Wednesday, February 16, 2011

2 comments Murray Chass Relays Fay Vincent's "Great" Idea

Murray Chass has an idea. It isn't a terrible idea, but I just don't think it is a great idea. I don't want to be deceptive, so the idea that Murray Chass discusses today isn't exactly his idea, it is former MLB Commissioner Fay Vincent's idea. Murray has had enough of the players getting paid a ton of money through a huge contract. That's just ridiculous! Why not do something less ridiculous like give the player a piece of equity in the team? Or something similar to equity in the team, but make it similar to equity in the team? Why pay a guy a ton of money to do this job when you can give him a part of the team? Yes, I do realize CEO's and shareholders who are also employees with their company have a piece of that company, but the relationship between a MLB player and a team is different than that of a shareholder and a company. A MLB player has a specific skill set that is more difficult to duplicate than your typical stockholder. Therefore giving an MLB player any amount of stock or equity in a team is different than a stockholder having 1,000 shares in a company.

St. Louis position players have a Feb. 18 reporting date with the first workout the next day, but Pujols apparently plans to be early. Usually it’s the union that challenges a team’s effort to have players report earlier than the scheduled reporting date, but in this instance the team might want to tell Albert he can’t report until the scheduled date.

Yeah, just tell him when he can and can't report to training camp. That wouldn't make the contract situation any worse. I am sure Pujols will be open to the Cardinals not allowing him to report to training camp when he wants to. You know what else will help the negotiations move smoother? If the Cardinals kidnapped Pujols family and said they won't get to come home until the negotiations are done. That way, everyone can focus on the contract negotiations.

Not that the Cardinals would do anything to annoy their superstar, but telling Pujols to stay home an extra two days would give them an extra two days to try to negotiate a new contract to succeed the 8-year, $111 million deal that ends this year.

Again, not only failing to meet Pujols deadline, but refusing him to report to camp so the Cardinals can have two extra days to push Pujols' deadline back would probably have angered him a bit.

That 10-year, $300 million proposal has been mentioned as Pujols’ price, but so have 5 years and $250 million. I heard that figure from someone who heard it from a fellow who lives in St. Louis and is well-connected with the team’s owners.

I hope Murray is being sarcastic when he says he heard the 5 year $250 million figure from a guy who lives in St. Louis and is well-connected with the team's owners. I am afraid he is being very serious. This makes Selena Roberts' "anonymous sources" which she based an entire book about Alex Rodriguez upon look good in comparison.

We are talking here about ungodly amounts of money, more than entire offices or residential blocks of people earn in their lifetimes. When Player X rejects $18 million a year and says he wants $20 million, we ask why does he need the extra $2 million? Isn’t $18 million enough?

When a team is willing to pay a player $18 million per year, why do they have to balk at $20 million per year? Is the extra $2 million per year really going to push them over the edge into bankruptcy?

This reasoning can go both ways.

Taking all of this into account plus the fact that he just turned 31 last month, would you give Pujols $30 million a year for 10 years, would you give him $50 million a year for 5 years or would you give him some other outrageous amount of money?

It is not my money, but I would pretty much give Albert Pujols whatever amount of money he wanted. Ok, maybe I wouldn't go that far, but he is worth a ton to the Cardinals in marketing alone. Even when you don't factor in how well he plays baseball, he means a lot to the Cardinals simply by being on the roster and in the community. So while it is ridiculous that any athlete or person would be worth that much money...Pujols comparably could very well be worth that much money to a team in terms of revenue and marketing.

In relation to actual on the field production, maybe not so much, but that's a different story. I would think the Cardinals could improve their team by taking the $50 million per year they would give Pujols and splitting it among four or five players to make the team better all around. So yes, in terms of marketing and the intangible aspects of having Pujols on the Cardinals, he is worth it.

Fay Vincent wouldn’t, and he doesn’t think Pujols should take that kind of money. The former baseball commissioner has an idea about player salaries that makes a lot of economic sense for both clubs and players but is probably too revolutionary to be accepted.

Because nothing screams ideas that are "too revolutionary to be accepted" like an idea that is championed by Murray Chass. Murray isn't comfortable using different and new-fangled statistics to measure a player's performance, but he is all about thinking outside the box when it comes to paying a player. Using VORP to measure a player's performance is stupid, while giving a player in the age of free agency a piece of the team, or the equivalent, is brilliant.

Instead of paying a Pujols $30 million or $50 million a year, Vincent proposes paying the player a smaller salary and giving him equity in the club to make up the rest of his pay.

On its face, this really isn't a terrible idea. In fact, I have read Pujols camp asked for exactly this from the Cardinals. So in reality this could be a possibility, but practically I am not sure this would work. The problem is the logistics of this. I find four immediate major problems with this idea:

1. Baseball players buy nice shit and they want money to support the ability to buy nice shit. A smaller salary doesn't pay the mortgage as well. MLB players aren't looking to put money away for retirement in the future and pinching costs right now. They are retiring AND spending money right now.

2. When a player gets traded, he will have to divest himself from the team, which means he will be invested with the team still as he is about to be traded. Say a franchise is suffering major financial problems and the player's equity in the team isn't worth happy will that player be when he gets traded to another team, a team he doesn't have equity in and is only receiving a small salary? Not only does that player have to cash out his equity in his original team because he was traded, if the team is having financial problems then he may not have made as much money as he wanted when he cashes out his equity. So the player is stuck on a new team with a small salary (and potentially no equity in that team) and paying capital gains on a smaller amount of money than he would like.

3. A player having equity in his team would create a whole new problem around trading a player from that player's perspective. The player has to have a contract, so when his contract runs out it gives the team major leverage. That player can't leave the team in free agency and not sell his equity in the team, so he has more incentive to re-sign with his original team. Players don't like to give away leverage.

4. It will create a whole new era of players telling the owners what to do with the organization. That's not the specialty of these players. Rather than be employees of the organization, these players are employees/owners, which is a good idea in companies with 10,000 employees, but not a good idea when an employee has a specialized skill set that can't be duplicated by more than 25 other people in the world...or duplicated by 2-3 other players when it comes to Albert Pujols.

In brief, Vincent believes players would be ahead of the game financially because by having a piece of the club or something similar to it, when a player sold his share he would pay capital gains tax at a much lower rate than he has to pay in income tax on his salary. The club wouldn’t be affected either way, and it wouldn’t have to pay out as much money during the life of the contract.

Players want money NOW though. They don't want to wait to get their money based on how well their team is run. It does make sense on paper to give a player a piece of the club, but logistically it creates a ton of problems in the era of free agency.

Vincent said the Miami Heat’s signing last year of LeBron James, Chris Bosh and Dwyane Wade prompted him to think about the idea.

“I saw three basketball players get together and make a terrific deal for themselves away from the union,” Vincent said. “What didn’t they do? They didn’t end up with a piece of ownership of the team. In any other business that would be remarkable.”

James, Bosh, and Wade didn't need a piece of the Heat. They already have a piece of the Heat. Does Fay Vincent really think the Heat management won't listen to what James, Wade, and Bosh want? Please. The Cavs spent 7 years trying to keep LeBron happy. Bosh and Wade were brought to Miami to make Wade happy. They don't need the headache of having a piece of the team when they already have an unspoken piece simply by being doing their jobs well.

“Dustin Hoffman owns a piece of Tootsie, and it’s an enormously valuable asset. When he sells it, he sells it on a capital gains basis. He’s been paid the ordinary income for his time working on the movie and has an asset and when he sells it the tax rate is 15 percent, going to 20.”

Right, and again this seems to make sense, but Dustin Hoffman can't get traded to another movie where he would be forced to divest himself of this asset. An actor can get paid $2 million for a movie 2-3 times a year and get a percentage of the movie's take, but an MLB player, like Albert Pujols, won't stand for only making $2 million or $6 million per year.

“Put yourself in the position of Albert Pujols,” he said. “His contract is up. The Cardinals are going to want him to stay. I am Mr. Pujols and I say I’d like to stay and the cash I would want is in the range of $35 million, something north of 30, which is what Mr. Rodriguez and what other players of my ilk are going to be getting.

Maybe in Albert Pujols' situation, taking a part of the Cardinals organization is a good idea. He seems like a good guy and seems pretty savvy. His situation is the exception to the rule. The rule being that a player having a piece of the team creates a situation where that player has a say over the personnel and financial moves in the team and generally have the employee be such a large part of the management of the team may not be a good idea. It creates a whole new set of issues with that player. Even if this idea caught on, I can imagine other issues with why this wouldn't work. Can you imagine the fun Scott Boras would have with this?

Say the Cardinals sign Albert Pujols to a 8 year $100 million contract with a 5% interest in the team. Adam Wainwright comes up for free agency in a couple of years. They want to keep him, so they make him an offer of 4 years $65 million. He rejects it because he wants 5 years $40 million and a 3% interest in the team. The Cardinals don't want to give out more of an interest in the team, so they reject that, but Wainwright sticks to his guns and says he isn't going to sign a contract unless he can have a stake in the team. That's quite a problem.

So even if this was a good idea, which it isn't, there are still some problems with it working effectively if the player accepts this new idea. So that is the problem if the owner actually gives the player a stake in the team, which could possibly not happen. So Vincent has another suggestion...

“Anyone who is sophisticated will say the trick to generating wealth is to convert ordinary income into capital gains,” the former commissioner said. He then suggested a scenario with Pujols and the Cardinals, with Pujols doing all of the talking:

“I’d like 10 percent of the Cardinals. You might not want to give me the ownership, but you give me a piece of paper in which my economic interest is measured as if I owned 10 percent of the Cardinals so down the road when I cash it in, the difference between the value you put on it today and the value you put on it 30 years from now, when I’m an older man, that value will be taxed at capital gains rate, at a preferred rate.”

Again, the issue is going to be this is money the player has essentially invested in the team. So this player is going to feel as if he has a right for as long as he owns this 10% to give his input on the Cardinals and the team...even after he retires.

I don't know if I understand the position of Vincent's that the club wouldn't be affected if they did this. At some point, they will have to pay the player his percentage of what he "owns" in the team. The player will essentially still be a partner in the business, and if this turns out to be a good idea, other players will want the same thing.

However, an interested participant in the Vincent panel discussion was Michael Weiner, head of the players union.

“Traditionally it’s not in the union’s portfolio to help players with their money after they get it,” Weiner said. “It doesn’t mean it has to stay that way.

I'm just eyeballing this point, but another issue this would bring up is which side would this put a player on in a union/owner disagreement? The player is a member of the union, but also has a few reasons to side with the owners as well if he has any type of equity, even without some form of actual ownership, in a team. That could create quite a conflict for the player.

“Major league rules permit a player to own a piece of the club for which he plays, but if he’s traded he has to divest himself of that interest. It happens automatically.”

Which goes back to my original disagreement with this idea. Let's pretend the Cardinals give Pujols 5% interest in the team plus whatever "smaller" contract is agreed upon, so what happens if the Cardinals start struggling? Will they trade him? Pujols would want to have a full no-trade clause. Pujols isn't going to want to get traded, but the Cardinals are going to want to trade him because he has an affordable contract and they can get his interest in the team off the books as well.

Throw in the fact a guy like Pujols would bring in quite a haul of prospects and think of the interest he would drum up. Every team would be throwing great packages at the Cardinals to get Pujols, but Pujols will want a new contract if he gets traded because his current contract, without the interest in the Cardinals, no longer reflects his true value. So the Cardinals would have every incentive to trade Pujols, but they would be stuck with a guy who is on the team and unhappy with even being on the trade block, but even more unhappy his interest in the team will be divested because he is getting traded. It would make the situation of trying to trade Pujols become more of a nightmare than it already would be.

All right then, baseball has had player-managers; will Albert Pujols become a player-owner?

Maybe, perhaps, a small owner of the team. He also won't be giving up a lot of his salary for this to happen. Why not? Because it just doesn't seem like a great idea nor realistic for either Pujols or the Cardinals. Most players want money now and may not want equity in a team.


rich said...

tell Albert he can’t report until the scheduled date.

Because nothing tells a guy you want him to be a part of the team by telling him you don't want him around the team.

This may be the dumbest thing ever. Would anyone tell the Colts to have Peyton miss training camp until they can work out a new deal?

The Cardinals have to keep Pujols feeling wanted by the organization or he'll go somewhere he feels like he's wanted. Telling him to stay home... really?

When Player X rejects $18 million a year and says he wants $20 million, we ask why does he need the extra $2 million? Isn’t $18 million enough?

Over a ten year deal, that comes to 20M. That's a ton of cash. Also, if we're arguing 18M is enough, then no professional player should make more than 500K because that should be "enough" as well.

As for the whole "ownership of a team" thing. There are some teams that are worth partially owning. Cards, Phillies, Yankees, so on so forth. This doesn't work for teams like KC or Arizona.

The thing is that if it's such a good thing for players to try to get, don't you think the actual owners know this? The reason this won't happen is because then every big name player starts asking for insane cash or for part ownership. At that point you either have to pony up money you might not have or give up part of the team. At a certain point, you run out of team to give away.

Because teams are investments, I think the owners are fully cognizant of the fact that if they give a player a portion of the team, they back themselves into a corner they don't want to be in. Which is precisely why it hasn't happened and won't happen with Pujols. I'm sure any owner would rather give the player the money than part of the team.

Bengoodfella said...

Rich, I know. It would not go over well telling Pujols, "we aren't going to pay you well and in fact we will refuse to allow you to report to camp so we can continue to low ball you with an offer."

Exactly. There are teams who are worth owning a part of and there are teams who aren't worth owning a part of. If we really want to see free agents go only to certain teams than start giving out pieces of teams to players. No one will want 5% of the Marlins so they would have a built-in disadvantage (more than they do now) in free agency.

I think maybe 1-2 players could get away with the team equity/ownership thing. Other than that, it would be hard to justify, because that player is no longer an employee, but also has equity in the team. It would essentially short-term (perhaps long-term) marry the team and player to each other.