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

2. The Texas Deal for Alex Rodriguez
2001 Signing Bonus = 10M
Total: $252M ???

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

4. 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)

5. 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

6. 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

7. 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…

8. A Dynamic Model for Attendance

9. A Dynamic Model for Attendance

10. 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

11. Baseball Data

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

14. Translate Attendance into Revenue Marginal Value of One Win

15. 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!!)

17. 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.