A-Rod or Bust!

Ilan Bielas | Robert Moras | Justin Pak

Max Phillips | Marissa Sunio

Sports Accounting and FinanceFinal Presentation

April 26, 2016

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.

Contract Details Year Base Salary Signing Bonus

Deferred Compensation Total Value

2001 $21,000,000 $2,000,000   $23,000,0002002 $21,000,000 $2,000,000   $23,000,0002003 $21,000,000 $2,000,000   $23,000,0002004 $21,000,000 $2,000,000   $23,000,0002005 $25,000,000 $2,000,000   $27,000,0002006 $25,000,000     $25,000,0002007 $27,000,000     $27,000,0002008 $27,000,000     $27,000,0002009 $27,000,000     $27,000,0002010 $27,000,000     $27,000,0002011     $5,000,000 $5,000,0002012     $4,000,000 $4,000,0002013     $3,000,000 $3,000,0002014     $3,000,000 $3,000,0002015     $4,000,000 $4,000,0002016     $4,000,000 $4,000,0002017     $4,000,000 $4,000,0002018     $3,000,000 $3,000,0002019     $3,000,000 $3,000,0002020     $3,000,000 $3,000,000

Key AssumptionsSponsorship RevenueTeam 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

83 84 85 86 87 88 89 90 91 92 93 94 950%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

American League Playoff Probability

Games Won

% C

hanc

e of

Mak

ing

the

Play

offs

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

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 league

Sponsorship Revenue

• Increased Attendance will drive additional concession revenue

Increased 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 playoffs

Playoff Revenue

The Alex Rodriguez EffectIncremental Revenues

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

Ticket Sales Sponsorships Playoffs Merchandise Concessions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-$8,000,000

-$6,000,000

-$4,000,000

-$2,000,000

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

Net Cash Flow by Year

Cash flows generally rise each year at the beginning or Rodriguez’s contract peaking in 2006, and diminishing following years.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

Cumulative PV Over TimeAlex Rodriguez con-tract ends and de-ferred compensation payments begin

Sensitivity Analysis & Key RatiosDiscount Rate NPV

6.0% $20,184,9086.5% $20,594,323 7.0% $20,934,336 7.5% $21,211,768 8.0% $21,432,8008.5% $21,603,0419.0% $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.

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.

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!

Appendix

Pro-Forma FinancialsSummary of

AssumptionsCash Flows

Pro Forma Incremental Income StatementFor the Year

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Revenues                    

Incremental Ticket Revenue $24,944,928 $24,026,738 $23,108,548 $22,190,358 $21,272,167 $20,353,977 $19,435,787 $18,517,597 $17,743,730 $17,743,730Expected Playoff Revenue $0 $0 $2,097,152 $3,221,225 $7,146,826 $9,007,199 $9,223,372 $7,673,846 $3,022,315 $1,237,940Incremental Sponorship Revenue $2,525,953 $2,525,953 $2,525,953 $2,525,953 $2,965,249 $2,745,601 $2,965,249 $2,965,249 $2,965,249 $2,965,249Incremental Merchandising Revenue $2,560,701 $2,636,661 $2,712,470 $2,788,076 $2,863,426 $2,938,465 $3,013,134 $3,087,371 $3,176,381 $3,349,387

 Incremental Concessions and Parking Revenue $940,294 $1,015,651 $1,090,858 $1,165,864 $1,240,617 $1,315,060 $1,389,136 $1,462,784 $1,551,087 $1,722,720

Total Revenue $30,971,875 $30,205,003 $31,534,980 $31,891,476 $35,488,285 $36,360,302 $36,026,677 $33,706,847 $28,458,761 $27,019,026

Expenses                    Incremental A-Rod Pay $22,300,000 $21,929,422 $21,513,069 $21,045,285 $24,919,718 $22,129,230 $23,665,801 $22,920,421 $22,082,968 $21,142,068

  Revenue Sharing $4,988,986 $4,805,348 $4,621,710 $4,438,072 $4,254,433 $4,070,795 $3,887,157 $3,703,519 $3,548,746 $3,548,746Total Expenses $27,288,986 $26,734,770 $26,134,779 $25,483,357 $29,174,152 $26,200,025 $27,552,958 $26,623,941 $25,631,714 $24,690,814Operating Income $3,682,890 $3,470,233 $5,400,201 $6,408,119 $6,314,133 $10,160,277 $8,473,719 $7,082,906 $2,827,047 $2,328,212

For the Year2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenues                    Incremental Ticket Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Expected Playoff Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Incremental Sponorship Revenue $274,560 $219,648 $164,736 $164,736 $219,648 $219,648 $219,648 $164,736 $164,736 $164,736Incremental Merchandising Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

 Incremental Concessions and Parking Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Revenue $274,560 $219,648 $164,736 $164,736 $219,648 $219,648 $219,648 $164,736 $164,736 $164,736

Expenses                    Incremental A-Rod Pay $7,219,582 $5,775,666 $4,331,749 $4,331,749 $5,775,666 $5,775,666 $5,775,666 $4,331,749 $4,331,749 $4,331,749

  Revenue Sharing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Expenses $7,219,582 $5,775,666 $4,331,749 $4,331,749 $5,775,666 $5,775,666 $5,775,666 $4,331,749 $4,331,749 $4,331,749Operating Income -$6,945,022 -$5,556,017 -$4,167,013 -$4,167,013 -$5,556,017 -$5,556,017 -$5,556,017 -$4,167,013 -$4,167,013 -$4,167,013

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 )

Cash FlowRevenues Costs

Number Year

Incremental Ticket

Revenue

Incremental Sponsorship

Revenue

Expected Playoff

Revenue

Incremental Merchandising

Revenue

Incremental Concessions and Parking

Revenue

Total Revenue

Cash FlowCash Paid to

A-RodAverage SS

SalaryIncremental A-Rod Pay

Net Cash Flow

PV of Cashflow

Total Incremental

Ticket Revenue

1 2001 $19,955,942 $2,525,953 $0 $2,560,701 $940,294 $25,982,890 $25,300,000 $3,000,000 $22,300,000 $3,682,890 $3,410,083 $24,944,9282 2002 $19,221,390 $2,525,953 $0 $2,636,661 $1,015,651 $25,399,655 $25,300,000 $3,370,578 $21,929,422 $3,470,233 $2,975,165 $24,026,7383 2003 $18,486,838 $2,525,953 $2,097,152 $2,712,470 $1,090,858 $26,913,271 $25,300,000 $3,786,931 $21,513,069 $5,400,201 $4,286,854 $23,108,5484 2004 $17,752,286 $2,525,953 $3,221,225 $2,788,076 $1,165,864 $27,453,404 $25,300,000 $4,254,715 $21,045,285 $6,408,119 $4,710,159 $22,190,3585 2005 $17,017,734 $2,965,249 $7,146,826 $2,863,426 $1,240,617 $31,233,851 $29,700,000 $4,780,282 $24,919,718 $6,314,133 $4,297,293 $21,272,1676 2006 $16,283,182 $2,745,601 $9,007,199 $2,938,465 $1,315,060 $32,289,506 $27,500,000 $5,370,770 $22,129,230 $10,160,277 $6,402,698 $20,353,9777 2007 $15,548,630 $2,965,249 $9,223,372 $3,013,134 $1,389,136 $32,139,520 $29,700,000 $6,034,199 $23,665,801 $8,473,719 $4,944,334 $19,435,7878 2008 $14,814,078 $2,965,249 $7,673,846 $3,087,371 $1,462,784 $30,003,327 $29,700,000 $6,779,579 $22,920,421 $7,082,906 $3,826,674 $18,517,5979 2009 $14,194,984 $2,965,249 $3,022,315 $3,176,381 $1,551,087 $24,910,015 $29,700,000 $7,617,032 $22,082,968 $2,827,047 $1,414,227 $17,743,73010 2010 $14,194,984 $2,965,249 $1,237,940 $3,349,387 $1,722,720 $23,470,280 $29,700,000 $8,557,932 $21,142,068 $2,328,212 $1,078,413 $17,743,73011 2011 $0 $274,560 $0 $0 $0 $274,560 $7,219,582  $7,219,582 -$6,945,022 -$2,978,601 $012 2012 $0 $219,648 $0 $0 $0 $219,648 $5,775,666  $5,775,666 -$5,556,017 -$2,206,371 $013 2013 $0 $164,736 $0 $0 $0 $164,736 $4,331,749  $4,331,749 -$4,167,013 -$1,532,202 $014 2014 $0 $164,736 $0 $0 $0 $164,736 $4,331,749  $4,331,749 -$4,167,013 -$1,418,706 $015 2015 $0 $219,648 $0 $0 $0 $219,648 $5,775,666  $5,775,666 -$5,556,017 -$1,751,488 $016 2016 $0 $219,648 $0 $0 $0 $219,648 $5,775,666  $5,775,666 -$5,556,017 -$1,621,749 $017 2017 $0 $219,648 $0 $0 $0 $219,648 $5,775,666  $5,775,666 -$5,556,017 -$1,501,619 $018 2018 $0 $164,736 $0 $0 $0 $164,736 $4,331,749  $4,331,749 -$4,167,013 -$1,042,791 $019 2019 $0 $164,736 $0 $0 $0 $164,736 $4,331,749  $4,331,749 -$4,167,013 -$965,547 $020 2020 $0 $164,736 $0 $0 $0 $164,736 $4,331,749  $4,331,749 -$4,167,013 -$894,025 $0

Total $21,432,800