The paper "Texas Rangers and New York Yankees after Signing up a Contract with A-Rod" is a good example of a business case study. Different businesses have alternative goals that they aim at achieving. This is the information that they intend to communicate with the public. Companies’ aims are profit maximization. However, they are expected to report their financial performance to the Securities and Exchange Commission (SEC) as well as the shareholders. In this case, A-Rod stands for Alex Rodriguez; a baseball player. On December 11, 2000 (at 25 years of age) he stopped his contract with Seattle Mariners in order to play for Texas Rangers.
This meant that he was to sign up for a Major League record worth $252 million for a period of 10 years. However, some commentators felt that the deal was unjustified. This is despite the fact that A-Rod had appeared in four All-Star games through his first seven seasons. The owner of Texas Rangers felt that A-Rod was the player that could achieve the teams’ goals of becoming a World Series champion. However, the Rangers club ended with a score of 71-91 during the 2000 season.
This meant that the team did not fulfill its dreams. Consequently, in 2004 the Rangers decided to minimize their losses. By so doing, they traded A-Rod to the New York Yankees. A-Rod was accredited as one of the best baseball players. He was also said to be aggressive and savvy with the game. He emulated his agent, Scott Boras who was a former league baseball player. Boras openly obtained big/ expensive contracts for his clients (such as Rodriguez) from baseball owners.
He defended them claiming that they create stars. The aim of this paper is to analyse the expected financial benefits and the incremental costs of Texas Rangers and New York Yankees after signing up a contract with A-Rod in the year 2000 and 2004 respectively (A-Rod’ s Value Add, 2000). Consider the Texas Rangers 2000 contract for A-Rod: Estimated and expected financial benefits of having A-Rod be a Texas Ranger. Outline your assumptions. From exhibit 1-1 the expected financial benefits are a sum of the revenue obtained at the Ballpark games. The present value of the increase in attendance is calculated by PV= C1 / (1+r)n.
The present value of the 5% increase in attendance was equivalent to $27.16m between 2001 and 2010. On the other hand, the present value of the 10% increase in attendance was $54.32m during the same period. This gives the total present value for a 15% increase in attendance as $81.49m. In order to break-even, there needs to be a 21.2% increase in attendance. The percentage of stadium capacity is 86.2%. This gives the revenue from an increase in attendance at $14.05m.
Therefore, the present value of the expected financial benefits of having A-Rod as a Texas Ranger is $114.96 (A-Rod’ s Value Add, 2000). Some of the assumptions were: The discount rate is 8%, the annual increase in Ticket prices and others was 5%, the average Ticket Prices in 2000 were $18.00, the average Parking and Concessions prices in 2000 were $2.50, the average Merchandise in 2000 was $1.80, the average attendants in 2000 were 35,000, the capacity of the Ballpark at Arlington was 49,200 and the total number of home games were 81 (A-Rod’ s Value Add, 2000).
A-Rod’s Value Add: To The Rangers? To The Yankees? (2000). Retrieved from http://www.sportsillustrated.con.com/luneball/mlb/news/2000/12/11/arod_terms/
Huckabay, G. (2001, December 5). Baseball and Finance: how they relate. The ESPN, p. 1-3.