1. Practical Applications of Corporate Finance
4/20/ :35 AM
Practical Applications of Corporate Finance
Presentation to Finance 321
University of Illinois at Urbana-Champaign
March 27, 2007
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

2. 4/20/ :35 AM
Today’s Discussion
Case study: A-Rod – Signing the Best Player in Baseball
My career in finance: a perspective
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

3. 4/20/ :35 AM
Today’s Discussion
Case study: A-Rod – Signing the Best Player in Baseball
My career in finance: a perspective
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

4. Assessing Value Key issue
4/20/ :35 AM
Assessing Value
Key issue
Is this 25-year-old baseball player worth one quarter of a billion dollars?
Key considerations
What are the incremental benefits that will accrue to the Rangers over the life of the contract – and beyond?
What characteristics does this asset possess that make it attractive?
Uniqueness/rarity
Complementarity
Appropriability
Life-cycle value creation
What can be done during the ownership/disposal phases to enhance the value of this asset?
What are the key risks in buying this asset – and how can they be mitigated?
Key themes
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

5. Record Offensive Statistics
4/20/ :35 AM
Record Offensive Statistics
At bats 100% =
12,364
9,507
11,434
8,001
8,298
10,961
10,881
8,399
2,930
Strike outs/walks
Base hits
Home runs
Hank Aaron
Ty Cobb
Ken Griffey
Willie Mays
Alex Rodriguez
Barry Bonds
Lou Gehrig
Ricky Henderson
Babe Ruth
Batting
High
.355
.370
.420
.374
.327
.327
.347
.393
.358
Average
.305
.299
.366
.340
.291
.279
.302
.342
.314
RBI
High
132
129
127
184
146 74
141
163
132
Average
100 92 81
117 89 45 87
101
115
Stolen bases
High 31 52 96 17 24
130 40 17 46
Average 10 24 37 6 10 56 15 6 25
Career (years) 23 21 24 17 18 25 22 22 5
Source: Baseball Almanac
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

6. On-Base and Slugging Statistics
On-base percentage
Slugging average
Average
High
Ted Williams
.482
.553
Babe Ruth
.690
.847
.474
.545
.634
.901
Lou Gehrig
.447
.538
.632
.769
Barry Bonds
.443
.609
.608
.863
Ty Cobb
.433
.468
Alex Rodriguez
.576
.631
Ricky Henderson
.401
.469
Ken Griffey
.557
.674
Willie Mays
.384
.425
.667
.380
.420
Hank Aaron
.555
.669
.374
.410
.512
.621
.408
.419
.577

7. Analytical Framework x + + x + + + x x + + + x + x + Tickets
Ticket revenue x
Average price
$18.00 + +
Spaces/ purchases
Live gate revenue
Parking/concessions revenue
Incremental revenue x
Average price
$2.50 + + +
Items
Merchandise revenue x x
Sponsorships
$1 million
Average price
$1.80
Franchise multiple 3.0x
Value +
Broadcast revenue + +
Incremental revenue
$10 million
Regression analysis: 45,000 additional attendees per win
Eight (8) additional wins
ALCS revenue x
“Glamour factor”
$100 million
Probability 7.0% +
Incremental revenue
$10 million
World Series revenue x
Probability
3.5% +
Revenue lost to revenue sharing
17.5%
* Additional assumptions: discount ate = 8.0%, inflation rate = 3.5%, baseline salary inflation rate = 16.5%, interest rate on deferred money = 3%, tax rate = 40%, contract insurance = 10.0%

8. DCF Analysis of Rodriguez Signing
4/20/ :35 AM
DCF Analysis of Rodriguez Signing
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Incremental benefits
Incremental attendance
360,000
ALCS incremental revenue
700,000
724,500
749,858
776,103
803,266
831,380
860,479
890,595
921,766
954,028
World Series incremental revenue
350,000
362,250
374,929
388,051
401,633
415,690
430,239
445,298
460,883
477,014
Ticket sales
6,480,000
6,706,800
6,941,538
7,184,492
7,435,949
7,696,207
7,965,575
8,244,370
8,532,923
8,831,575
Parking/concessions
900,000
931,500
964,103
997,846
1,032,771
1,068,918
1,106,330
1,145,051
1,185,128
1,226,608
Merchandise
648,000
670,680
694,154
718,449
743,595
769,621
796,557
824,437
853,292
883,157
Broadcast revenue
Sponsorships
1,000,000
1,035,000
1,071,225
1,108,718
1,147,523
1,187,686
1,229,255
1,272,279
1,316,809
1,362,897
Revenue lost to revenue sharing
(1,588,650)
(1,644,253)
(1,701,802)
(1,761,365)
(1,823,012)
(1,886,818)
(1,952,856)
(2,021,206)
(2,091,949)
(2,165,167)
Increase in franchise value
134,710,338
Total benefits
8,489,350
8,786,477
9,094,004
9,412,294
9,741,724
10,082,685
10,435,579
10,800,824
11,178,853
146,280,451
Incremental expenses
Salary for replacement shortshop
3,000,000
3,495,000
4,071,675
4,743,501
5,526,179
6,437,999
7,500,268
8,737,813
10,179,552
11,859,178
Salary plus signing bonus
23,000,000
27,000,000
25,000,000
Cash outlay (ex deferred interest)
18,000,000
19,000,000
20,000,000
21,000,000
24,000,000
Actual cash outlay to A-Rod
Incremental salary
15,000,000
15,505,000
15,928,325
15,256,499
17,473,821
14,562,001
15,499,732
15,262,187
13,820,448
12,140,822
Variable costs (incremental revenue)
Contract insurance
2,000,000
1,950,500
1,892,833
1,825,650
2,147,382
1,856,200
1,949,973
1,826,219
1,682,045
1,514,082
Taxes
-3,404,260
-3,467,609
-3,490,861
-3,067,942
-3,951,791
-2,534,207
-2,805,650
-2,515,033
-1,729,456
53,050,218
Total costs
13,595,740
13,987,891
14,330,296
14,014,207
15,669,412
13,883,995
14,644,054
14,573,373
13,773,037
66,705,123
Net benefits
-5,106,390
-5,201,414
-5,236,292
-4,601,913
-5,927,687
-3,801,310
-4,208,476
-3,772,549
-2,594,184
79,575,328
Discount factor
0.93
0.86
0.79
0.74
0.68
0.63
0.58
0.54
0.50
0.46
Discounted net benefits
-4,728,139
-4,459,374
-4,156,738
-3,382,543
-4,034,284
-2,395,470
-2,455,605
-2,038,191
-1,297,738
36,858,774
Net present value
(1,327,258)
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

9. DCF Analysis of Rodriguez Signing
4/20/ :35 AM
DCF Analysis of Rodriguez Signing
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Incremental benefits
Incremental attendance
ALCS incremental revenue
World Series incremental revenue
Ticket sales
Parking/concessions
Merchandise
Broadcast revenue
Sponsorships
Revenue lost to revenue sharing
Increase in franchise value
Total benefits
Incremental expenses
Salary for replacement shortshop
Salary plus signing bonus
Cash outlay (ex deferred interest)
5,000,000
4,000,000
3,000,000
Actual cash outlay to A-Rod
6,719,582
5,375,680
4,031,760
Incremental salary
Variable costs (incremental revenue)
Contract insurance
Taxes
-2,687,833
-2,150,272
-1,612,704
Total costs
4,031,749
3,225,408
2,419,056
Net benefits
-4,031,749
-3,225,408
-2,419,056
Discount factor
0.43
0.40
0.37
0.34
0.32
0.29
0.27
0.25
0.23
0.21
Discounted net benefits
-1,729,148
-1,280,854
-889,482
-823,594
-1,016,783
-941,466
-871,728
-605,366
-560,524
-519,004
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

10. What Happened Next Events
4/20/ :35 AM
What Happened Next
Events
December 2000: signs record $252 million, 10-year contract with Texas Rangers
Tom Hicks, Rangers owner: “Alex is the player we believe will allow this franchise to fulfill its dream of continuing on its path to becoming a World Series champion.”
Alex Rodriguez: “Hopefully when it is over, they won’t be calling Mr. Hicks a fool, but the wisest man in baseball. But only time will tell.”
For 2003 season, Rodriguez wins American League Most Valuable Player; the Rangers finish the season with win/loss ratio of 0.78 – identical to its 2000 finish
February 2004: Rangers trade Rodriguez to New York Yankees and agree to pay $67 million of the $179 million remaining on his original contract
Rodriguez wins 2005 American League MVP award
September 2006: Sports Illustrated publishes cover story entitled, “The Lonely Yankee,” which highlights Rodriguez’s failure to win acceptance with the media, Yankee fans, and his own teammates
Unidentified Yankee teammate: “It was always about the numbers in Seattle and Texas for him. Winning is all you’re judged on here.”
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

11. A-Rod Offensive Statistics
4/20/ :35 AM
A-Rod Offensive Statistics
Batting average
Stolen bases
RBI
Home runs
Milestones/awards
Mariners lose ALCS to Yankees
2000
Signs with Texas Rangers
2001
AL Gold Glove – shortstop
2002
AL Gold Glove – shortstop; AL MVP
2003
Signs with New York Yankees
2004
AL Silver Slugger; AL MVP
2005
2006
Source: Baseball Almanac
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

12. Team Standings by Year Mariners Rangers Yankees Year Wins Losses
W/L ratio
1995 79 66
1.20 74 70
1.06 65
1.22
1996 85 76
1.12 90 72
1.25 92
1.31
1997 77
0.91 96
1.45
1998
0.89 88
1.19
114 48
2.38
1999 83
0.95 95 67
1.42 98 64
1.53
2000 91 71
1.28
0.78 87
1.18
2001
116 46
2.52 73 89
0.82
1.46
2002 93 69
1.35
0.80
103 58
1.78
2003
101 61
1.66
2004 63 99
0.64
2005
0.74
2006 78 84
0.93 80 82
0.98 97
1.49
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

13. Attendance and Wins by Team
Mariners
Mariners
Rangers
Rangers
Attendance
Indexed
Wins
Yankees
Yankees
Source: ESPN, Baseball Almanac
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

14. 4/20/ :35 AM
Key Takeaways
Financial concepts are applicable to a wide range of situations – not just to standard corporate financial decision making
Finance is a fundamental tool in problem solving: it forces logic and ensures analytical rigor and completeness
Classic financial skills can be brought to bear in assessing, building, and managing personal value/wealth creation
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

15. 4/20/ :35 AM
Today’s Discussion
Case study: A-Rod – Signing the Best Player in Baseball
My career in finance: a perspective
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

16. My Story Allstate Insurance Company Deutsche Bank Bankers Trust
4/20/ :35 AM
My Story
Allstate Insurance Company
Deutsche Bank
Bankers Trust
McKinsey & Company
Goldman Sachs
Experiences
My resume
Operational
Financial
Deal execution
Complex business problem solving
Managerial
Aimed to create distinctive skill set
My story
U.S.
U.K.
France
Supplemented with international experience
International business
Finance
Government
Philanthropy
Worked hard to establish and cultivate broad professional network
Hard working
Energetic
Established track record/ reputation
Focused initially on establishing credibility through academics
Comments
A seemingly incremental, logical progression; but in reality a narrative filled with twists, turns, and ultimately self-discovery
Personal renewal/ reinvention entails experimentation, learning, adapting – and a willingness to put oneself at risk
Coherence does emerge: our present is related to the past, and from that trajectory, we are able to glimpse our future
Harvard Business School
Oxford University
Middlebury College
Tulane University
Education
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

17. Selected Career Experiences
4/20/ :35 AM
Selected Career Experiences
Firm
Selected projects
Goldman Sachs
Conducted initial public offering of Tiffany & Company
Completed trading floor rotation in Debt Capital markets
Brought secondary common stock offering to market for Chili’s, Inc.
McKinsey & Company
Launched first-ever electricity trading business for Enron Corp.
Assessed worldwide power plant development opportunities for EDF, France’s state-owned electric utility
Bankers Trust/ Deutsche Bank
Served as Chief of Staff for Chairman and CEO
Member of senior team that accomplished sale of Bankers Trust to Deutsche Bank
Worked as London-based mergers and acquisitions specialist
Allstate Insurance Company
Led teams responsible for pricing, product, and underwriting decisions for Eastern half of the U.s.
Involved in numerous strategic evaluations and initiatives
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

18. Overview of Professional Development
4/20/ :35 AM
Overview of Professional Development
Future leadership role
Business/general management
Technical/functional expertise
People leadership
Leadership potential
Performance
Performance impact
Intellectual contributions/thought leadership
People development/followership
Demonstrated impact
Prerequisites
Business/technical problem solving
Conceptual power
Business judgment
Productivity/quality control
People leadership
Interpersonal relations
Communications effectiveness
Basic skills
Partnerlike behavior
Development/caring for people
Inspirational to others
Is enjoyable to work with
Personal impact
Reinforces professional values
Does what is right
Adherence to professional values
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

19. 4/20/ :35 AM
A Few Parting Words ” “
We have not even to risk the adventure alone, for the heroes of all time have gone before us. The labyrinth is thoroughly known. We have only to follow the thread of the hero path. And where we had thought to find an abomination, we shall find a god. And where we had thought to slay another, we shall slay ourselves. And where we had thought to travel outward, we shall come to the center of our own existence. And where we had thought to be alone, we shall be with all the world.
Joseph Campbell
Key themes
Heroism: follow the examples of recognized heroes
Career is, ultimately, a journey/quest of self-knowledge and understanding
Intense sense of commonality/kinship
© 2005 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.