$tephen $trasburg

Posted on July 14, 2010 by Ben Connard 

Stephen Strasburg, a pitcher for the Washington Nationals, signed the richest rookie contract ever in August 2009 for $15.1 million over 4 years.  As hard as it is to believe, he’s underpaid.

Starting pitchers pitch once every five days and their start dates are known in advance.  It’s logical to assume that any jump in attendance for the pitcher’s start is due to the pitcher, unless there are other extraordinary events (such as a promotion like hat day or visit from a popular team like the Yankees).

Strasburg has pitched three home games for the Nationals against standard teams.  There’s been a jump of 16,000 tickets sold for each game with average ticket prices of about $31.  This means Strasburg generates almost $500,000 in incremental revenue for each start.  Add in concessions and parking for each ticket holder and the additional revenue tops $1 million.  And most of the ticket revenue is straight profit since the tickets are already printed and the seats are already made.

More revenue is generated through merchandise sales- Strasburg tee-shirts go for $25 and replica jerseys $100- and the big gold mine is increased TV ratings.  Ratings for his first start were 3 times the previous high.  High ratings mean high advertising dollars, and advertising dollars can dwarf ticket sales.

Over time, the excitement over Strasburg will fall.  But even if his starts generate 10,000 more tickets, they are worth about $600,000 in tickets, concessions and parking.  Add in merchandise and TV ratings (which increase for both home and away) and they’re approaching $1 million.  Over a full season Strasburg will make about 30 starts, with 15 at home.  Suggesting he earns his entire $15 million contract in one season.

CEOs are also signed to contracts with multi-million dollar compensation packages, many times over what Strasburg is to make.  It can be difficult to determine whether their compensation is justified.  We know Apple’s market cap fell by billions in 2004 when it was revealed that Steve Jobs had cancer, suggesting that he’s worth billions to Apple.   If something were to happen to Warren Buffet, one would think Berkshire Hathaway would also fall.  But most companies do not have a singular driving force that is worth millions, even if they’re sometimes paid that way.  We know that Strasburg is earning his keep.