A-Rod Case
Rosa Duarte
Fin 500
2/7/2011
A-Rod: Signing the Best Player in Baseball
Executive Summary The possibility of signing Alex Rodriguez in 2000 represented a major opportunity for the Texas Rangers. Rodriguez by 2000 and at just 25 years of age had come a long way in his career. Among his triumphs were becoming just the third player to obtain 40 homeruns and 40 base steals in a year and winning the American League homerun record by a shortstop. Besides his success in the field, he had also developed a very broad appeal among the baseball audience. In addition to considering Alex’s career and appeal when deciding to offer him a contract, Tom Hick’s (chairman of Southwest Sports Group), Mike Cramer (president and COO of Southwest Sports Group), and Doug Melvin (general manager of Texas Rangers) had to thoroughly consider the financial implications of doing so. Throughout this paper, I will perform a simulation financial analysis of the projected benefits and expenses resembling the one that the Ranger’s team had to perform in 2000 to reach their final decision. I will take the reader through an analysis of the total incremental revenues that would be generated by incorporating Alex into the Texas Rangers team discounted to reach present value figures. Following the revenue estimation, I will present the total incremental cost projections considering various data presented about Major League Baseball and the Rangers. This numbers will also be discounted to reflect the present value amount. Finally, I will explain the reasons for arriving at my final recommendations.
Incremental Revenue Projections from Signing A-Rod In the case, it is mentioned that the Rangers team “believed that the right way to examine the financial attractiveness of the contract was only to consider that portion of his salary and insurance premium that would compensate for the extra tangible and intangible benefits he brought to the team”. Thus, I will only consider in my analysis the
Fin 500
2/7/2011
A-Rod: Signing the Best Player in Baseball
Executive Summary The possibility of signing Alex Rodriguez in 2000 represented a major opportunity for the Texas Rangers. Rodriguez by 2000 and at just 25 years of age had come a long way in his career. Among his triumphs were becoming just the third player to obtain 40 homeruns and 40 base steals in a year and winning the American League homerun record by a shortstop. Besides his success in the field, he had also developed a very broad appeal among the baseball audience. In addition to considering Alex’s career and appeal when deciding to offer him a contract, Tom Hick’s (chairman of Southwest Sports Group), Mike Cramer (president and COO of Southwest Sports Group), and Doug Melvin (general manager of Texas Rangers) had to thoroughly consider the financial implications of doing so. Throughout this paper, I will perform a simulation financial analysis of the projected benefits and expenses resembling the one that the Ranger’s team had to perform in 2000 to reach their final decision. I will take the reader through an analysis of the total incremental revenues that would be generated by incorporating Alex into the Texas Rangers team discounted to reach present value figures. Following the revenue estimation, I will present the total incremental cost projections considering various data presented about Major League Baseball and the Rangers. This numbers will also be discounted to reflect the present value amount. Finally, I will explain the reasons for arriving at my final recommendations.
Incremental Revenue Projections from Signing A-Rod In the case, it is mentioned that the Rangers team “believed that the right way to examine the financial attractiveness of the contract was only to consider that portion of his salary and insurance premium that would compensate for the extra tangible and intangible benefits he brought to the team”. Thus, I will only consider in my analysis the