On March 11, the NBA suspended the remainder of its season as the effects of COVID-19 wreaked havoc: globally, domestically, economically and personally. Stock markets collapsed, and economic activity came to a standstill. The entertainment industry was particularly hard hit when suddenly all sports, concerts and amusement parks were canceled or postponed.
What does this mean for professional sports team valuations and their billionaire owners? While it’s hard to gauge the actual short- or long-term impact of “stay at home” orders, phased re-openings and required limited attendance, perhaps Walt Disney, the quintessential entertainment stock, offers some insight.
Disney derives its revenue from four sources: media networks (Disney channel, ABC, ESPN, etc.); theme parks; merchandise; and studio entertainment (movies). COVID-19 forced the shutdown of all amusement parks, which represents almost a third of Disney’s revenue and its highest-margin business. While theme parks are getting ready to open—with limited attendance and social distancing—the impact on the Disney stock price and enterprise value was severe. At the height of the market in January, Disney had a share price of $150 and an enterprise value of $300 billion. With park shutdowns and live sports cancellations hurting the company’s flagship properties of ESPN and ABC, Disney’s stock fell by a third. Disney has recovered as the market anticipates the country reopening for business, but the “Mouse House” remains at a 20% discount to its pre-coronavirus high. Losing $13 billion in revenue from its theme park division (according to analysts’ estimates) impacts the value of the Magic Kingdom for investors.
At Duke, I am often asked by students and faculty what the best investment asset class is. After the usual disclosure of risk/reward, time horizon, liquidity, etc., I note that if you are both fortunate enough and privileged enough to own a professional sports franchise—a non-correlated asset that seemingly never retreats despite any economic or geo-political scenario—it’s hard to beat that asset class. During the financial crisis of 2009-10, every asset class imaginable had sizable losses—money markets went negative—but sports franchises treaded water until they continued their upward trend, buoyed by skyrocketing media contracts, a proliferation of media outlets, and tech and Wall Street billionaires looking for a combination of prestige and diversification.
Since 2000, no asset class has performed better than owning an NFL franchise. The NFL owners have enjoyed a CAGR (Compound Annual Growth Rate) of 10% over the past two decades. Of the four major sports in the U.S., only the NHL has not achieved annualized double-digit growth, but even the “boys on skates” have outperformed the stock market with a still-impressive 7.8% CAGR. While finance has a lot to do with these impregnable returns, economics offers another clue: too much demand, not enough supply.
When calculating franchise values, Forbes is the gold standard. Using enterprise value as a multiple of revenue, Forbes succinctly reflects the worth of teams, without applying “the winner’s curse” or other hyperbole. Like Disney, sports teams derive their revenue from four sources: media rights, merchandise sales, venue related income, and attendance/ticket sales. With no games, no fans and no venue events, two of the four revenue streams have been severely impacted. When Steve Ballmer, owner of the Los Angeles Clippers and the Forum, declares that “I can’t see anybody agreeing to reopen arenas in the foreseeable future” in response to rumors of the leagues resuming play without fans, the eye-popping valuation growth experienced over the last 20 years seems like it could be ready to flatline for a while.
If Disney’s shutting down its theme parks and cruise ships, combined with the loss of attendance-related revenue, has knocked the stock down 20%, what effect will no fans at games have on sports teams and their values?
In 2018, David Tepper, the hedge fund guru, paid $2.275 billion to buy the Carolina Panthers, in line with the Forbes team valuation estimate at the time of $2.3 billion. So how can we value his NFL investment when the NFL returns with no fans or stadium revenue? He paid six times revenue and 30 times profit to join the league as one of the NFL’s richest owners. No fans in Bank of America Stadium in the 2020-21 NFL season means a loss of $75 million in ticket revenue and another $25 million in other venue revenue. We can estimate that this year’s revenue will come in at $100 million less than last year’s $450 million, with a profit of $63 million vs. last year’s $78 million. This would value the Panthers at between $1.9 billion and $2.1 billion using the same ratios, which represents a 10% to 15% loss from his purchase price. For Tepper, a short-term drop in one of your investments when your net worth is $12 billion is not the end of the world (he lost over 50% in PG&E stock in a much shorter time frame while running Appaloosa Management). The average length of ownership for an NFL team is 36 years, so a slight drop in Year 2 won’t be impactful for the Panthers’ owner—or any other NFL owner.
The pandemic has had extreme effects on every aspect of our lives, and while sports has not been immune, what hasn’t changed is the supply/demand aspect of team ownership. As a quant guy, Tepper understands the importance of arithmetic averages and, more importantly, the statistical phenomenon of regression toward the mean. The NFL has achieved an 11% CAGR over a 50-year period, so a slight decline because of an extraordinary event won’t budge the demand curve. With no plans for league expansion and no change in the supply curve, Tepper realizes that membership has its privileges. His reality is likely that it may take him a lot longer to get the Panthers into Super Bowl contention than it will to get his valuation growing again.
This column appeared in Forbes on June 5, 2020.
Civil asset forfeiture allows the government to confiscate property on the grounds that it is connected to a crime — without ever convicting someone of the crime. In court, a lower burden of proof applies in these civil cases than in criminal cases, even when valuable property such as the vehicle you drive to work is at stake.
Proponents of civil asset forfeiture will argue that such a practice is needed to keep illegal drugs out of Mississippi. That this is the best tool to stop drug mules from crossing Interstates 10 and 20 and reaching your neighborhood. But that argument quickly falls apart when you look at the latest data about the reality of how the practice is used both here in Mississippi and in the nation’s largest civil forfeiture program.
There were 353 seizures in 2019, according to an analysis of records by the Mississippi Center for Public Policy. That is up from 315 in 2018. But the average value in 2019 was $6,073.63, down from last year’s average of $8,708.37.
One reason was the lack of large busts. Only one seizure, $100,715 on April 17 by the Rankin County Sheriff’s Department, was more than $75,000.
In 2018, there were six seizures of more than $100,000, with the biggest being a bust of vape shops by the Mississippi Bureau of Narcotics that netted $644,421.
Only three seizures were $60,000 or more in 2019 after such busts in 2018. The majority of the seizures, 177 were $10,000 or less. In 2018, there were 224 seizures of that amount in the database.
Breaking down the numbers, 118 forfeitures were $2,500 or less in 2019, down from 2018, when 158 met that threshold. Going even lower, 21 were for $500 or less in 2019. That’s down from 2018, when 54 were $500 or less.
A nationwide study also reveals that civil forfeiture fails to fight crime. The non-profit Institute for Justice published a study looking at the nation’s largest forfeiture program: the federal equitable sharing program. This is the Department of Justice program that allows local law enforcement to cooperate on forfeiture with DOJ agencies and receive up to 80 percent of the proceeds.
The study combines more than a decade’s worth of data from the equitable sharing program, with local crime, drug use and economic data from a variety of federal sources. It found that increased forfeiture proceeds did not help police solve crimes or reduce drug abuse. However, increases in forfeiture proceeds were strongly related to economic hardship. When local unemployment rose by 1 percentage point, forfeiture increased by 9 percentage points.
Many on the right and left have seen how this practice is unfair, and not in line with our principles. That is why there has been push back at the state level, and even from the U.S. Supreme Court in limiting this practice.
Since 2014, 31 states, including Mississippi, have reformed their civil forfeiture laws. In 2017, the state brought a transparency requirement to civil forfeiture and last year the legislature let the provision of administrative forfeiture die.
And this year, a bill is moving that would end the practice where law enforcement or prosecutors could request a property owner to waive their rights to their property, often in exchange for charges to be dropped. The new language in the bill will also change the burden of proof for forfeiture to clear and convincing evidence.
While more reform has been hard to come by, other states have gone further. Seventeen states require a criminal conviction to forfeit most or all types of property. And three states – North Carolina, New Mexico, and Nebraska – have abolished civil forfeiture entirely. What does this look like?
New Mexico enacted sweeping reforms in 2015 abolishing civil forfeiture and replacing it with criminal forfeiture. To forfeit property, the government must convict the owner of a crime and tie that property to the crime with clear and convincing evidence in criminal court. This shifts the burden from the individual to the government, by requiring evidence that the person had knowledge of the crime giving rise to the forfeiture. And finally, all forfeiture proceeds must be deposited into the state’s general fund, eliminating the profit incentive that can distort law enforcement priorities.
Civil asset forfeiture violates fundamental property and due-process rights. If someone has been found guilty of selling or trafficking drugs, their property should be forfeited. But it should take a criminal conviction. That is the national mood, and movement.
States like North Carolina, New Mexico, and Nebraska have not become havens for drug dealers or seen spikes in crime. And again, the latest evidence shows that there is not a relationship between increasing forfeiture and decreasing crime and drug abuse. The choice between civil asset forfeiture and fighting crime is a false dichotomy. We know we can support law enforcement, safeguard our communities, and also protect the constitutional rights of all Mississippians.
A month ago, governors of Texas, Georgia, and Florida were routinely and regularly mauled by the mainstream media and so-called health experts for opening their states too early. They were going to have blood on their hands, so we were told.
Images of people congregating at Lake of the Ozarks went viral with every blue check on Twitter letting us know how idiotic and dangerous that was. And then there was the MSNBC reporter lambasting a man on air for not wearing a mask. Of course, thanks to the video camera on the phone of that man, he was able to take his own video and we were able to see the rest of the MSNBC crew…without a mask.
Nothing was more important than staying in for the good of everyone else. Work, sports, church, going to the beach or lake. Don’t even think about it. But that was so last month.
As protests began to spread in the wake of the George Floyd murder in Minnesota, many politicians were left with an interesting position. Continue with the lockdowns or take to the streets in large numbers?
Remember, we’ve already had “Reopen” protests that sprung up about a month ago throughout the country, including in Mississippi. These protests were not just vilified by authority figures, but we even had government officials and police departments say protesting was not an “essential activity.” People were soon being handcuffed for being at the park without permission from the crown.
But we’d learn that the current protests are acceptable. If you want to protest against racism or police brutality – two items I agree are wrong – than have at it. More than 1,000 doctors and other health professionals famously signed on to a letter saying we should be protesting because the cause is bigger than the health crisis.
Yale epidemiologist Gregg Gonsalves said President Donald Trump was guilty of genocide for not taking stronger measures to contain the coronavirus. He signed the “protests against racism are more important than stopping the spread of COVID-19” letter.
Jackson Mayor Chokwe Lumumba, who spent most of the past couple months complaining about the lax lockdown mentality of Gov. Tate Reeves and kept his city closed after the rest of the state opened, said he supports the protestors. Reeves, to his credit, has been one of the few balanced voices in America – supporting the rights of the Reopen protests and the protests this past weekend.
Other politicians – such as New Jersey Gov. Phil Murphy – said he supports the current protestors but will continue to go after lockdown opponents.
At the end of the day, the rights of protestors should always be supported. And while they won’t, the politicians who changed their tone on protesting should be called out. Because, call me cynical, but it appears that they were more interested in power, control, and political points than health and safety.
We entered this legislative session with high hopes for alcohol freedom, but that largely died very quickly.
Legislation to allow direct shipment of wine died on the Senate while other bills like wine in grocery stores or Sunday sales were never considered in committee.
During this livestream, MCPP's Brett Kittredge and Hunter Estes talk about Mississippi's alcohol policy, who is blocking reforms, and how we removed certain regulations during the coronavirus pandemic.
In this episode of Unlicensed, MCPP's Jameson Taylor speaks with Rep. Kent McCarty about the concept behind Learn to Earn. This is innovative legislation McCarty has authored that would expand alternative learning opportunities for students in Mississippi.
Should someone who was allegedly trying to use a counterfeit bill be subject to the death penalty? Obviously, the answer is no, but as we know that is the story of George Floyd. Because of excessive police force, another man has lost his life and his future.
This has led to varied reactions, from peaceful protests to violent riots to turning off the television or shutting down social media. Wherever you may fit, we know something needs to change. When it comes to police reform policy, where does that start?
End the practice of qualified immunity. When it comes to reform, few items have received more attention than what is known as qualified immunity, a practice that essentially shields law enforcement and all government officials from accountability for their actions.
This is a creation of the Supreme Court and because of it Floyd’s family would likely have their claims against the officers dismissed because there isn’t a case from the 8th Circuit Court of Appeals (the jurisdiction for Minnesota) or the U.S. Supreme Court specifically holding that it is unconstitutional for police to kneel on the neck of a handcuffed man for nine minutes. With qualified immunity, you need to show that the rights were “clearly established.” A high and unnecessary bar.
What does that look like? In Georgia, deputies attempted to shoot a dog, who did not even pose a threat, missed, and hit a 10-year-old child. The family of the child filed suit, but that was rejected by the 11th Circuit Court of Appeals because they could not find precedent declaring this type of conduct unconstitutional. The 11th Circuit even added that the officer should be protected because the officer meant to shoot the dog – not the child.
Currently, the Supreme Court is hearing 13 different petitions to reconsider qualified immunity and a bill has been introduced in Congress to abolish the practice.
Require liability insurance for law enforcement. Similar to medical malpractice insurance for doctors, liability insurance for law enforcement would hold individual officers accountable rather than shifting the burden to taxpayers for agency-wide payouts. Essentially, this incentivizes good behavior as fewer mistakes equates to lower costs. Very similar to your auto or home insurance. Conversely, if an officer becomes too high of a risk, they would become uninsurable, which is probably a good sign they shouldn’t be employed.
On a similar note, we could prevent future uses of force by stripping certification for misconduct. This could be done by a council that is made up of civilians and/or elected officials.
End the militarization of law enforcement. Local law enforcement agencies are allowed to freely acquire surplus military equipment for their work. This could include tanks, grenade launchers, helicopters, assault rifles, and various other military items. Law enforcement and the military are not the same thing, and do not do the same work. The legislature should prohibit agencies in Mississippi from participating in this program.
Require body cameras. Because of technology, we have been able to see numerous examples of police misconduct that we otherwise might not have. But we should continue to move forward with policy that requires body camera use when force is being used by an officer or when a warrant is being served. After all, cameras show us not just wrongdoings of officers, but they can protect officers from dubious claims. If funding is needed, the legislature can create a grant program from forfeiture funds and oversee the disbursement of funds to local agencies.
Require reporting of misconduct by fellow officers. Officers should hold each other accountable, but we have reporting from the Department of Justice that says that usually isn’t the case. According to the report, 84 percent of police officers have seen colleagues use excessive force on civilians, and 61 percent admit they don’t always report ‘even serious criminal violations that involve abuse of authority by fellow officers.’
Instead, we should legally require officers to report their colleagues who abuse their power and use excessive force. If they don’t, they should be held accountable. And those who bring forward complaints about misconduct should be protected from retaliation.
We all want to live in safe communities. We all want to support law enforcement. But we cannot continue to turn a blind eye on those who are suffering because of bad actors. Those individuals need to be held accountable. But that won’t happen until we have the will to make the necessary reforms.
This column appeared in the Clarion Ledger on June 3, 2020.
As people began staying in during the coronavirus pandemic, food trucks soon became a popular option in neighborhoods across the state.
Whether it was because restaurant dining halls were closed, people were nervous about going out, or the fact that many festivals where food trucks tend to congregate being cancelled, all of a sudden we realized what a great benefit food trucks provide. And food trucks were happy to fill that hole.
Food trucks are a fixture in booming cities across America and can be found in many locales up and down Mississippi. That is as long as local governments stay out of the way. Which they mostly have. Though protectionist tendencies are hard to break.
Food trucks already follow the same health and safety guidelines set by the Department of Health as brick-and-mortar restaurants, but some don’t like the idea of competition from colorful trucks that tend to draw a crowd. For more than a year, the city of Tupelo debated food truck regulations. In the end, Tupelo did the right thing and never followed through on early regulatory proposals such as what streets you could be located or how far you must be from a brick-and-mortar restaurant.
Why did Tupelo need the proposed regulations? Were people who visited food trucks becoming ill? Did they hate their food? Hardly.
Tupelo Councilman Willie Jennings said, in proposing the regulations at the time, “I just want to make sure the established businesses are protected.” Another councilman, Markel Whittington, said brick-and-mortar restaurants have requested food truck regulations. While he didn’t feel food trucks posed a “threat” to those restaurants, he believed it was appropriate for government to act “on behalf of select business interests.” Hint: It’s not.
Councilman Mike Bryan lobbied for brick-and-mortar restaurant protections, such as a ban on major roads. “I feel like it is not fair to brick-and-mortar businesses to allow food trucks to park in front of their business,” Bryan said. Another councilman, Buddy Palmer, also indicated his support for a ban. “I will always be pro-downtown businesses over food trucks,” Palmer said. “I am for brick-and-mortar businesses much more than I am for food trucks.” Or you could just support new business coming to your city and letting consumers decide?
In Columbus, it wasn’t the government but the proprietor of a local CJ’s Pizza that called the owners of the shopping center where his restaurant is located and had a food truck removed from the parking lot. After all, it was too close to his establishment. “If you think you're gonna park a food truck right next to my restaurant in the same parking lot and poach my customers then think again,” the rant read on Facebook.
This isn’t how business works. You can’t just run your competition out of town. You provide better food, better service, or a better price, preferably all three. And then the competition closes shop because they can’t survive.
Food trucks are examples of entrepreneurs responding to market signals. In so doing, they are contributing to the local economy by serving a customer niche. Brick-and-mortar restaurant entrepreneurs can do the same, and many have. All of these entrepreneurs, new and old, are creating unique options and working to build a more diverse and appealing food marketplace in Tupelo, Columbus, or wherever they are located. In turn, this attracts more consumers to the downtown – creating a bigger, healthier and more prosperous local economy.
In a properly functioning economy in America, the success of a food company should be based on how good the food and service is; not on how well connected it is to the political class. In a system of capitalism, competitors respond to consumer trends with innovations and improved offerings, not by seeking government help to build a moat around their businesses. We should be encouraging entrepreneurs and risk-takers, not creating hurdles out of a misplaced sense of obligation to protect existing businesses.
It is not the role of government to protect any business, brick-and-mortar or otherwise, from competition. The free enterprise system operates correctly when consumer choice, not political blessing, is the basis of choosing the winners and losers. As we’ve seen during the pandemic, needless regulations only get in the way of consumer choice. That might be healthcare regulations restricting your access to telemedicine. Or your ability to choose what you would like to eat.
House Bill 1422, sponsored by Rep. Randy Boyd, would create a pilot program to reduce state regulations.
The way the bill works is the Mississippi Departments of Health, Transportation, Agriculture and Commerce, and Information Technology Services would have review its existing regulations, accept written comments from the public for 60 days following the review and conduct at least two public hearings for citizens and businesses to identify any rule or regulation that is burdensome.
The review would have to be conducted within 120 days of HB 1422 becoming law. Each of the agencies covered in the pilot program would have to reduce their regulations by:
- 10 percent by December 31, 2020.
- 20 percent by December 31, 2021.
- 30 percent by December 31, 2022.
According to the bill, if one of the agencies hasn’t reduced its regulations by 30 percent by February 1, 2023, the House Appropriations and Senate Finance committees would conduct a budgetary audit to determine the obstacles preventing the agency from reducing its regulations by 30 percent.
The Joint Legislative Committee on Performance Evaluation and Expenditure Review (PEER) would also have to conduct a review of the regulatory reduction efforts of the agencies involved in the pilot program and make a report to the legislature.
There’s plenty to cut. According to a study by the Mercatus Center at George Mason University, wading through Mississippi’s morass of regulations would take 13 weeks to absorb its 9.3 million words and 117,558 restrictions.
This bill is a good start at untangling the Gordian knot of Mississippi regulations, which choke businesses with compliance costs which are later passed on to consumers.
MCPP has reviewed this legislation and finds that it is aligned with our principles and therefore should be supported.
Read HB 1422.
Track the status of this bill and all bills in our legislative tracker.
Senate Bill 2053, sponsored by Sen. Angela Hill, will prohibit public officials from appearing in publicly funded advertisements during an election year.
Public officials would not be able to use taxpayer funds for advertisements that use their name, voice, or likeness starting on January 1 of an election year. This includes radio, television, internet, newspaper, and billboard advertisements.
Taxpayer funds would also not be allowed to sponsor a convention, conference, or seminar organized by a lobbyist. The legislation does expressly permit the continued use of taxpayer funds for association membership fees and registration and attendance of a convention, conference, or seminar.
MCPP has reviewed this legislation and finds that it is aligned with our principles and therefore should be supported.
Read the bill here.
Track the status of this bill and all bills in our legislative tracker.