A-Rod
Case Study
Daniel O’Reilly
Cambria Wallrich
Chicago Tribune Company
• Sold to Media mogul
Sam Zell for $8.2
billion.
• Tribune company
purchased Cubs in
1981 for $20.5
million.
• Today’s estimated
value of $600 million
How much have they
appreciated?
• Worth $247 million
in 2001, worth $600
million today
• A. 15.94%
• B. 14.22%
• C. 12.86%
• D. 18.27%
Answer:
•
•
•
•
•
PV= -247
FV= 600
PMT= 0
N= 6
CPT= I/Y
• 15.94%
A-Rod Biography
• Born in the Washington
Heights section of NYC
• Moved to Dominican
Republic at age 4, Miami
at age 7
• Star shortstop at
Westminster Christian
High School in Miami
• .419 average, 90 steals
• USA Baseball Junior
Player of the Year &
Gatorade’s national
baseball student athlete
of the year
A-Rod Biography (cont.)
• A-Rod turned down a
scholarship at Miami
of Ohio to become
eligible for the
amateur draft at 17
• Drafted first overall by
Seattle Mariners
• Major League debut
as shortstop- July 8,
1994 vs. Boston
Intro to the case:
A-Rod
• In Dec. 2000 A-Rod is a
free agent
• Texas Rangers want to
make an offer for a 10
year contract to leave the
Mariners
The Rangers
• 1971 Washington
Senators moved to
Arlington, Texas and
renamed the Rangers
• The Ballpark at
Arlington holds 49,200
fans per game
• The Rangers play 81
home games per
season
• Plan: Spend
considerable
resources to get ARod to improve
quality of the team
and risk short term
losses
• Long Run: A
championship team
would be in place to
boost profits and
franchise value as
well as attendence
• The Contract: 10
year, $252 million,
$10.2 million above
the next highest paid
player Kevin Brown at
$15 million
• Salary paid in a base
rate plus signing
bonus of $10 million
paid over 5 years
• Portion of
compensation
deferred for 10 years
at 3%
How A-Rod Opened the Door
Player
Contract Value Negative Attribute
Moises Alou
Barry Bonds
J.D. Drew
Jim Edmonds
Orlando Hernandez
Carlos Lee
Ted Lilly
Greg Maddux
Garry Matthews Jr.
Gill Meche
Mike Mussina
Aramis Ramirez
Jason Schmidt
Alfonso Soriano
Frank Thomas
Barry Zito
1 year: $8.5 million
1 year: $15.8 million
5 year: $70 million
2 year: $19 million
2 year: $12 million
6 year: $100 million
4 year: $40 million
1 year: $10 million
5 year: $50 million
5 year: $55 million
2 year: $23 million
5 year: $75 million
3 year: $47 million
8 year: $136 million
2 year: $18 million
7 year: $126 million
40 years old
39 years old
37 years old
39 years old
59-58 career record
40 years old
Tested Positive for Steroids
38 years old
38 years old
highest paid pitcher ever
Money Ball
• Oakland A’s: $26 million payroll
– Won 102 games
• Doug Pappas:
– Minimum Payroll- $7 million
– Minimum Victories- 49 games
– Measure of financial efficiency- how much
do you pay for each additional win?
– Oakland: $500,000
Texas: $3,000,000
What are teams worth today?
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Team
New York Yankees
Boston Red Sox
New York Mets
Los Angeles Dodgers
Chicago Cubs
Washington Nationals
St Louis Cardinals
Seattle Mariners
Philadelphia Phillies
Houston Astros
San Francisco Giants
Atlanta Braves
L.A Angels
Baltimore Orioles
San Diego Padres
Texas Rangers
Cleveland Indians
Chicago White Sox
Arizona Diamondbacks
Colorado Rockies
Detroit Tigers
Toronto Blue Jays
Cincinnati Reds
Pittsburgh Pirates
Kansas City Royals
Milwaukee Brewers
Oakland Athletics
Florida Marlins
Minnesota Twins
Tampa Bay Devil Rays
Current Value1 ($mil)
1-Yr Value Change (%)
Debt/Value2 (%)
Revenues ($mil)
Operating Income3 ($mil)
1026
8
12
277
-50
617
10
39
206
-18.5
604
20
42
195
-16.1
482
14
87
189
13.4
448
12
0
179
7.9
440
42
27
145
27.9
429
16
47
165
7.9
428
3
23
179
7.3
424
8
42
176
14.8
416
17
13
173
30.2
410
8
37
171
11.2
405
6
7
172
27.6
368
25
10
167
-2.6
359
5
42
156
21
354
8
56
158
13
353
8
45
153
24.7
352
10
28
150
34.6
315
20
11
157
21.7
305
7
79
145
21.8
298
3
30
145
16.3
292
22
73
146
3.5
286
34
0
136
29.7
274
8
15
137
17.9
250
15
44
125
21.9
239
28
15
117
20.8
235
13
51
131
22.4
234
26
38
134
16
226
10
31
119
-11.9
216
21
42
114
7
209
19
17
116
20.3
Question:
• What effect has the
Alex Rodriguez had?
Texas pays $67 in
buy out.
• Texas Rangers value
increased from $342
million to $353 million
• What rate did they
increase?
•
•
•
•
A. 5.3%
B. 1.2%
C. .53%
D. 2.1%
Answer:
•
•
•
•
•
PV= - $342 million
FV= $353 million
PMT= 0
N= 6
CPT= I/Y
• 0.529%
Conclusion:
• Do you think the $252
million offer was justified?
• What would you offer A-Rod
today?