A-Rod: Signing the Best

Player in Baseball
Group 1

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Members
M10218001 Xenia Peng
M10221804 Emily Hong
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M10218025 David Huang

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M10218007 Alan Hsu

F10208009 Charis Cheng
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 1. What is the pre-tax present value of the incremental costs if signing A-Rod?

PV of Incremental Cost : $150,884,569

2. How many extra tickets do you expect the Rangers to sell each year if they sign A-
Rod? What is the pre-tax present value of those additional spectators?
Formula: Y = 32,706 X (win more 8 games, X= 8)

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Rangers can get more 261,648 attendances if it signs A-Rod.

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Rangers can get more $46,516,126 (net present value) from local revenue
including ticket sales, Parking fee, Merchandise.
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3. What is the change in the probability of the Rangers of participating in the

American League Championship Series and the World Series? What are the
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expected pre-tax cash flow and the associated pre-tax present value?

According to the paper, MLB divide the league to American and National.
American league also divides into 3 parts. They are east, west and central. If
American's team wants to enter American League Champion Series, it should
become the NO.1 in its part and win over other part's champion. Below charts
show the American's win probability
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Blue Jays 0.53 0.56 0.59 0.58 0.34 0.34 0.45 0.46 0.54 0.51 0.512
1 2 3 6 0 6 7 9 3 9
Yankees 0.41 0.43 0.46 0.54 0.43 0.48 0.56 0.59 0.70 0.60 0.537
4 8 9 3 2 8 8 3 4 5

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 Orioles 0.46 0.41 0.54 0.52 0.38 0.43 0.54 0.60 0.48 0.48 0.457
9 4 9 5 9 8 3 5 8 1
Red Sox 0.54 0.51 0.45 0.49 0.33 0.53 0.52 0.48 0.56 0.58 0.525
3 9 1 4 3 1 5 1 8 0
White 0.58 0.53 0.53 0.58 0.41 0.42 0.52 0.49 0.49 0.46 0.586
Sox 0 7 1 0 4 0 5 4 4 3
Indians 0.47 0.35 0.46 0.46 0.40 0.61 0.61 0.53 0.54 0.59 0.556
5 2 9 9 7 7 1 1 9 9
Tiger 0.48 0.51 0.46 0.52 0.32 0.37 0.32 0.48 0.40 0.42 0.488
8 9 3 5 7 0 7 8 1 6
Royals 0.46 0.50 0.44 0.51 0.39 0.43 0.46 0.41 0.44 0.39 0.475
3 6 4 9 5 2 3 4 4 5
Angels 0.49 0.50 0.44 0.43 0.29 0.48 0.43 0.51 0.52 0.43 0.506
4 0 4 8 0 1 2 9 5 2
Athletics 0.63 0.51 0.59 0.42 0.31 0.41 0.48 0.40 0.45 0.53 0.562
6 9 3 0 5 4 1 1 7 7
Mariners 0.47 0.51 0.39 0.50 0.30 0.48 0.52 0.55 0.46 0.48 0.562
5 2 5 6 2 8 5 6 9 8
Rangers 0.51 0.52 0.47 0.53 0.32 0.45 0.55 0.47 0.54 0.58 0.438
2 5 5 1 1 7 6 5 3 6
The same color is in same group. According to win probability, Rangers get 6 part
NO.1 but it cannot get American League Champion. If Rangers signs A Rod, the win

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probability are below (the paper mention Ranger signs A Rod, they can win extra 8

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games)

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

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Blue Jays 0.531 0.562 0.593 0.586 0.340 0.346 0.457 0.469 0.543 0.519 0.512

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Yankees 0.414 0.438 0.469 0.543 0.432 0.488 0.568 0.593 0.704 0.605 0.537

Orioles 0.469
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Red Sox 0.543 0.519 0.451 0.494 0.333 0.531 0.525 0.481 0.568 0.580 0.525

White 0.580 0.537 0.531 0.580 0.414 0.420 0.525 0.494 0.494 0.463 0.586
Sox
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Indians 0.475 0.352 0.469 0.469 0.407 0.617 0.611 0.531 0.549 0.599 0.556
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Tiger 0.488 0.519 0.463 0.525 0.327 0.370 0.327 0.488 0.401 0.426 0.488
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Royals 0.463 0.506 0.444 0.519 0.395 0.432 0.463 0.414 0.444 0.395 0.475

Angels 0.494 0.500 0.444 0.438 0.290 0.481 0.432 0.519 0.525 0.432 0.506

Athletics 0.636 0.519 0.593 0.420 0.315 0.414 0.481 0.401 0.457 0.537 0.562
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Mariners 0.475 0.512 0.395 0.506 0.302 0.488 0.525 0.556 0.469 0.488 0.562
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Rangers 0.561 0.574 0.524 0.580 0.370 0.506 0.604 0.524 0.592 0.635 0.487
7 1 7 2 4 2 9 7 6 8 7
According to win probability, Rangers get 7 part NO.1 and can get 1 time American
League Champion and maybe 50% can get World Champion. So in calculation, from
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1990-2000, Rangers have 11 opportunities to win the American Champion and World
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Champion, its population is 11, they can't win any champions without A Rod.
However, they can get 1 American Champion and maybe 50% World Champion with
A Rod. The Probability of American Champion from 0% to 9%.The Probability of
World Champion from 0% to 4.5%.

The paper mention Ranger will have extra revenues if Rangers achieves American
Champion for 10 million, if World Champion is 20 million. In calculation is below

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 4. Will the signing of A-Rod increase the potential sales price of the Rangers? If so,
what is pre-tax present value? Assume that the Rangers would be sold in ten
years, right after the expiration of A-rod’s contract.
【*Additional assumptions: discount ate = 8.0%, inflation rate = 3.5%, , interest
rate on deferred money = 3%, contract insurance = 10.0%】

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We figured out Rangers’ increase in franchise value by summing total benefits of

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each year as below table.

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Increase in franchise value (10 years later) : $100,714,469

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5. Should the Texas Rangers sign A-Rod? If you find that the pre-tax present value of
the incremental costs exceeds the pre-tax present value of incremental benefits,

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 how much would ticket prices have to increase for the Rangers to Breakeven?

According to above tables (in answer #4), NPV of net benefit is negative which
means there is no profit if Rangers sell tickets at $18.Therefore, Texas Rangers
should not sign A-Rod. In order to make their business leave profit, U/P of the
ticket should go up to $30.

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