Also, tell me why a dude nicknamed “the candy man” hasn’t been in one of those new snickers commercials?  Talk about endorsing products you believe in…

Watching the Packers this afternoon reminded me that they have a very interesting ownership structure.  The packers are the only major US sports team which is owned by a large collection of share holders.  According to wikipedia (of course the most reputable source on these matters) these shareholders have very limited rights

Shares of stock include voting rights, but the redemption price is minimal, no dividends are ever paid, the stock cannot appreciate in value – though private sales often exceed the face value of the stock, and stock ownership brings no season ticket privileges. No shareholder may own over 200,000 shares, a safeguard to ensure that no individual can assume control of the club. To run the corporation, a board of directors is elected by the stockholders. The board of directors in turn elect a seven-member Executive Committee (officers) of the corporation, consisting of a president, vice president, treasurer, secretary and three members-at-large. The president is the only officer to draw compensation; the rest of the committee is sitting “gratis.”

This means that there are over 100k people who paid at least $200 each to own a part of the packers.   Yet unlike a normal investment which is made for financial gain, the packers shares really have no financial value.  Shares have been sold 4 times in the ~80 year history of the Packers, but shares can not be resold and no dividends are paid.  It seems to me that it’s really similar to  taxpayers financing stadium upgrades in other cities.  In both cases it’s a composition of outsiders (rather than a single for profit group) raising money.

From an individual investors perspective it’s strange to me that people would want to make this kind of investment.  Sure its pretty cool to say you own part of an NFL team and you might get a vote for some executive committee, but beyond that the investor doesn’t get much.

Yet if we think about this from a microeconomics perspective, the plan seems like a pretty efficient use of funds.  Rather than tax payers funding the profits of a single owner, it’s really the people who will be benefiting from the services that are funding the new investment.  It’s almost like some sort of prepaid usage tax.  Think of it like the government paying for roads.  If the government pays for roads using income tax revenue then everyone who makes money is paying for a portion road improvements.  Compare this with improving roads through tolls or gas taxes where only people using the roads are funding their maintenance.  If we assume that only people who are interested in the packers are he ones buying the shares, then it seems like a good/ efficient way to raise funds for the team.

I’m not sure if this would work in larger cities like LA or New York, where there are multiple sports teams, but it seems to work well in Green Bay.

Its been two months since my last post, so I think its time to start this up again.

There hasn’t been a lot of coverage of this story, but it was recently announced that Latavious Williams will become the first high school player to go directly from high school to the NBA D-League rather than going to college.  Brandon Jennings did this last year by opting for a big pay day in Italy, but no one had yet decided to use the D-league as a springboard.  I agree with this article’s analysis that this new trend could be good for all parties involved, but my question is why does the NBA still call its developmental league “The D-League?”

For everything the NBA does well, I think it has screwed up this name pretty badly.  Sure the name makes it very clear that the league is intended to develope talent for NBA teams, but shortening the name to “D-Leauge” has the connotation that these players are near failures.  I would be pretty pissed off if I got a D in school, so when I hear the term D league, I automatically think that the quality of play must be pretty bad.  Why not try another name?  MLB as a AAA league which has connotations of “A” being good (e.g. grade a beef, A+ in school, AAA bonds…).  Even the worst MLB league is still called single A, which sounds way better than D league ball.  I’m pretty sure that I would automatically be suspicious of anywhere that promoted itself as “D.”

How about some of these names:

• NBADL (NBA Developmental League)
• P-Leage (Pre-NBA, Prospect League)
• NBA 1 (another version of the NBA)

There are a lot of things that have better connotations then D-Leage.

The basic premise of the commercials is that by bringing your lunch 2 times a week rather than buying for an entire year, you can save over $500 dollars.  At first this seems like a huge number but then remember that it’s really just saving $5 dollars x 2 times a week = $10 a week x 50 weeks a year = $500 dollars.  Proving that the little things really do add up.  So, since this is my sports blog, it got me thinking about applying this to sports.

Want an additional $1M in revenue?  If you run a MLB team just find a way to charge people $0.50 more per game either through concessions, ticket prices, parking or some other avenue.  It’s that simple.  81 game season x avg of 25k attendance per game x 50 cents per person >$1M.  You run an NBA team?  Just find a way to generate an additional $1.25 per person per game.  NFL?  Just $1.75 extra gets you to $1M.

This is one of the reasons it’s so amazing that the NBA refs might be locked out over a $700k difference in pay.

Now how do you generate this extra revenue without angering fans?  One idea:

• Raise ticket prices by $5 on expensive tickets.  It won’t seem like much more to a consumer paying $100 vs $105 for a ticket, but it will allow the team to generate enough revenue to not have to raise prices on the cheaper tickets.  This is the same concept that applies when buying a car.  Most people would not even bother haggling over paying $20,010 vs $20,000 for a car. But if instead they had to pay $20 vs. $10 for a shirt, it would be a much tougher decision.  In either case its the same $10 one-time payment, but since in the car case its such a small percentage of the total price.  This also keeps ticket prices low for the people who need it most.

Referees are not full time employees of the NFL and therefore probably encounter “social media” in everyday aspects of their lives.  What if a ref looses his job and tries to find a new one on linked on?  What if a ref reads an article on google reader that is shared by one of his email contacts?  I’m sure the intention of this rule is to remove outside influences on referees and ensure their safety, but “social media” is such a nebulous term that I have a hard time agreeing that all social media should be banned from referee usage.  Google allows users to promote, remove, or comment on search results in an effort to make search more relevant.  Once google begins to use this data to influence searches by others does that mean it has become social media and that NFL referees can no longer use google?

Usain Bolt destroying both the 100m and 200m world records he set back in 2008 at the summer Olympics has been a pretty big deal that last few days.  Not only did he break the previous records, but he also dropped it by an astonishing 0.11 seconds off both the 100m and 200m records!  So, after everything we have learned about baseball,  cycling (and pretty much every other pro sport), the question of steroids is bound to arise.

There has been enough talk about the moral and health reasons for not doing steroids so I am going to take a different look at the problem.  I want to know what the economics behind a professional athlete doing steroids really  is.  It’s an interesting question because if you get caught then your career as a pro athlete might be over, but even if that occurs, there is a good chance the athlete could have made enough money during his the steroid years to be set for the rest of his life.  Consider this: Financially, would it be better to take steroids, make a ton of money then get caught and have a shorter career, or to have been a mediocre athlete who is just getting by for a long period of time.  The steroid athlete will be labeled as a cheater for the rest of their life, but I am guessing that if the athlete is willing to take that chance then the financial upside could be enormous.

First lets make a couple of assumptions.

1. We use an 8% return on all cash that has been saved (this is the expected return minus inflation)
2. Assume that a highly paid athlete might spend $150,000 yearly (post tax) – this number is probably very low compared to what athletes actually spend, but I wanted to use a spending number in which was reasonably sustainable in the long term
3. The tax rate is 40%
4. Real wages adjust exactly with inflation so spending power remains constant
5. The interest rate on borrowing is 5%
6. Assume that the Non-PED athlete makes 1/2 of what the PED athlete makes during their primes.  After 5 years the PED user is caught and makes no more money from racing or sponsors.  The non-PED athlete continues to earn money into his 30′s but the amount decreases because he is not as fast.  Even though this athlete stops racing in his mid 30′s he still earns some income from sponsorships until he is 40.

One other point:  I have chosen to think about this model by looking at the yearly cash flows rather than looking at the NPV or other financial metric to compare the steroid situation to the clean option.  I have done this because it seems like the most relevant model to how people live. The key question is “when will I run out of money,” so building a yearly cash flow model seemed like the most relevant way to examine that question.

Results: I used the inputs above plus the cash flows shown in the first chart.  The red bars are for the elite athlete that takes PEDs but is caught after 5 years. The blue line represents the earnings of an athlete who is near the top of his sport (track), but is not world record breaking.  His career continues into his mid 30s.

Its a little hard to see on this chart, but what we are showing is that if each athlete is spending $150k per year (post tax) then even though the PED athlete earned no income after the age of 26 he is still better off than the clean athlete who never took PEDs.  The PED athlete runs out of cash around age 60, but the non-PED guy runs out around age 45.

A few more notes:

• This analysis does not mean that I condone cheating or taking Steroids.  The analysis was performed simply to show that in some cases there may be a long-term financial benefit to taking steroids.
• Usain Bolt was just the example that got me thinking about this question, but the situation applies to all athletes.  This model could just as easily have been used to describe the financial benefit McGuire, Sosa, A-Rod or any other athlete receives from boosted performance (and compensation) due to PEDs.
• This model was also originally built to investigate the financial differences between professional athletes (with high compensation over a very short time frame) vs. a regular person with regular payments over a lifetime.  The thought at the time was to figure out what a pro athletes finances might look like if their spending corresponded to a regular person rather than an extravagant lifestyle.  Would a pro athlete making hundreds of thousands of dollars over a 3 year career be able to survive without any further income (beyond investments) if his expenses matched those of a regular person?  [I'll probably have a follow-up post on this sometime later making minor modifications to my model]

Stephan Strasburg finally signed the most lucrative draft contract in baseball history with the Washington Nationals just minutes before the deadline.  The deal is worth ~$15M over 4 years.  Sure it’s a lot of money, but he and the Nationals have been getting killed in the press much more than they deserve.  The following quote by Jeff Passan at Yahoo Sports typifies what some people think about this signing.

He cannot fail. Good is unacceptable. Anything short of transcendence and he’s just another mistake on the Washington Nationals’ log that, this year alone, reads like the Dead Franchise Scrolls.

Let me start by saying that I do not agree with Passan at all on this topic.  I think that if you have the chance to get one of the best major league pitching prospects ever for less than $4M a year, then you must take that deal.  The best case scenario is that he puts fans in the seats and becomes one of the most dominant pitchers in the league.  The worst case is that he fails to be an effective major league pitcher and is overpaid for 4 years.  But to say that “Anything short of transcendence and he’s just another mistake on the Washington Nationals” is a gross overstatement.

Check out the following pitching contracts for a refresh on truly egregious contracts.  These people were at best all star players, and in many cases just average.  All received ridiculous contracts which are much worse than the Strasburg signing.  Think of it this way, even if Strasburg is a failure, would you rather have paid him $15M over 4 years for unlimited potential or pay an overweight Sabathia  $23M for each of the next 7 years.

Historically bad contracts:

Barry Zito, Giants, 2007: Seven years, $126 million: Thirty losses, ERAs of 4.53 and 5.15, 102 walks last season

Mike Hampton, Rockies, 2001: Eight years, $121 million: won just 56 games over the eight seasons

Chan Ho Park, 2002: 5 years, $65 million: Won 22 games with the Rangers. Over three-plus seasons

Kevin Millwood, 2006: 5 years, $60 million: Millwood’s ERAs with Texas: 4.52, 5.16, 5.07. His innings: 215, 172 2/3, 168 2/3.

Jaret Wright, 2005: 3 years, $21 million. Sixteen wins over two seasons.

Source

At first glance it looks like a cant miss bet.  Sex sells, sports sell…so sexy women playing sports has got to be the next big thing.  Right?  I don’t think so…

The problem is that professional sports leagues generate most of their revenue from merchandise, gate revenues, concessions and broadcasting contracts and I’m not sure that LFL franchises can generate much money in any of these categories.  If you ask me, this looks more like a reality TV show produced by NBC than a real sports league.  The Lingerie Bowl during half time of the super bowl was probably good idea, but expanding this to an actual league seems like a pretty big stretch.

Leagues are only successful when the fans are invested in the outcome.  Once the novelty of seeing lingerie football wares off, then this will be no more popular than any other sport.  It might stay on for a season or two, but the premise of having women playing football in lingerie sounds like more of a gimmick than a sport.  It’s the equivalent of a roller derby.  It’s something that would be fun to go to a couple of times, but it is not something that actual fans will get behind.  Can you imagine telling someone that your favorite sports team is the Dallas Desire?  Or how about the San Diego Seduction?

If you remember, Slam ball was an awesome sport where guys played basketball on trampolines and basically every play was a dunk.  When Slam Ball first showed up on TV everyone was talking about it and thought it was awesome, but after a few weeks the show’s novelty wore out.  People liked the action but didn’t care about their home team doing well.  Fans had no connection to teams, there was no history to look back on and the athletes were just ex-basketball players rather than trained Slam Ball players.  It was more of a made for TV competition than a professional sports league, the equivalent of American Gladiators.  I don’t even know if Slam Ball is still around, but I bring it up because the LFL will likely follow a similar path.

Lets check in on this after season one of the LFL, but my money is on a large amount of initial fan interest followed by a steady decline.  Then again I could be wrong becuase all the players are very good looking.

So, this got me thinking about why Michael Phelps (a sports super star) would bring his mom to the event.  Could it be because he loves his mom more than the rest of us?  I think not…

I have to believe that one part of this was just a major PR move.  Why else would a 24 year old guy want his mom to sit next to him while he repeatedly got made fun of for having smoked pot?  Having his mom there made him appear more like the wholesome family kid that all his sponsors want him to be.  Instead of coming across as a playboy, he appealed to the families and kids that cheered for him in Beijing.  It’s the image he is trying to cultivate.

I’m sure part of the reason he brought his mom was because he loves her, but I am convinced PR had to come into it as well.  There are big bucks in sports sponsorships, and when your main competition takes place only once every four years, it’s even more important to maintain an image that sponsor will pay for.

Often when a product (sport) fails to gain popularity it is because the actual game has flaws.  Soccer is too slow for many Americans, the XFL’s players were not as talented as the NFL, the WNBA athletes are not explosive making the overall game much slower than NBA,  but hockey is failing for a different reason.  Hockey’s lack of success has more to do with marketing than anything else.

Recent rule changes including shrinking goalies padding, allowing two line passes and restricting goalies puck handling have lead to higher scores and more exciting games.  These changes may attacked a few fans, but what the NHL needs more than anything else is a new marketing campaign to entice the casual sports fan.  If the casual sports fan can only name three active players (Crosby, Malkin, and Ovechkin) from the entire league, then the leagues is doing something wrong.  The Gretzky, Lemieux, Roy, Jager, Yzerman generation is gone so the NHL must redouble its efforts to either get fans interested in players or generally interested in hockey.

Here is a quick list of things the NHL should be doing to market its sport:

• There should be more promotional events like having the Bruins practice on Frog Pond one day.  It would be a cool event and get the city excited about hockey.
• There should be the equivalent to “NBA cares commercials.”  Show that players are more than just men with missing teeth and awesome beards.  Figure out a way to show that players are real peope and are helping out in the community.  The NFL works hard on this because its a violent sport with guys are wearing helmets all the time.  Hockey must work equally hard to get players names in the peoples vocabularies.
• Everyone loves a rivalry, so promote it!  The Ovechikin vs Crosby rivalry should be pumped up.  Not only are these guys the best players in the league, they are also both really young.  Its a rivalry that could develop the same way Bird vs. Magic did.
• Sponsor youth leagues for kids that cant afford to play hockey and build ice rinks to get youths on the ice.  If kids like the sport from an early age they are likely to become life long fans.  The kids might also get the parents excited and into the sport.
• More commercials like this.  Enough said.
• Have more than one big outdoor event per year.  Why not do it like the NFL on thanksgiving and do both an afternoon and night game?  It would draw twice the attention.
• Give greater support to college hockey as a way to get college students from schools outside of North Dakota excited.

Possibly a more thought out post on this later.