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Entertainment and Media: Markets and Economics

Explore the intricate contracts between talent and entertainment producers, focusing on A-Rod's groundbreaking deal with the Texas Rangers and the impact on revenues and fan base. Delve into the economics and market dynamics of baseball contracts, attendance, and revenue generation.

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Entertainment and Media: Markets and Economics

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  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 • 2001 21 • 2002 21 • 2003 21 • 2004 21 • 2005 25 • 2006 25 • 2007 27 • 2008 27 • 2009 27 • 2010 27 • Total: $252M ???

  3. The Real Deal • Year Salary Bonus Deferred Salary • 2001 21 2 5 to 2011 • 2002 21 2 4 to 2012 • 2003 21 2 3 to 2013 • 2004 21 2 4 to 2014 • 2005 25 2 4 to 2015 • 2006 25 4 to 2016 • 2007 27 3 to 2017 • 2008 27 3 to 2018 • 2009 27 3 to 2019 • 2010 27 5 to 2020 • 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

  13. Translate Attendance into RevenueMarginal Value of One Win

  14. 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!!)

  15. 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.

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