Is it possible that A-Rod is under paid when considering actual market value?

Question

Lead by Tiger Woods at about $87 million per year earnings the top ten highest paid athletes include the sports of Golf, Auto Racing, Boxing, Football, Basketball, Soccer, Mortorcycling, and Cycling but no Baseball. Shouldn't a $75 billion per year business have someone in the top ten highest paid athletes category, or would you prefer that the owners keep the money for themselves? By the way, Michael Jordan is at $33 million per year just because of his name, should he give some of that money back to those that pay him?
http://www.rediff.com/money/2006/mar/24forbes.htm

Chris H: The Yankees payroll this year was $200 million and A-Rod made $26 million which is equal to 13% of the Yankees payroll.

Birds on the Bat: Michael Vick is at $37 million, and not only does he not have any rings he is going to jail. Value to a team owner is based on many things and not just rings.

Rudy L: I don't understand your logic. You are saying that any amount of money you make outside of baseball is is acceptable but you set limits on how much he should make playing baseball. Even at $350 million over ten years it would still be less than top athletes in other sports.

J Dub: Since baseball is a business it is the only way to look at it. So far you are the only one to leave your personal feelings out of your response.

Answer 1

There have been several players with contracts, since the winter of 2000-01, that have an annual value of $20M or more. Ramirez, Giambi, Clemens this season that I can think of quickly. There are not many, no, and none have measured up to ARod's $25M/yr standard (overlooking Rocket's 2007 deal, which was (a) weird and therefore (b) an outlier). But to claim no one else has hit eight figures beginning with a "2" is inaccurate.

Every player has his marginal value, the expected worth he will deliver to his team, and this does fluctuate by market as well. Teams with smart front offices have people who can competently estimate this value, and that's where their offers (with some wiggle room) would max out for Rodriguez' services. What that value is can be worked out in rough form, but the point to take away is that NO team, if they know what they are doing (and there is plenty of historical evidence that this is not the case, but we must hope for the best), is going to OVERpay him.

And I've got to think Scott Boras is too clever to let ARod sign an undervalued contract. I have no idea where Rodriguez will end up (other than, not Oakland, Tampa, or KC) or how much he'll get, but his side definitely knows what it is doing, and the teams who can pony up the numbers that will get his attention tend to know what they are doing, as well.

Should be fun. Rodriguez will run the market for a while, since his deal will be the bellwether for the offseason market.

Answer 2

There are two revenue streams for athletes, performance and marketing.

I believe if Boras and Rodriguez want the high value of the contract based on revenue, they should gear the language that way so that he earns the revenue if the merchandise is sold, if concessions go up, if gate goes up.
Tiger Woods earns very little 'just for showing up' and most of the money he gets is from winning. Then his endorsement deals kick in.

The endorsements should not be part of a major league salary, but more of the personal services contract and given that it's unknown what team he will be playing for, it's fruitless for Boras to come up with a figure.

Surely the same marketing impact won't occur if he's playing in Tampa than if he is playing in Los Angeles, but Boras is still basing the value on the highest end.

I do not measure a player's worth by his 'rings' at all, I think it's silly.
Although I do attribute the non-winning in texas directly to the salary that Arod was getting in proportion to what Texas was willing to spend. However, that was Texas's choice, they weren't forced into it.

I believe Boras has set his benchmark based on all the best conditions, conditions that have a very small likelihood of meeting expectations.

With football, the yearly value breaks the top 10 because they are all signing bonus related due to the non-guaranteed contracts.

For basketball, they often charge a lot more for tickets for fewer games and a player is one of 6, 8 or 10 relevant players on a team, where baseball has typically 9 regulars, 5 starters, and 2-3 key relief pitchers.

If Rodriguez's contract was to be based separately based on what does occur and he 'earns' 35 Mil then I think most people would be ok with it.

However, if the city doesn't embrace him, doesn't buy his merchandise and they don't get into the playoffs, the $35 mil he wants as a 'floor' is not worth it.

My answer, attempting to keep all bias out of it, is no, Arod is not underpaid considering market value, because they are simply unwilling or afraid to test actual marketing value.

He could win (and make more) or lose (and make less) and I am pretty sure they truly believe in the latter.

Answer 3

Frizzer, you are either Scott Boras or A Rod, since they are the only 2 people on earth that thinks A Rod is under paid.

To Compare Tiger Woods With A Rod is not a good comparison. First of all, Tiger doesn't get a salary, he makes money by playing in Golf games. The amount of money a golf player makes is determined prior to the game depending on where you finish. 1st place gets one amount, 2nd gets another, 3rd gets another and so on, regardless of who fills that position. A Rod wants a salary of $30+ million a year for 10 years, no matter what he does on the field, and because baseball contracts are guaranteed, he can strike out every at bat, make an error on every play and he will still get that same $30+ million a year for the next 10 years once that contract is signed. Secondly Tiger Woods makes most of his money on endorsements, so it's a completely different situation with Tiger Woods and A Rod.

Answer 4

In all honestly, I believe they are all overpaid. I know the money is there, but I feel that corporate america has greatly inflated the prices of sporting events above the market value, which inturn has allowed the players to make an outragous amount of money. When it comes to Tiger Woods and other athletes that do not play team sports, I understand a little bit more about how much they make, because it is only themselves that determine thier success. When it comes to team sports, there is no one person that can give you that promise to every year bring home the championship or even anything close to that.

Answer 5

Hang on, when A-Rod was traded to the Yankees the Rangers had to kick in some $7 million per year, so his annual salary hit to the Yankees was actually less than both Giambi and Jeter. Since he signed that outrageous contract, nobody has come close to being paid $20 million per year.

Also, consider that Jordan's millions included endorsement deals. I'm sure if endorsements were included, A-Rod's 2007 income would be on par with that.

I think at this stage $25 million a year salary would be the highest I would go. Borass wants $350 million, but I don't see anybody coming close to that. (He might have commanded a few more millions had he shown Ortiz-like post-season performances the past few years...)

Answer 6

There is no such thing as clapping your hands using one hand only. What is missing in all these conversations is that all important number of what is a team's revenue ? Unless you know revenue ,you cannot calculate a payroll percentage and determine what is reasonable ,you cannot calculate how large a percentage of that that payroll percentage can be allocated to A-Rod's salary without hurting the team down the road by effectively limiting the wages given to other players.
So does anybody have a copy of the Yankees balance sheet handy ?
Btw ChrisH is right you can't compare what are essentially non salaried independant contractors with players that have to fit into the overall salary structure of a team sport.

Answer 7

Yes, because no one wants to wear A Rod shoes.


P.S.-I agree with the guy above. Baseball's farm system robs young good players. For example, a guy like Beckett, Felix Hernandez, Verlander, etc. you are locked in at rookie salaries barring arbitration (which usually underpays you anyways) while risking your health for the team. Once they go thru that 6-7 years slave wage their arms might be hurt and they wont be able to sign a long term deal.

Baseball's problem is not the salary A Rod demands. Its the fact that team owners rob young studs and claim contracts are over inflated despite the amount earned per capita.

Answer 8

Tiger gets that money because he wins tournaments. If he did'nt win, no one would care, big difference. AROD is not a champion yet. Nothing against the guy, but I don't think he is worth it. Sure he is the best player in baseball but some of the sports you mentioned like golf, racing, boxing, cycling, these are individual sports. You need 25 guys to win a championship. Dump all that money into one player is not how to win. If they can afford it then thats another thing, I'm interested to see how much AROD gets, if he gets 30 million or something stupid like that then good for him, but I still don't see this as a good team strategy My preference would that they pay less, the owners make less profit and they decrease the cost of tickets, beer, and parking.

Answer 9

You have to take total team payroll into consideration when calculating this. A-Rod takes up 25-40% of a teams payroll. It would help if you put the %'s in relation to other sports and their organizations. Tiger Woods shouldn't be in the convo because he works only for himself. He's self employed and has no one to worry about other than himself. Racing and Cycling works very similar to that as well. Therefore your question as interesting as it may be is actually somewhat flawed. It does get the juices flowing though!!

Side note: Jordan has 6 rings... A-Rod = 0. lol He SHOULD be paid more. Also, A-Rod doesn't have an underwear line haha.

Edit: I wasn't talking about his payroll in relation to the Yankees. The Mariners and any team that signs him next is more accurate. The Yankees are not a good model as they spend too much.

Answer 10

The key word here is "market value". A-Rod played for the Mariners and Rangers during most of his career and neither of those teams have huge fan bases nor were highly marketable.

Had A-Rod been with the Yankees all of his career then he would be probably one of the most marketable athletes around. Just look at Derek Jeter.