Do Not Let the Big Numbers Blind You

The Texas Rangers finally found a player in Adrian Beltre to take their obscene amount of money this winter. Throughout their pursuit of Cliff Lee earlier and Beltre recently, writers mentioned the new cable television contract that the Rangers locked in this winter as a motivator for the Rangers to spend money this offseason. Knowing how persuasive initial reports can be in forming long-term memories of facts, I wanted to address this deal by itself. The first news came from USA Today and stated that it was $3 billion over 20 years. That turned out to be grossly inflated, and, within a few days, we had multiple reports of a more reasonable figure of actually about $1.6 billion.

That is still a very large number and easily sticks in your mind. Furthermore, it seemed to represent a dramatic increase in revenue for the Rangers. A number I saw quoted often was that the Rangers currently make only $20 million from television right now, which would make this new deal a fourfold increase. That certainly would be a huge raise, but it does not appear to be accurate.

The Rangers are currently bringing in only about $20 million per year for their cable television rights. However, according to the Dallas News article linked above and noted elsewhere, the Rangers also got another $15 million per year for non-cable TV rights when they signed their current deal. There are obviously many complexities involved, but perhaps $35 million per year is a more accurate figure for what the Rangers currently are making. In which case, their new deal is a little more than double their standing average yearly rate, not quadruple.

A lot can change; a lot will change, in media contracts around the country over the next quarter century. Texas has the capability now to be a bona fide player in the various free agent markets as they have shown. The reports of a signing bonus with Fox Sports for this deal certainly helps get more money into their hands right now, but agreeing to revenue figures 20 years out is a risk for both sides.

Over time, inflation is a steady force devaluing the dollar. Eighty million dollars in 2033 is nearly certain to be worth less than $40 million would be worth today. In fact, if you project out the years 2015-2035, through the end of the Rangers’ current and next TV contract, the average yearly present value of the new contract is likely to be around $55 million. Note that this assumes a constant, $80 million-per-year payout and 3% inflation in the general economy. Either a progressively structured payout schedule (as you often see in player contracts where later years get a higher absolute payout) or an inflation rate above 3% reduces the present value.

When the new TV contract begins, the Rangers go from about $35 million per year in 2011 dollars to a high of about $55 million in 2011 dollars and it could reasonably be as low as around $45 million per year. Do not let the $1.6 billion figure mislead you. The Rangers did well to lock in such a large increase in revenue, but they did not just discover the Sim City money cheat.




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Matthew Carruth is a software engineer who has been fascinated with baseball statistics since age five. When not dissecting baseball, he is watching hockey or playing soccer.

16 Responses to “Do Not Let the Big Numbers Blind You”

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  1. drivlikejehu says:

    Good post. This seems like a strange deal for the Rangers to make. They are in a fast-growing area and a period of success could really boost their TV earning potential. Now though they are stuck with a number that is decent but not spectacular, considering the certainty of significant inflation over the next 25 years. Maybe FSN played hardball with them?

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  2. dhbooty83 says:

    I won’t claim to be an expert at all, but it was my understanding that Tom Hicks had pulled a significant chunk of that 35 million up front (enough that 20 million was now the combined total). Like I said, I don’t know for sure, but it was my understanding that the current contract broke down to ~34-35 million per year, but up front bonuses have shrunk that figure down to the 20-24 million range. I wish I had the time and resources to research this properly myself, but I don’t.

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  3. DL80 says:

    I think the Rangers did a pretty good job with this current deal, and I think FSS will regret this soon. The ability to stream games over the internet, even through back-channel, quasi-legal (or totally illegal) means, is going to kill local and cable broadcasts.

    I assume there already are, or soon will be, ways to stream local Texas TV channels in New York and Boston for free. That, plus the advent of DVR/Tivo to skip commercials, is going to kill the revenue stream for FSS and other cable providers.

    While this didn’t provide the Rangers with a huge influx of new money, it did lock in a lot of money that I think would not have been there in 2015.

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    • snapper says:

      I really don’t think most people are going to bother illegally streaming baseball games from a variety of ever changing sites in order to save a few bucks on cable.

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      • Mike says:

        Me and my college friends made up about 30 people who did not have (TV) cable and were able to watch every baseball game we wanted to.

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      • Luke in MN says:

        A few bucks on cable? Do you look at your bill? It’s at least 70 or 80 bucks a month around here to get a package including the Twins games. It’s gut-wrenching to decide to get it, because I have absolutely no desire to watch anything else except baseball. Everything else worth watching is available via Netflix, etc., or will be soon enough. To me, the decision is basically $1000 per year just to watch baseball games. I don’t do the illegal streams, but $1000 is easily enough to drive plenty of people to it.

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  4. LookoutLanding says:

    +1

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  5. Marver says:

    If only imacheat could work for my Padres…

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  6. Chops says:

    Ah, the Sim City money cheat, how I loved you

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  7. Bonus points for mentioning the Sim City money cheat in a baseball post.

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  8. hal p says:

    i dont know if it constitutes an “illegal stream”, but i know plenty of people who get mlb.tv and simply use a proxy network or “cloud” network that isn’t keyed into a specific location. can watch all non-FOX games for $120 a season.

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  9. Hi blog owner, listen, can you be found? I was searching for one on facebook but could not find one.I would really like to become a fan!

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