Entertainment and Media: Markets and Economics

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Entertainment and Media: Markets and Economics

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Title: Intellectual Property Author: William Greene Last modified by: Sherrie Created Date: 10/15/2000 9:18:33 PM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

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Title: Entertainment and Media: Markets and Economics


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 81Average
  • 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
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14
Translate Attendance into RevenueMarginal Value
of One Win
15
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 !!!!! Its 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!!)

16
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17
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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