yankees with Their Lease Agreement

Total Due the City

In 1972, the New York Yankees, Inc., and the City Department of Parks and Recreation (Parks) entered into a 30-year lease agreement for the rental and use of Yankee Stadium. The lease has been extended to December 31, 2005, with five one-year renewal options thereafter to be exercised at the discretion of the Yankees. In March 1973, New York Yankees, Inc., assigned its interest to the New York Yankees Partnership (Yankees). The lease, which is administered by Parks, permits the Yankees exclusive use of Yankee Stadium during the baseball season and permits the Yankees to sell tickets, provide food and souvenir concessions, provide parking for season ticket holders, and provide cable television broadcasts.

This audit assessed the compliance of the Yankees with their City lease agreement. According to the agreement and its amendments, the Yankees are required to pay the City the greater of either an annual minimum rent of $200,000 or a percentage of revenues from gross admission, concessions, wait service, pre-paid parking, and a portion of cable television receipts. The agreement allows the Yankees to deduct payments made to Major League Baseball related to ticket sales and local cable television receipts and all sales taxes, before calculating rent payments to the City. The lease also allows the Yankees to deduct new-stadium-planning costs incurred up to $5 million each year for five years and 25 percent of property insurance premiums for Yankee Stadium from their rent payments. For the audit period, January 1, 2001, to December 31, 2002, the Yankees reported gross revenues totaling $384.4 million and paid the City $9.9 million.

Audit Findings and Conclusions

The Yankees generally adhered to the provisions of their lease agreement with the City and had an adequate system of internal controls over their revenue collection and reporting functions. In addition, the Yankees reimbursed Parks for electricity and for water and sewer use during the baseball season; had the required liability insurance that named the City as an additional insured party and deducted the appropriate amount as a credit; and accurately calculated the sales taxes deducted from reported revenue. The Yankees also paid a prior audit assessment of $367,321.

However, the Yankees underreported their revenue by $9,070,960 and overstated deductions against revenue by $34,489,804. Consequently, the Yankees owe the City $3,599,575 in additional fees, as shown in Table I, which follows.

Schedule of Additional Fees Owed to the City

Audit Recommendations

This audit recommends that the Yankees: pay the City $3,599,575 in additional fees due; ensure that revenue from cable television, concessions, wait-service, and pre-paid parking is accurately reported to the City, and all appropriate fees are paid; ensure that annual paid attendance is accurately reported to the City, and fees are accurately calculated and paid in accordance with the lease agreement; deduct only those payments to Major League Baseball that relate to gross admission receipts and local cable television receipts from their calculation of rent due the City; and include only those new-stadium-planning costs incurred within the calendar year as deductions from rent due.

In addition, we recommend that Parks ensure that the Yankees pay the additional fees recommended in this report and comply with the audit’s recommendations.

In their response, the Yankees agreed with $2,456,592 of the $3,599,575 audit assessment. However, the Yankees did not provide adequate documentation supporting the contention that the remaining $1,142,983 is not due to the City. The specific issues raised by the Yankees and our rebuttals are included within the respective sections of this report.

Parks responded that it requested $173,071 in payment for those issues in the report that the Yankees did not contest at the exit conference. Parks stated that the remaining balance of $3,426,504 for under-reported cable television receipts of $692,529 and overstated deductions for revenue-sharing of $2,733,975 will be addressed after Parks’ legal division has reviewed the Yankees response to the audit. Parks also stated that it would keep the Comptroller’s Office informed of the amounts recovered from the Yankees.