This year’s Independence Day feels different. A population of societal disintegrationists, who are increasing in either volume or size or both, are attacking America’s foundational concepts.
In their retro-judgment of historical actors and damning of every American foundational concept and document that was ever touched by even a single figure who did not comply one hundred percent with modern social justice norms, they miss the key point: the ideas that gave rise to our nation’s founding were radical and revolutionary at the time, and they remain radical and revolutionary today.
On July 4, 1776, when the Declaration of Independence was issued, no government had declared that God created all men equal with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness. The very people they damn were the first to do so – very woke for 1776.
The Founders provided a Constitutional framework that has permitted our nation’s growth into the most free, prosperous, and powerful nation in history. It has not been without scars, but this is not surprising. People are imperfect beings, and the fight for freedom has never been easy – not in any place across time and not in any place in the world.
That is true here.
Freedom has always required struggle, and it will require struggle to maintain it (see Hong Kong today). The good news is that through starts and stops, steps forward and backward, the arc of our nation has pointed towards more liberty, not less. This is an affirmation that our basic Constitutional architecture is sound, and it is critical to recognize this. We are here today, having the discussions we are having about fulfilling the promise of liberty, because of our Constitutional framework and not in spite of it.
Very importantly, the disintegrationists also miss that the Founder’s Declaration remains radical and revolutionary today, and one wonders if they would issue the same foundational framework to government – respecting the God-given right of the individual to life, liberty, and the pursuit of happiness – if their seeming goal of some type of new order was achieved. They topple statues of Washington, Jefferson, Grant, a Priest and Saint, a former slave, Cervantes, and this week in Portland an Elk (as in the animal).
It is difficult to identify a consistent theme or purpose to the vandalism other than destruction for the sake of it, and all of it is done with the perfect lens and judgment of 2020 Wokeness. It is as if the disintegrationists believe they are the only good people who have ever existed, in this time and place, and if you had dropped them in 1825 America, England, or even Prussia or Russia, they would still be thinking exactly as they do now, marching the streets and stumping for today’s constantly evolving ideas about social justice.
They have separated the persons they critique from their historical contexts – as if history and place doesn’t matter – and they themselves would think the same as they do in 2020 regardless of whether and where they lived in 1312, 1515, 1776, or 2020. It doesn’t work that way. We are all a product of our historical era. The journey of our nation is about progress, not perfection.
This year has brought a discernible shift in in our societal conversation from a focus on the individual to a focus on groups. In other words, identity politics. This groups gets this, that group gets that. This shift has been occurring for quite some time, but seems to have accelerated of recent. There are consequences to this type of shift and reframing of focal point from individual to group.
The Founders focused on the individual because it is ultimately the best way to protect everyone, regardless of group membership. They tethered rights to the individual, and importantly, recognized these rights are granted by God (because if rights are granted by God, your fellow man can never do anything to take them away).
The problem with a shift to a focus on groups is that it inevitably leads to the tug-of-war of interests between groups, and in the process the canceling of the very individual rights it nominally seeks to protect. It is important to note that it is not that data on how policies affect particular demographics are not helpful. That data can be. It’s that problems start to occur when everything is framed as group struggle.
We need to replace the focus on the individual, and in so doing we can best address grievances of individuals within groups. There is no better way.
The irony of the claim by disintegrationists that America is inherently evil is that it is our very capacity for self-assessment and introspection that has permitted our progress towards more liberty, not less, over time. As they shout from the mountaintops about how inherently evil our institutions are, we undertake in earnest a conversation about our shortcomings and how we can best fulfill the promises of the Declaration of Independence going forward.
In the words of Peggy Noonan, “We’ve overcome a great deal. We see this best when we don’t deny our history but tell the whole messy, complicated, embarrassing, ennobling tale.” The Great Conversation has always occurred here. Other nations are not taking their personal inventories like we constantly are. Let’s keep it that way.
Have a great Independence Day, and be thankful for our freedom.
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.
In North Carolina, Gov. Roy Cooper has adopted the policy premise that anything done in the name of safety from the coronavirus trumps all other interests, including economic, religious, or other health considerations. Despite comparatively low numbers in the Tar Heel state, the ninth most populous state in the United States, and with no evidence of the healthcare system being overwhelmed, North Carolina has been in full lockdown for over a month.
It matters not if you live in the mountains or on the coast—rural or urban—all residents are required to shelter in place. Despite the crippling effect COVID-19 has had on the $25 billion tourism industry, the devastation to the small business community, and over a million job losses, “thou shalt not work” unless the good governor has deemed you “essential.”
In Mississippi, Gov. Tate Reeves has operated under an alternative premise: that medical safety is a major consideration, but so is allowing people to protest, or to fish, or to earn a living. The governor in the Magnolia State has taken a lot of heat for being slow to slam the economy shut and quick to discuss reopening it. He has also caught a lot of flak for allowing counties and cities to determine what works best in their own communities and for refusing to tell Mississippi churches how to conduct their affairs. Like North Carolina, Mississippi has relatively low numbers of COVID-19 deaths and no apparent strain on the healthcare system, despite having a very high rate of citizens with obesity, heart disease, and diabetes.
Small businesses are on life support across both states. Jobless claims have risen to historic levels in the state of the Dogwood and in the state of the Magnolia—now higher than during the financial crisis. Medical advisers in both states are giving warnings and covering all their bases at daily briefings as they stand beside their respective governors. There is no question that both governors have taken this disease seriously and offered intelligent advice about how we should protect ourselves. So, how do you explain the vastly different approach to the pandemic from two red states with similarly low coronavirus impact?
The difference is in the tone, in the language, and in the viewpoint of how best to mitigate risks and protect citizens. Cooper’s instincts are to restrict the personal freedoms of his citizens; Reeves’ instincts are to protect the personal freedoms of his. Cooper believes shutting down businesses won’t lead to shortages of food and paper products and that denying the constitutional rights of his residents won’t lead to a citizen uprising. (Note citizens are staging weekly protests at the state capital and the governor’s mansion in Raleigh.) By contrast, Reeves has moved to open retail shops, acknowledged the rights of protestors to peacefully assemble at the Capitol, and refused to accept the premise that we must choose between prudent healthcare measures and protecting our economy.
In the state of Michael Jordan, hospitals are losing revenue and laying off personnel because the governor won’t allow the treatment of non-coronavirus patients. In the state of Archie Manning, elective procedures have begun again because the governor recognizes cancer surgeries are pretty “essential” to the patient.
History will judge how these two governors, and the other 48, managed this pandemic. But as data comes in, it’s looking like the quarantines will not prevent us from getting sick. It appears we’re basically delaying the inevitable infection rate. As these long days go by, the models continue to indicate initial predictions were vastly overstated. However, the data on the destruction of our economies and on the hopes and dreams of our citizens may be far worse than ever imagined.
The American economy is the greatest in the world because of all of the interconnected and voluntary exchanges that take place every day, in every community. It remains to be seen if this economic miracle of free enterprise can survive the kind of body blows delivered by the heavy hand of government—especially by the kind of authoritarian governors who seem hellbent on taking a sledgehammer to our economies when a scalpel would have been more useful.
This column appeared in FEE on May 15, 2020.
As April nears a close, America’s small business sector focuses anxiously on May 1, the date arbitrarily selected by many governors to reopen their state economies.
Many small business employers and employees will mark it as the day they finally regain their livelihoods. For most of them, this day has been a long time coming.
The majority of the nation’s small business owners can’t keep their businesses shuttered for weeks or months on end, no matter how much the federal government tries to “stimulate” the economy. Yet many governors suddenly are backtracking on May 1, despite empirical data about the flattening of the coronavirus curve.
As is increasingly the case in this country, everything is viewed through a political lens. Clearly, COVID-19 and shelter-in-place policies are no exception.
Blue state governors such as Andrew Cuomo of New York, Philip Murphy of New Jersey, J.B. Pritzker of Illinois, and Ralph Northam of Virginia seem hell-bent on prolonging stay-at-home orders, seemingly rejecting a flattening of the curve more in favor of a parabolic outcome.
As unemployment claims skyrocket and Twitter fights and press conferences turn partisan, many governors and health officials seem to turn a deaf ear to the economic and personal crises of millions of Americans, all in the name of public health.
The drumbeat to reopen state economies is now manifested in weekly protests at state capitols, where thousands of American citizens openly defy stay-at-home orders in an attempt to sway the one autocratic decision-maker.
In states across the country, governors robustly have conducted an unprecedented usurpation of the American system of democracy—shutting down the economy, prohibiting a social and spiritual way of life, and rejecting any obligation to a transparent burden of proof—in an attempt to not “overwhelm our health care system.”
To be sure, there is no easy decision for a governor in weighing public health concerns versus economic ones.
In addition to the daily counts of confirmed COVID-19 cases and fatalities, we’re starting to count bankruptcies, abandoned mortgages, permanently closed businesses, and 26 million unemployment claims in a mere three weeks—all of which has contributed to the deteriorating mental health of millions of citizens.
However, despite the wish for a political magic bullet, there never will be a perfectly chosen date or “green light” indicating all is clear and we can announce it is safe to go back in the water.
No, leaders have to use discernment. They have to be willing to weigh the evidence from experts and then make a call. This is the time when leaders are separated from mere politicians.
Each governor must make an informed and politically agnostic decision as to what is best for his or her constituents. Partisanship and political prejudice must take a back seat.
When a governor is making such a decision, would it not be a comfort to know that this elected representative feels the pain of all the hardworking Americans thrown into unemployment for no other reason than an arbitrary state line?
As we say in the business world, governors would have some skin in the game.
So here’s an idea. What if each governor who kept his state on prolonged lockdown after a decline in the health system surge bore the same burden as those who are unemployed?
What if North Carolina Gov. Roy Cooper, for example, had to forgo his salary and benefits during the same period of his executive order to stay home? Would we not all feel that the goose and gander are on the same page?
Perhaps then, and only then, the economic weight of this crisis would be felt by the authoritarian types running states such as Michigan, Virginia, Illinois, New York, and New Jersey.
On the other hand, what does a political operative like Cuomo know about standing in line for hand sanitizer? What would Murphy know about how to apply with his bank for a Paycheck Protection Program loan? Can Pritzker really understand the personal circumstances of applying for unemployment?
Many of these governors are far too disconnected from the real impact felt by those who must suffer the consequences of government orders.
As the well-known economist Thomas Sowell has written: “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions into the hands of people who pay no price for being wrong.”
We’re living in unprecedented times, as many of the governors like to say just before they further extend orders to keep our economies closed.
“We all have to sacrifice,” a state leader will say. Well, let’s try an unprecedented measure. Until the orders to limit making a living are lifted, let’s require governors and their cabinets to go without pay and benefits. Let’s ensure the governors and their staffs have some skin in the game.
That could be the incentive they need to leave the politics aside and let people have the personal responsibility and liberty to make prudent decisions for themselves.
This column appeared in Daily Signal on April 29, 2020.
The PGA Tour, now under the leadership of Commissioner Jay Monahan, announced major media deals with both digital and traditional platforms at the beginning of March.
The new agreements reportedly increased the PGA’s annual media haul to more than $700 million, a 75% increase from its previous $400 million take annually. The media partners who bought into the nine-year deal included Viacom/CBS, Comcast, parent of NBC and The Golf Channel, and Walt Disney, parent of ABC/ESPN. What does this mean for the sport and the association owned and governed by its players? What does it say about the value of golf in the digital age? Perhaps most importantly, will golf and its new media partners be forced to get creative in order to mitigate the financial impact of COVID-19?
Like its brethren in the sports entertainment industries of football, basketball, baseball, soccer, and hockey, the PGA’s deal proves the critically valuable nature of live sports content. But unlike those team sports, golf relies on a combination of a few individual stars and an audience of loyalists who hold the game in high esteem. Team sports have stars but they also leverage team and regional affinities, which can create media audiences that can last for generations. But what golf offers – and none of the team sports can match – is an extremely appealing audience for certain advertisers looking to reach high-income viewers. Think about Rolex, Charles Schwab, Mercedes, and similar brands attempting to reach and build loyalty with a large block of well-healed consumers. The PGA Tour, and other major golf events, are perhaps the best vehicles for such companies.
With the new media partnerships, ESPN+ becomes the exclusive home for PGA Tour Live, the tour’s subscription service, offering 4,000 hours of coverage at 36 annual events. Discovery Communications inked a multi-year deal in 2018 for the international rights valued at $2 billion in total. Digital and streaming rights have helped drive the PGA to new heights in media. And part of that credit goes to the core group of current stars who’ve embraced social media and are comfortable living part of their lives out though non-traditional platforms. Maximizing the value of non-traditional media deals will include creating a lot of off-the-course content, too. Expect to see more of Brooks Koepka, Rory McIlroy, Justin Thomas, Rickie Fowler, and - if he ever finds his driver control again - Jordan Spieth in non-traditional settings.
The new deals were negotiated during an unprecedented period of economic growth, when many golf fans were experiencing unprecedented income and personal wealth growth. More golf fans were participating in the stock market and buying new cars, watches, and drivers. What kind of long-term impact the COVID-19 pandemic and its related economic calamity will have on all of this is unknown. Even if the economy recovers quickly by the summer, there are additional questions that remain. Will the PGA be able to use the new partnerships with media companies to effectively grow its brand, the sport, and its stars? Will any of the additional $300 million annually make its way into individual tournament purses, either to attract the world’s best to more PGA events or to reward the PGA members outside of the top 50 in earnings?
Finally, could the deals include rights to stage unique events outside of the traditional PGA Tour schedule? For instance, could we really see Tiger and Peyton Manning take on Phil and Tom Brady? Given the current lack of any live sports programming, can you imagine the ratings for a series of live golf events held in May, June, and July? There are ways to get creative with skills contests and other events that don’t require the normal tournament logistics. If a sport could be played while maintaining safe social-distancing and not sharing a common ball, it’s golf. You’ve got to imagine Monahan and his new media partners have already been in discussions about such “made-for-television” events. If not, let’s hope they start now.
This appeared in Forbes on April 2, 2020.
Amidst the outbreak of a deadly virus, we have witnessed a remarkable show of unity amongst our nation’s political leaders.
New York Governor Andrew Cuomo praised Trump’s efforts on the crisis and called him “creative and very energetic.” Liberal Minnesota Rep. Ilhan Omar referred to Trump’s current leadership as, “incredible and the right response in this critical time.” This fact is made all the more fascinating due to its timely juxtaposition with January’s height of political division, accented by the conclusion of the impeachment proceedings of President Trump.
Today, we have been driven to renewed societal solidarity, the likes of which we have only seen when facing a common enemy, in this case we have an almost invisible one. However, the confrontation over the coronavirus will only truly begin once we defeat this disease. The origins of the virus and China’s culpability in covering it up during its initial stages of transmission and the state’s actions during the crisis present the case for China being the adversary that unites Americans against a common enemy moving forward.
Pew Research recently published a survey which highlighted that 91% of Americans believe there is a very strong or strong conflict between Republicans and Democrats, the highest rate that has been recorded. When the Center first asked the question in 2012, only 47% of Americans saw very strong conflict, while today the number stands at 71%.
This level of political polarization has risen to new heights since the fall of the Soviet Union. Much has been written about how this former common ideological enemy set the bounds for our political infighting and as a dark cloud casts a far-reaching shadow, it served as a permanent reminder that there were larger issues than the petty domestic political squabbling of the moment.
It was in this ideological adversary that we found most clearly who we were as a nation, more specifically by recognizing what we were not. The Stalinist legacy of a country built on totalitarian communist rule stood in stark contrast with the American consensus. Today, Beijing and Washington have already begun to wage ideological proxy wars in unorthodox ways, namely through economic investments in emerging nations and confrontations over spheres of influence. The need now is to bring these proxy battles into the light, and recognize this conflict for what it is: a new Cold War.
Some reports now point to a coronavirus outbreak that would have been known by the Chinese government as early as October. The state’s clearly documented censorship of doctors and media from discussing this virus, and prevention of world health officials from gaining access early on may ultimately have cost thousands of lives. The government’s ongoing duplicity during the spread of the virus and the willingness of leading Chinese Communist party officials to spread disinformation regarding the virus’ origins showcase how the country’s leaders have a reckless disregard for both the truth and human life.
Never before has Chinese communism been presented in such a stark contrast with the American idea. Where we promote transparency, they crush it. Where we defend human rights, they violate them. Where we defend the sovereignty of other nations, they attempt to stifle it. We must finally publicly recognize that the inherent foundations of the current Chinese communist leadership run too afoul of the values that we claim to hold dear for both states to continue to exist simultaneously in the same form.
No longer can the Chinese government be allowed to place millions of Uighur Muslims in camps, to suppress religious practice across the nation, to censor and arrest political dissidents, and to use heavy-handed tactics to place pressure on surrounding countries, without accountability. China is the adversary we need, to unite our nation under a common cause and give us the chance to push back against a foreign power that draws its strength through illegitimate processes.
No matter how this pandemic comes to an end, one thing is for certain: the world has been fundamentally changed. Out of the death of this virus must come a reinvigorated sense of American community, highlighted and shaped by a recognition of what we are not.
And, what we are not has best been openly displayed by the corrupt totalitarian regime which allowed this virus to first spread, while offering deceit and lies to the rest of the world that stood so ready to help and support it in a time of crisis.
In the 6th Century BC, Lao Tsu wrote that, “[a] great nation is like a great man…He thinks of his enemy as the shadow that he himself casts.” The Chinese communist party is as a shadow to the American ideal, a dark corruption of our commitment to human rights and personal freedom. In this corruption we ought to recognize our adversary for the coming decades.
This appeared in Human Events on April 2, 2020.
In 1975, Kareem Abdul Jabbar made $450,000 as the highest-paid player in the NBA. In that year, the average player salary was $90,000.
The way the game of basketball was played then determined which competencies (i.e. skills) were of most value. At that time, it was the center position. In terms of income inequality, a popular measurement of labor statistics favored by French economists and a former candidate for president of the United States, the difference of player income was a multiple of 5x. In that same year, the US median household income was $13,779 and an unarmed security guard working NBA arenas was making $3.50 per hour on average, $7,280 annually. The income inequality measure between Jabbar and the average family was 33x.
Fast forward to 2020, and the highest-paid player in the NBA is Steph Curry, making $40 million. The game has changed; 3-point shooting is now perhaps the most valued competency. In 2020, the average player in the NBA makes $7.7 million, roughly the same multiple of income inequality at 5x. Stated another way, both NBA figures, the top, and average contracts, represent a 10.5 percent CAGR (Compounded Annual Growth Rate), demonstrating how much American and global consumers value the NBA.
In 2020, the US median household income is $63,688 and the average pay of the NBA security guard is $13.91 per hour, $32,429 per year. While the income inequality measure between the guard and the family remained constant at 2x over 45 years, as did the inequality between the top salary and the average salary in the NBA, the income inequality between Curry and the average family increased to 628x.
What can explain such an increase?
If we were demonstrating this sort of income inequality in a profession outside of the NBA or using an entrepreneur as the example rather than Steph Curry, you can imagine the exasperated cries from many who are convinced capitalism is an unfair economic system, perhaps even evil. Many make the unreasoned leap that the existence of an economic disparity between the top and bottom proves the existence of exploitation or structural unfairness.
In reality, it turns out that such unequal distributions are quite common. It’s as if they are governed by a natural law. Well, they are. There is a recurring pattern in all facets of our life that demonstrates the extremely unequal distribution of creative production. It’s called Price’s Law.
Derek Price, a British physicist, made the discovery that governs organizational output. Essentially, a small handful of people are always responsible for a large majority of the value creation. Price’s Law explains how this inequality exists in everything. Whether musicians, artists, writers or athletes, a small minority of people produce a majority of the most valuable things. It’s why only five composers have produced roughly 50 percent of all of the classical music we listen to. There is a hierarchy of competence that exists in everything.
The Pareto Principle is another helpful way to understand that inputs and outputs are not equally distributed. The Italian economist, Vilfredo Paretoobserved that 80 percent of the wealth in his country was controlled by 20 percent of the population. As he discovered, the same was true in other countries. Nearly everywhere we look, a minority outscores the majority in wealth because a few people have mastered the competency of their realms. We can look again to sports to see this play out in teams and leagues.
Of the 25 million people who play golf in America, only a few hundred of them are able to have a competency level high enough to play on the PGA Tour each year. And within that elite group, the Pareto Principle and Price’s Law hold true. Brooks Koepka started 21 tournaments in 2019 and earned $9,684,006 in prize money. Rod Pampling also started 21 tournaments in 2019. He earned $102,127.
Does this suggest the rules of the game were unfair? Did Koepka cheat? No, the results were simply unequal.
Let’s look at the NHL, where Connor McDavid is the highest-paid player at $12,500,000. Anthony Richard is also a center in the NHL. He makes $688,333. McDavid scored 116 points (41 goals, 75 assists) in 2019; Richard did not score. Are Canadians up in arms over this?
What about the NFL? The Pittsburgh Steelers have Ben Roethlisberger and Paxton Lynch under contract as quarterbacks. Roethlisberger makes $36,042,682; Lynch makes $735,000. In 2018, Roethlisberger threw 34 TDs; Lynch threw two in 2017. In Seattle, Russell Wilson earns $31 million per year as the starting quarterback of the Seattle Seahawks. He threw 31 TDs last year. Cody Thompson is also a QB on the Seahawks roster. He makes $510,000 annually.
If we go across the pond to the English Premier League, will we find a more egalitarian system based on an equal distribution of compensation? The top goalkeeper in the EPL is David De Gea. The Spanish wizard has a record of 167 wins and 65 losses, including an astonishing 107 clean sheets. De Gea is paid £19,500,000 per year. The lowest-paid goalkeeper in the EPL is Pontus Dahlberg at £156,000. Dahlberg is yet to make an appearance in an EPL match.
Returning to the NBA, what about a favorite of social justice advocates, LeBron James? In the 2019 season, James averaged 25.5 points and 10.5 assists and earned $31 million in salary, which was roughly 30 percent of the Lakers’ cap space. Talen Horton-Tucker is also a player on the Lakers. He earned $898,310, despite averaging zero points and one assist per game.
In other words, the NBA has become such a valuable form of entertainment around the globe that a benchwarmer today is making what Kareem Abdul Jabbar made in 1975 (in inflation adjusted dollars). And that’s a good thing. While we focus on how much Steph Curry makes at the compensation ceiling, what we need to recognize is how much players are making on the compensation floor. The difference in compensation is not a result of bias; it’s a result of a meritocracy that rewards value creation. No NBA players are being exploited.
What these salaries reveal is the liberating nature of free enterprise. It works beyond sports, too.
Free enterprise gives opportunity to the creative and encourages productive actions. There is no other way to explain the substantial decline in extreme poverty in the world over the past 40 years. In the 1980s, 40 percent of the world lived in extreme poverty. Today, 8.6 percent do. Instead of focusing on the income gap, we should keep raising the floor.
Yes, the rich are getting richer. But who says they are doing so at the expense of the poor? Well, lots of people. The list includes French socialists, economics professors at Harvard, Project 1619 contributors at The New York Times, Bernie Sanders, CNN commentators, even some professional athletes.
We don’t know if these people believe attacks on the rich will lead to a more prosperous society, but when citizens start to believe this popular fiction, it leads to a strong resentment against the most creative producers in our society. It feeds the belief that these producers obtained their wealth by stealing it from others.
This can lead to destructive public policies, such as Sen. Elizabeth Warren’s wealth tax. Rather than focusing on attempting to narrow the gap between rich and poor, we should focus on expanding economic growth.
That’s what the professional sports leagues have done over the past four decades, and there are many more millionaires as a result.
This appeared in FEE on March 27, 2020.
As confinement becomes commonplace and more and more cities and states declare “shelter-in-place” orders and curfews, Americans and sports fans around the world find themselves faced with the new stark reality; no sports to be watched, anywhere!
When sports are cancelled or postponed for reasons beyond our control, just who pays? As regards the mega media deals between networks and leagues that aren’t being fulfilled, who is responsible? The answer might surprise you.
The NBA halted all games on March 12 and all sports followed the lead of Adam Silver shortly thereafter. For college fans, not only did the NCAA cancel all remaining spring sports, they quickly cancelled that rite of spring we affectionately call March Madness. Gone are the usual 3.7 million brackets submitted by basketball fans everywhere. More significantly, gone is the $800 million the NCAA receives from the networks, like CBS and ESPN, by far its largest revenue source for funding year-round endeavors. The Tokyo Olympics have been postponed for a year. NBC Universal paid $1 billion for broadcast rights - the cornerstone of their summer schedule and the gem in their advertising revenue stream – and they must be feeling flu-like symptoms right now.
We are hearing the term “force majeure” quite frequently, a term usually ascribed to commodity outcomes (of which we have been on the wrong side of a few too many times). In short, force majeure declarations are part of any contractual obligations where one side, for an exceptional and unforeseen reason, declares that they cannot or will not fulfill their contract with the other party. Think of a war, strike, riot, crime, plague, or an event described by the legal term “act of God.” In recent times, think of Hurricane Katrina or the Libyan Civil War.
The NBA’s collective bargaining agreement includes a force majeure clause that allows the league to garnish player wages or even to cancel the labor deal entirely if an event, such as an epidemic or act of war, forces a long-term suspension of play.
Since force majeure is standard in almost all contracts, with all the cancellations and delays of future sporting events, one begs the question: just how does a canceled television/media contract work anyway? Are the networks on the hook for the entire amount? Is the league or association obligated to repay any funds they have received to date and compensate their broadcast partner for damages?
The Sports Professor recently interviewed Doug Perlman, a sports media rights expert, Founder/CEO of Sports Media Advisors,former NHL executive and past president at IMG Media, to get the answer to just who is responsible when God cancels sports. His message was clear and to the point as to who is responsible for media contracts that aren’t fulfilled: “It depends.”
Doug has been on both sides of media deals, representing the content provider and the content distributor, and what he stated was that all contracts are unique in some sense and much depends on the relationship between the leagues and the networks. Assuming a good working relationship, there are plenty of options on contract fulfillment when there is a stoppage. The most common remedies are: 1) Payments might be stretched over the entire life of the contract instead of during the current time frame 2) Pro rata rebates based on not just how much time has elapsed but also a weighting of the importance of games. For example, the NBA is about 80% done with the regular season but the playoffs carry much more weight from a ratings perspective. 3) Arbitration if the two sides cannot reach a deal (this is the case with any force majeure claim).
According to Perlman, it really becomes a question of collaborative vs contractual relationship and he indicated that most networks and league partners have a very good working, collaborative relationship. One thing he made very clear was that while the various network partners are consulted, the decision to cancel or postpone clearly belongs to the leagues.
COVID-19 has had a devastating impact globally. From the loss of life to the way we interact with each other, the virus has proven to truly be life-altering. From an economic perspective, the results are equally as sobering as every industry is impacted. Airlines, auto manufacturers, hotels, and energy companies hang on by a thread. With over 150 million Americans being told to stay at home and countries like India, England, and others enduring national stay-at-home orders, what a great time to be a network with a robust portfolio of live non-scripted content, like sports. Yet, the best networks can do now is strategically promote the re-broadcast of some of the greatest sporting events of all time and wait just like the rest of us. When the curve flattens, the world starts up again, and sports resume, it will be interesting to see the financial damage done to networks and leagues from lost revenue and unfulfilled contracts. When God cancels sports, who pays? Clearly, that depends.
This appeared in Forbes on March 25, 2020.
The proposed collective bargaining agreement is finally in the hands of some 2,000 players, who have until Saturday at 11:59 pm ET to vote on a deal that would govern the NFL and ensure labor peace until March of 2031.
The big issues in the proposed agreement are a 17th game, new playoff expansion and a minimum wage increase. NFL owners have already approved the terms for the new 10-year collective bargaining agreement, but the players appear to be unsure.
People with knowledge of the negotiations told CNBC one of the holdups centered on the new 17-game format, which had capped payment at $250,000 per player. After a meeting at the 2020 NFL Scouting Combine in Indianapolis last week, owners agreed to drop the cap, leading to the NFLPA’s board to vote 17-14-1 to send to union members.
Under the new terms, players would receive 47% of league revenue, which The Wall Street Journal reported amounted to roughly $16 billion over the last year. The player share increases to 48% in 2021, and 48.5% if a 17th regular season game is added.
DeMaurice Smith had only been on the job for two years at the time of the current CBA’s implementation. Before his election to sports labor’s most high-profile job, and with virtually no experience in sports labor law, many opined that the leader of the NFLPA was taken advantage of by the league’s billionaire owners, who negotiated to receive 53% of qualified revenue for a decade. With opinions about this CBA so divided, one more “illegal procedure” call and Smith could see the end of his tenure as NFLPA director.
Some key data confirms what many insiders understood. The NFL’s rich got richer and the NFL’s working man did not.
Between 2000 and 2011, the average NFL team value increased by 7.7% CAGR ($423 million - $1.036 billion).
Since the owner-friendly CBA deal in 2012, the average NFL franchise has increased by 13.5% CAGR ($1.036 billion - $2.86 billion).
Between 2000 and 2011, the average NFL salary rose from $1.16 million to $1.9 million, for a CAGR of 4.2%.
By 2019, the average NFL salary stood at $2.7 million, a 4.5% CAGR, but a far cry from the owners’ 13.5% compounded annual growth rate for valuation.
You can read more about NFL team valuations here.
Even more illustrative of how bad this deal was for the players, the mean NFL salary, a more relevant statistic to the rank and file of the league, saw an increase from 2012-2019 of just 1.4%, not even keeping up with CPI or inflation (according to the Bureau of Labor Statistics).
A lot of players, reps, and pundits are asking, “hey, what’s the rush” to sign a new 10-year deal a full season before the old deal expires?” Clearly, if history is any indication, we know why the owners can’t wait for the ink to dry on this CBA. With an average NFL career now lasting just 3.3 years, caveat emptor is the appropriate guidance before putting pen to paper.
This appeared in Forbes on March 13, 2020.