Entertainment and Media: Markets and Economics Contracts Between Talent and Entertainment Producers Appendix: A-Rod Deal

The Texas Deal for Alex Rodriguez 2001 Signing Bonus = 10M 2001 21 2002 21 2003 21 2004 21 2005 25 2006 25 2007 27 2008 27 2009 27 2010 27 Total: $252M ???

The Real Deal Year Salary Bonus Deferred Salary 2001 21 2 5 to 2011 Deferrals accrue interest of 3% per year.

Costs Insurance: About 10% of the contract per year (Taxes: About 40% of the contract) Some additional costs in revenue sharing revenues from the league (anticipated, about 17.5% of marginal benefits – uncertain) Interest on deferred salary - $150,000 in first year, well over $1,000,000 in 2010. (Reduction) $3M it would cost to have a different shortstop. (Nomar Garciaparra)

PDV Using 8% discount factor Accounting for all costs Roughly $21M to $28M in each year from 2001 to 2010, then the deferred payments from 2010 to 2020 Total costs: About $165 Million in 2001

Benefits More fans in the seats Gate – the major component Parking Merchandise Miscellaneous Increased chance at playoffs and world series Sponsorships (Loss to revenue sharing) Franchise value

How Many New Fans? Projected 8 more wins per year. What is the relationship between wins and attendance? Not known precisely Many empirical studies (The Journal of Sports Economics) My own study…

A Dynamic Model for Attendance

A Dynamic Model for Attendance

Baseball Data 31 teams, 17 years (1985-2001; fewer years for 6 teams) Winning percentage: Wins = 162 * percentage Rank Average attendance. Attendance = 81*Average Average team salary Number of all stars Manager years of experience Percent of team that is rookies Lineup changes Mean player experience Dummy variable for change in manager

Baseball Data

The Regression Model to Translate Wins into Attendance i = team, t = year Loyalty effect

Translate Attendance into Revenue Marginal Value of One Win

Marginal Value of an A Rod 8 games * 63,734 fans = 509,878 fans 509,878 fans * $18 per ticket $2.50 parking etc. $1.80 stuff (hats, bobble head dolls,…) $11.3 Million per year !!!!! It’s not close. (Marginal cost is at least $16.5M / year) Increased probability of reaching playoffs times payoff of reaching 7.5% for League Championship * 10M 3.75% for World Series * 10M Total, about $1,000,000 (if they do it every year!!)

The IPN Player A-Rod and Yankees – The Iconic Performance Network Player Attendance rose to 4M in 2005, 4.3M in 2007 MVP in 2005 and 2007 Huge growth in the YES network Seemed certain to break Bonds’ HR record (Asterisk?) New deal: $275M over 10 years Chicago Cubs offer included team ownership. Drug Problems probably derailed this career path.