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
These calculations are all presented in detail in sheets 1 and 2 of the attached excel file. Under the conservative scenario the total present value of the 20 year revenues was $162,761,658.66 and under the optimistic scenario it was $298,315,307.69.
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Incremental Cost Analysis from Signing A-Rod Costs were also calculated based on the incremental expenses resulting from signing a star player such as Rodriguez as opposed to just another shortstop. The variables I used to calculate total incremental costs each year were the annual salary over the average pay for a short stop, the signing bonus, the portion of the annual salary deferred for 10 years at 3%, and contract premium at 10% of annual contract value. The case states that Rodriguez’s former salary was below $4 million, so I assumed an average short stop salary of $4 million as opposed to the $3 million the case tells us is the starting salary for a beginning short stop. From the annual salary I deducted the portion deferred for 10 years and the average salary that would’ve been paid for any short stop to arrive at the incremental base annual salary amount for A-Rod. For the portions of the salary deferred for 10 years, I first calculated the net amounts to be paid including the 3% interest the author states that will also be paid.
I considered any other expense mentioned in the case as inevitable regular operating expenses that the team would have to pay for having