Contrary to popular belief, Scott Boras has not gone off the deep end. In fact, I would say he understands the baseball business far better than most analysts, and infinitely better than any other agent. Boras was on ESPN Radio earlier in the week, and here’s the excerpt that’s getting most of the attention:
One of the other things that Alex has that… few players have, is he has network value. That means for a regional sports network he has an impact on in that may allow that regional sports network to increase by a half-a-billion to a billion dollars over a 10-year period because of the ratings increase that he will bring. His fan base will subscribe to that network to watch him play and they will sell more advertising. This has certainly been evidenced in New York.
Yes, this is a negotiating tactic. And yes, he’s probably overstating A-Rod’s value to a team’s RSN by a bit.
But he gets the big picture. This is the second news item in the last month that’s proved it. Three weeks ago, Boras’s supposed plan to have A-Rod become a part owner of the Cubs was leaked to the media. Now he’s bringing up RSNs, and their potential value gains.
In other words, he’s talking about equity. Hmmm, where have we heard this before?
This isn’t all about us patting ourselves on the back. Boras is often laughed at when he makes these seemingly outrageous claims, but he’s usually more right than wrong.
As I’ve said in this space before, signing Alex Rodriguez has a major impact on a team’s revenue, but potentially a much bigger impact on the team’s franchise value. When a team owns an RSN, this effect becomes that much larger.
A star player’s value is partly due to the added wins, playoff appearances, and World Series titles that his presence could generate. Each of those three positively affect a team’s brand, to different degrees. George Steinbrenner gets this. Although many of his decisions regarding player personnel have been wrong, he has the concept down: winning grows a team’s brand and raises its franchise value. Spending more cash to make this happen is usually a solid investment.
But a transcendent star like A-Rod has an even larger effect, particularly if he chases the records most people expect him to (Boras specifically mentioned the career home runs and hits records). If the player has a positive image (not always the case) and he is identified with the team he plays for, the upshot only continues to mushroom.
Considering all of this, an equitable contract would pay the player his marginal revenue product, plus a small amount of equity. Since players aren’t allowed to own a piece of the team (as we learned three weeks ago), teams become more willing to overpay in cash terms.
This is the game Scott Boras is playing, and the more I think about it, this is likely how he convinced Tom Hicks to cough up $252 million. This isn’t underhanded, and this isn’t unfair. This may actually be equitable.
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