1. A-Rod or
Bust!
Ilan Bielas | Robert Moras | Justin Pak
Max Phillips | Marissa Sunio
Sports Accounting and Finance
Final Presentation
April 26, 2016
2. Introduction
• Alex Rodriguez is a MLB
Professional Baseball Player
• Drafted to Seattle Mariners in 1993
• 5 successful years in Seattle
• 4/5 years had batting average
over .300
• 184 Home Runs
• 574 RBIs
• 126 Stolen Bases
• At the end of the 2000 season with
Seattle, A-Rod was offered a
contract with the Texas Rangers
Our objective was to assess the financial impact of signing Alex
Rodriguez to the largest contract in MLB History at the time.
4. Key Assumptions
Sponsorship Revenue Team Player Payroll Local Revenue
Payroll as a % of
Local Revenue
Sponsorship
Revenue
Sponsorship as a Pct
of Player Payroll
Yankees $92,538,260 $190,283,600 49% $17,125,524 19%
Mets $79,509,776 $152,442,000 52% $13,719,780 17%
Braves $84,537,836 $135,169,500 63% $12,165,255 14%
Indians $75,880,971 $134,611,800 56% $12,115,062 16%
Gians $53,737,826 $96,882,400 55% $8,719,416 16%
Mariners $58,915,000 $117,140,100 50% $10,542,609 18%
Dodgers $88,124,268 $116,725,700 75% $10,505,313 12%
Rangers $70,795,921 $110,561,000 64% $9,950,490 14%
Red Sox $77,940,333 $112,752,900 69% $10,147,761 13%
Orioles $81,447,435 $113,832,000 72% $10,244,880 13%
Astros $51,289,111 $88,350,600 58% $7,951,554 16%
Tigers $58,265,167 $79,728,000 73% $7,175,520 12%
Rockies $61,111,190 $106,951,800 57% $9,625,662 16%
Cubs $60,539,333 $97,900,400 62% $8,811,036 15%
Cardinals $61,453,863 $93,593,500 66% $8,423,415 14%
Diamondbacks $81,027,333 $98,080,900 83% $8,827,281 11%
Angels $51,464,167 $68,628,800 75% $6,176,592 12%
White Sox $31,133,500 $66,023,800 47% $5,942,142 19%
Padres $54,821,000 $60,732,000 90% $5,465,880 10%
Devil Rays $62,765,129 $70,405,800 89% $6,336,522 10%
Blue Jays $46,238,333 $54,764,600 84% $4,928,814 11%
Phillies $47,308,000 $52,905,600 89% $4,761,504 10%
Reds $46,867,200 $45,435,200 103% $4,089,168 9%
Athletics $31,971,333 $40,263,300 79% $3,623,697 11%
Royals $23,433,000 $39,058,800 60% $3,515,292 15%
Pirates $28,928,333 $36,396,800 79% $3,275,712 11%
Brewers $36,505,333 $38,140,800 96% $3,432,672 9%
Marlins $20,072,000 $40,716,500 49% $3,664,485 18%
Twins $16,519,500 $19,662,000 84% $1,769,580 11%
Expos $34,807,333 $13,205,500 264% $1,188,495 3%
75th Percentile 15.7%
• Sponsorship Revenue makes up between
8-10% of Local Revenue (we assumed
9% across the league)
• In order to calculate sponsorship revenue
tied to a specific player, we use
sponsorship revenue as a percentage of
player payroll (SaaPoP) as a proxy metric
• Since Texas is a large market team, and
Alex Rodriguez is a marquee free agent,
the league 75th percentile of SaaPoP is
used to measure the sponsorship revenue
that the Rangers would receive from
signing him
5. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
83 84 85 86 87 88 89 90 91 92 93 94 95
%ChanceofMakingthePlayoffs
Games Won
American League Playoff Probability
Year Projected Wins
% Chance to
Make playoffs
ALCS Additional
Rev
(2 of 4 teams)
WS Additional
Rev
(2 of 8 teams)
2001 82 0% $- $-
2002 85 0% $- $-
2003 87 20% $1,048,576 $1,048,576
2004 89 30% $1,610,613 $1,610,613
2005 90 65% $3,573,413 $3,573,413
2006 91 80% $4,503,600 $4,503,600
2007 91 80% $4,611,686 $4,611,686
2008 90 65% $3,836,923 $3,836,923
2009 88 25% $1,511,157 $1,511,157
2010 86 10% $618,970 $618,970
Postseason Dollars = % chance to make Playoffs * Value of Postseason Kicker
Playoff Kicker (given) = $10M for reaching ALCS; $20M for reaching WS
Playoff Win Assumptions
1. Gaines, Cork Chart of the Day: What It Takes to Make the Playoffs in Baseball, BusinessInsider.com, April 21, 2011
6. Incremental Revenue Sources
• Alex Rodriguez will increase attendance at Rangers games
• Average ticket prices will increase by 25%Increased Ticket Sales
• The marketability of Alex Rodriguez will drive sponsorship revenue at one
of the top rates in the leagueSponsorship Revenue
• Increased Attendance will drive additional concession revenueIncreased Concessions
• Merchandise spend from signing a marquee free agent will increase by 40%
• Additional attendance will also drive salesMerchandise
• Alex Rodriguez will contribute at least 8 additional wins furthering the
team’s chances at making a deep run in the playoffsPlayoff Revenue
10. Sensitivity Analysis & Key Ratios
Discount Rate NPV
6.0% $20,184,908
6.5% $20,594,323
7.0% $20,934,336
7.5% $21,211,768
8.0% $21,432,800
8.5% $21,603,041
9.0% $21,727,577
9.5% $21,811,023
10.0% $21,857,566
Key Business Ratios
ROI 2.2%
IRR -1%
Sensitivity Analysis shows that the positive cash flows from each year of
Alex Rodriguez’s contract will always result in a positive NPV.
11. Non-Financial Considerations
Commitment to
Winning
Ability to Sign and
Keep Future FA
Raise Franchise
Value by $100-
200M
Improved Team
Image
Increased
Franchise Visibility
Negotiate Future
Projects, including
New Practice
Facility
Increase Hispanic
Fan Base
There are many Non-Financial benefits to signing Alex Rodriguez.
12. Is He Worth It?
• During his 10 years playing on the
team, the Rangers can pay A-Rod’s
contract and still have a positive cash
flow every year due to increases in
ticket sales/prices, concessions,
parking, merchandise, and
sponsorships
• NPV of contract is $21,432,800
• ROI is only 2.2%
The combination of making the numbers work and the positive non-financial
benefits make the signing of Alex Rodriguez a no-brainer!
15. Summary of Other Assumptions
Assumption Consideration
Increase in
Attendance
• First year buzz will bring attendance levels to
similar level as first year in new stadium
• As buzz wears off, attendance will drop by 1% a
year until it reaches the stadium average of 74%
Ticket Price
• Increase in Wins, and demand to see better team
will raise prices by 25% initially
• Prices will increase by inflation
Inflation • 2.40% which is the 3 year average from 1998-2000
Merchandise
• 40% increase in merchandise spending due to
increase demand to purchase Alex Rodriguez
jerseys
Sponsorship Margins • Industry standard of 70%
Discount Rate • 8.0%
Marginal Revenues • Compared to 2000 season revenues
Average Shortstop
Salary
• Average Shortstop Salary of $3,000,000 in 2000
• Salary increases by 12.35% a year (3 Year CAGR )