The City of New York Office of the Comptroller Bureau of Finanacial Audit

Audit Report on the Compliance of the New York Yankees with Their Lease Agreement And Lease Fees They Owe The City
January 1, 1997 to December 31, 2000

FN02-126A
May 30, 2002

EXECUTIVE SUMMARY

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In 1972, the New York Yankees, Inc., and the City’s Department of Parks and Recreation (Parks) entered into a 30-year lease agreement for the rental and use of Yankee Stadium. 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, expires on December 31, 2002, and includes two five-year renewal options. The lease allows 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.

According to the agreement, 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 and all sales taxes before calculating rent payments to the City. For the audit period, January 1, 1997, to December 31, 2000, the Yankees reported gross revenues totaling $416.7 million and paid the City $18.8 million.

The audit’s objectives were to determine whether the Yankees: accurately reported the gross receipts in accordance with the lease agreement; paid the appropriate fees due the City, and whether they paid these fees on time; maintained adequate internal controls over the recording and reporting of their gross receipts; and complied with certain other requirements of their agreement (i.e., maintained the required insurance, and reimbursed the City for its utility use).

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 satisfied the prior audit assessment of $189,879. For the audit period, January 1, 1997, to December 31, 2000, the Yankees reported gross revenues totaling $416.7 million and paid the City $18.8 million in rental fees. The Yankees, however, underreported their revenue by $1,394,110, and overstated the credits that they were entitled to take against revenue by $2,502,968. Consequently, the Yankees owe the City $367,321 in additional fees. Specifically, the Yankees:

• Did not report "Rain-Check" revenue totaling $1,519,149. When a Yankee game is rained-out or canceled, patrons may exchange the tickets for another game to take place within 12 months of the original game date. However, if these tickets are not redeemed, the Yankees do not report the revenue from these sales to Parks. It should be noted that prior to 1990, and for the 1994 baseball season, the Yankees properly included rain-check revenue on their gross rent statements to Parks and paid their fees accordingly. As a result, the Yankees owe the City $123,904.

• Over-reported concession revenue by $125,039. The Yankees report concession revenues based on the books and records of their subcontractor, Volume Services. However, our review of Volume Services’s records indicated that the Yankees over-reported concession receipts by $125,039 for the audit period. Therefore, the Yankees are due a credit of $10,639.

• Overstated Payments to Major League Baseball by $2,285,727. The Yankees are required to make payments called "Revenue-Sharing" to Major League Baseball, and their lease agreement allows the Yankees to deduct these payments from its reported revenues. On their reports to Parks for the audit period, the Yankees deducted $73,225,809 in Revenue Sharing payments, but according to Major League Baseball reports, paid only $70,940,082. Thus, the Yankees over-reported their payments to Parks by $2,285,727, resulting in $206,613 in additional fees due.

• Overstated Insurance Credits of $176,390. The lease allows the Yankees to deduct 25 percent of insurance premiums paid from their rent payments to the City. However, the Yankees did not provide canceled checks or other supporting documentation to substantiate $60,753 in insurance premiums. In addition, the Yankees deducted the total cost of all their property insurance premiums instead of the allocated portion that pertained only to Yankee Stadium, which resulted in an overstated deduction of $115,637. Accordingly, the Yankees owe the City an additional $44,097.

• Deducted Unsupported Concession Credits Totaling $40,851. The lease allows the Yankees to deduct the revenue from "Scorecards" and "Yearbooks" from their concession revenue. For the 1998 and 1999 baseball seasons, the Yankees deducted $40,851––$20,736 in 1998, and $20,115 in 1999––from gross revenues reported to Parks for concession credits without providing supporting documentation to substantiate the deducted amount claimed. As a result, the Yankees owe the City an additional $3,346.

In addition, this audit concluded that the Yankees adhered to certain non-revenue-related requirements of its lease. The Yankees had the required liability insurance that named the City as an additional insured party, the Yankees reimbursed Parks for electricity and for water and sewer use during the baseball season, and the Yankees are complying with the requirements of the American with Disabilities Act.

This audit recommends that the Yankees: pay the City $367,321 for fees due; include all rain-check revenue on their future gross rent revenue statements to Parks; deduct only the actual payments made to Major League Baseball for revenue-sharing; and maintain documentation to substantiate all credits taken from reportable gross receipts. The audit also recommends that Parks ensure that the Yankees comply with the audit’s recommendations.

The Yankees responded that they are in full agreement with the audit’s findings and stated that they will submit a check to Parks for $367,321. Parks responded that it agreed with the audit’s recommendations and has issued a Notice To Cure to the Yankees requesting payment of $367,321 and instructing them to implement the report’s recommendations regarding the proper recording and reporting of revenue.