Project #16266 - case 6

Case 6 - A-Rod Signing the Best Player in Baseball

Questions to address by each group before presentations as well as during the presentations:

1)     What is the pre-tax present value of the incremental costs of signing Alex Rodriquez?

2)     How many extra tickets do you expect the Rangers to sell each year if they sign Rodriquez?  What is the pre-tax present value of those additional spectators?  Hint: consider using a regression – perhaps with more than on variable – to estimate the additional attendance for each additional win.

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 expected pre-tax cash flows and the associated pre-tax present value?  Hint: please see the information on the playoff probabilities for the Rangers at the end of these assignment questions. 

4)     Will the signing of Alex Rodriguez increase the potential sales price of the Rangers?  If s, what is pre-tax present value?  Assume that the Rangers would be sold in ten years, right after the expiration of Alex Rodriguez’s contract.

5)     Should the Texas Rangers sign Alex Rodriguez?  If you find that the pre-tax present value of the incremental costs exceeds the pre-tax present value of incremental benefits, how much would ticket prices have to increase for the Rangers to breakeven?

 

Note on Baseball playoffs:

The Texas Rangers play in the American League of Major League Baseball, which consists of 14 teams.  Each year the top four of those 14 compete for the right to play in the World Series.  There are three sets of playoffs: (i) a first round which involves four American League teams; (ii) the American League Championship Series which involves two American League teams; and (iii) the World Series in which the winner of the American League Championship plays the winner of the National League Championship.  Use the following estimates on playoff probability:

 

- The probability that the Rangers make playoffs without Rodriguez is 4/14 = 28%

- The probability that the Rangers make playoffs with Rodriguez is 6/14 = 42%

- The probability that the Rangers will advance to American League Championship Series,

  conditional on making playoffs is 50% (with or without Rodriguez)

- The probability that the Rangers will advance to World Series, conditional on making playoffs is

  25% (with or without Rodriguez)

 

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Due By (Pacific Time) 11/06/2013 11:00 pm
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