Alex Rodriguez Thoughts
A couple articles on CNNMoney.com in recent days about Alex Rodriguez and his potential free agency.
Columnist Chris Isodore suggests that "A-Rod will bring in far more money to a team than the average fan bemoaning players’ salaries might think."
One amusing notion: Rodriguez would return home to Miami and play for the Florida Marlins.
The team that might see the greatest economic boost from signing A-Rod could be the lowly Florida Marlins, which paid its entire roster about $30.5 million this year, and is in negotiations with elected officials about a new stadium deal.
If Miami-native A-Rod were to return to his hometown team, it wouldn’t have to worry about paying 40 percent of his salary to the league as a luxury tax, as the Yankees would.
And if good young players there continue to develop, A-Rod might actually help lead the team back into postseason, producing revenue that could be worth between $2 million to $15 million a year. The Yankees have a far better chance of making the playoffs without A-Rod than would the Marlins.
"The Marlins are an interesting possibility," said Tim Mahon, principal for Anderson Economic Group, a business valuation service, who has studied team values. "I think it makes much more sense than it does for some of the other choices."
As for the Angels and other potential suitors:
Mahon said that for deep-pocketed successful teams like the Yankees, Mets, Cubs, Red Sox or Angels, "there’s a marginal economic benefit from bringing him in, even as fabulous a player as he is. But look at the upside for the Marlins, not just in ticket revenue but also the structure of a new stadium deal."
A subsequent column by Isidore quotes agent Scott Boras saying Rodriguez may leave the Yankees due to the current managerial turmoil. Of course, it’s just Boras posturing. Boras quoted "an estimate from Vince Gennaro, a consultant to numerous major league teams and the author of Diamonds and Dollars, a book about the economics of baseball, that calculates that Rodriguez could produce $48 million per year in revenue and asset appreciation for the Yankees, allowing the team to pay him $34 million in salary, along with a 40 percent luxury tax, and still break even."
I found an article on CNBC.com where they contacted Gennaro directly. As you might suspect, it turns out Boras was fudging a bit.
"A player of A-Rod’s stature can have an impact on the value of a team’s regional sports network. However, Boras’ assertion that he contributes $50 million per year is completely unreasonable. For that to be true, the primary programming would need to be a nightly three-hour talk show hosted by A-Rod and it would need to secure the same 4.7 ratings point on YES that the average Yankee game telecast scored in 2007. More realistically if the Yankees went forward without A-Rod, it’s reasonable to expect the team would suffer in terms of wins and losses. Losing seven or eight wins could cost the Yankees nearly a full ratings point, which translates into about $12 million per year in YES revenue. If you add A-Rod’s marquee value (same as Boras’ ‘iconic value’), that could impact the value of the YES Network as an asset to the tune of about another $10 million per year. Keep in mind the Yankees own 36% of YES, so the impact on the Yankees (and therefore the portion of A-Rod’s YES Network impact for which they should be willing pay) is about $8 million per year (36% of the total YES impact of $22 million)."
The Yankees are a unique economic model for many reasons, one being their ownership of the YES network. That model doesn’t apply to the other 29 major league teams, although there have been occasional rumors that Angels owner Arte Moreno was exploring the creation of an Angels TV network.
By the way, a search of the CNNMoney.com archives found an article from February 1, 2001 titled "Can Money Buy Victory?" The article was published after Rodriguez signed with the Rangers. Subsequent events would suggest the answer is no, because Rodriguez has yet to appear in a World Series.
Years ago, Baseball America published a study concluding that it cost about $1 million to develop a major league player, when you average in the cost of scouting and drafting all players, the cost of minor league managers and coaches, equipment, trainers, etc. Just for argument’s sake, let’s say that number today is $2 million.
If a team signs free-agent Rodriguez and pays him the rumored $30 million/year, that’s fifteen potential major leaguers who won’t be developed each year for the length of his contract. Would one of them be the next A-Rod? Probably not. But baseball is a team game, and that’s why Rodriguez has never reached the World Series. Those fifteen additional players a year collectively could be the raw material to build a championship ballclub.
According to the USA Today baseball salaries database, the average payroll for the World Series-bound Colorado Rockies was about $54.4 million this year. They did that without an A-Rod. They chose instead to hold on to young talent like Matt Holliday, Troy Tulowitski, Garrett Atkins, Brad Hawpe, Jeff Francis and Manny Corpas. But if you want to believe the self-proclaimed experts running around on fan boards, all that young talent should be dumped for "name" players who "guarantee" a World Series. Well, A-Rod won’t be in the World Series this year either.
My feeling is the Angels can listen to what Boras has to say, but they won’t get a return on their investment. A-Rod alone will not take them to the World Series, and his ridiculous salary will siphon money from elsewhere in the business.