Monday, March 9, 2009

The Next $305M Deal

[Sorry for the lack of content today, but I was knee deep in a gigantic report that I worked on 'til 10 on Friday night, put it on few more hours on over the weekend, which was due today and still probably isn't going out until tomorrow morning. This piece was originally drafted on Friday, but I didn't even have a chance to touch it up and post it. We should be back to the regularly scheduled programming tomorrow.]

If this offseason is any indication of things to come, I wouldn't be all that surprised if A-Rod's deal is still the biggest in baseball history when he retires.

Like the values of homes across the country, we just assumed contracts in sports would keep getting larger. For my entire lifetime, when you made an investment in a home, it inevitably looked better five or ten years down the road.

When the Yankees signed Derek Jeter to his 10 year extension in 2001, they probably thought the market was catch up with the contract, which is probably why they didn't include any reverse escalator clauses for what were presumably going to be his decline years. The market hasn't collapsed around that deal (yet), but it certainly hasn't outpaced it.

Think about how much of a reversal of public opinion is going to be necessary to turn around the economy right now. I see numbers for a economic tracker we are doing at work and I can tell you that roughly 65% of people think the economy is worse than it was a month ago, and basically everyone else thinks it's staying the same.

Since the Dow Jones is really just a reflection of consumer confidence, it's not looking like this is turning around anytime soon. At least during the Great Depression they didn't have 8,000 forms of media constantly reminding everyone how fucked they were. We can throw as much money at this problem as we want, but things are going to get better until people think it's getting better, because perception is reality.

At what point are people going to start putting new money in the stock market and expecting to make money, like before? I'm a child of the 90's. That's where I did most of my growing up (from 6-16), and financially, it couldn't have come in a more prosperous time. On January 2nd, 1990 the Dow opened at 2,753 and on December 31st 1999, it closed at 11,453.

That means if you just invested in the DJIA for ten years, you could have more than quadrupled your money. Today, the Dow is sitting at 6,874, so if you had kept it in for the last nine years (or 9 months), you would have lost almost half of what you made. Infinite growth is unsustainable. The expectation of infinite growth leads to exaggerations (Enron) and shortcuts (sub-prime) which ripple out from their specific domains (the current Banking mess). I'm an even worse financier than I am a sports blogger, so please tell me where I'm off-base.

[Bill Maher hit on some of this on Real Time on Friday night, after I had already written this. My sister will vouch for me. Stop looking at my drafts on Blogger, Bill. You dick.]

And unfortunately that means it's going to trickle down to sports at some point. I'm not sporting Bill Simmons tin foil hat just yet, but if attendance starts dropping, how can it not affect the bottom line? There are only so many other expenses you can trim on a sports franchise. The player's salaries make up the vast majority of operating costs.

Most importantly, who is going to be the type of player to get a bigger deal than A-Rod? Not a pitcher, obviously. It would have to be an excellent defensive player with power at either CF, SS, or possibly 2B, 3B or C. Hanley Ramirez got his and he's not that great defensively. Evan Longoria is locked up through 2016 with club options. Albert Puljos is going to be "31" when his contract is up. It would probably have to be some young buck who's just a prospect now, and tears up the minors, makes it to the majors at age 18, like A-Rod did, and becomes a free agent at 25. Even then, a $252M deal, much less a $305M one, seems like quite the lofty goal.

Anyone up for a friendly wager?

[This is my last depressing A-Rod related post for a while. I promise.]


  1. wow, yeah, thats some really genius analysis. to be able to wait until we're in a recession to recognize that infinite growth doesn't continue forever...I just don't know how they haven't made you treasury secretary already.

  2. Yeah, because that was the point of the post, which was why I began by saying "Allow me to enlighten you with my incredibly prescient insights into the state of our national economy, covering topics that no one has ever thought of, much less actually said before and announce my candidacy for Secretary of the Treasury."

    Oh wait, that's not how I started?

    "If this offseason is any indication of things to come, I wouldn't be all that surprised if A-Rod's deal is still the biggest in baseball history when he retires."

    Any thoughts on the actual point of the post, or are you just going to be a dick? Shocking that you didn't weigh in with your real name, Milton Friedman.

  3. oh wait, you're only allowed to comment on the ACTUAL POINT of posts on this blog? so no discussion on supporting arguments? my bad, timmy g.

  4. You missed the point once again.

    First of all, I'd rather have an anonymous asshole comment than no comments at all, so you are "allowed" to say whatever you want, but you are opening yourself up for rebuttals.

    I wasn't claiming to have broken new ground on the econmoic stuff. For fucks sake, I explictly said: "I'm an even worse financier than I am a sports blogger, so please tell me where I'm off-base."

    But when you say "wow, yeah, thats some really genius analysis", you are just being an ass. I never said it was. I'm not trying to limit the discussion at all, but do you have anything to add? Or are you just going to rewrite what I said and tack on a sarcastic remark? Because THAT'S some "really genius analysis".

  5. I am just going to rewrite what you said and tack on a sarcastic remark, Blankfein.

  6. Wow, this comment string makes me tired, brother. For the record, Jay's been on about this infinite growth thing for some time now. He is certainly qualified to host his own CNBC vehicle on this logic based "genius" analysis.