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 A-Rod 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 DoorPlayer Contract Value Negative AttributeMoises Alou 1 year: $8.5 million 40 years oldBarry Bonds 1 year: $15.8 million 39 years oldJ.D. Drew 5 year: $70 millionJim Edmonds 2 year: $19 million 37 years oldOrlando Hernandez 2 year: $12 million 39 years oldCarlos Lee 6 year: $100 millionTed Lilly 4 year: $40 million 59-58 career recordGreg Maddux 1 year: $10 million 40 years oldGarry Matthews Jr. 5 year: $50 million Tested Positive for SteroidsGill Meche 5 year: $55 millionMike Mussina 2 year: $23 million 38 years oldAramis Ramirez 5 year: $75 millionJason Schmidt 3 year: $47 millionAlfonso Soriano 8 year: $136 millionFrank Thomas 2 year: $18 million 38 years oldBarry Zito 7 year: $126 million 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 Team Current Value1 ($mil) 1-Yr Value Change (%) Debt/Value2 (%) Revenues ($mil) Operating Income3 ($mil)

1 New York Yankees 1026 8 12 277 -502 Boston Red Sox 617 10 39 206 -18.53 New York Mets 604 20 42 195 -16.14 Los Angeles Dodgers 482 14 87 189 13.45 Chicago Cubs 448 12 0 179 7.96 Washington Nationals 440 42 27 145 27.97 St Louis Cardinals 429 16 47 165 7.98 Seattle Mariners 428 3 23 179 7.39 Philadelphia Phillies 424 8 42 176 14.8

10 Houston Astros 416 17 13 173 30.211 San Francisco Giants 410 8 37 171 11.212 Atlanta Braves 405 6 7 172 27.613 L.A Angels 368 25 10 167 -2.614 Baltimore Orioles 359 5 42 156 2115 San Diego Padres 354 8 56 158 1316 Texas Rangers 353 8 45 153 24.717 Cleveland Indians 352 10 28 150 34.618 Chicago White Sox 315 20 11 157 21.719 Arizona Diamondbacks 305 7 79 145 21.820 Colorado Rockies 298 3 30 145 16.321 Detroit Tigers 292 22 73 146 3.522 Toronto Blue Jays 286 34 0 136 29.723 Cincinnati Reds 274 8 15 137 17.924 Pittsburgh Pirates 250 15 44 125 21.925 Kansas City Royals 239 28 15 117 20.826 Milwaukee Brewers 235 13 51 131 22.427 Oakland Athletics 234 26 38 134 1628 Florida Marlins 226 10 31 119 -11.929 Minnesota Twins 216 21 42 114 730 Tampa Bay Devil Rays 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?