Sports Finance and Management

Capital Budgeting and Team Investments  ◾  397

In 2000, many wondered how the Texas Rangers could sign Alex Rodriguez to

a 10-year, $252 million contract. While this was certainly a large contract, it was

not really a $252 million dollar contract in present value terms. If the contract was

for $25.2 million each year for 10 years, and a 10-percent discount rate is applied,

the contract was “only” worth $154.8 million dollars (if the payment was at the end

of the year). Because one dollar is worth less in the future than it is today, owners

would prefer to delay payments to players. at is, they would rather pay players

farther into the future. Conversely, players would prefer to be paid as early as pos-

sible or to have their contracts “front ...