APPENDIX B: Trends Supporting This Model
The biggest trend for the 1st decade of the 21st century: moving toward tax cutting, and away from tax maximizing, in both in government and tax payer philosophy, attitude, and readiness.
The book cluetrain manifesto: the end of business as usual: signals and explores a sea change already nearing flood tide in today's wired world. As a result, "markets are getting smarter faster than most companies. Companies that aren't listening are missing a dire warning. Companies that aren't engaging in them are missing an unprecedented opportunity." See chapter 5, "The Hyperlinked Organization."
The book FutureWealth: Investing in the Second Great Wave of Technology, states that cheap information carried by cheap communications ha given us our long boom, and that those who understand and act accordingly will survive, and those who don't won't, as no corner of the globe is insulated. The handling of event horizons (what's coming that you may or may not be able to predict), will either save you from getting sucked in or not, so exploit it to survive (see chapter 14). Their chapters on "The Living Room Revolution" and "Kid Power" are also instructive for the stadium conversation. Minnesota particularly is aware of what happens when event horizons are missed or mis-handled, as represented by the failure of the "BUNCH", two of which are from the Twin Cities: Burroughs, Univac, NCR, Control Data, and Honeywell, as they were unable to stay clear of the Event Horizons that caused them to slip into a price-performance Black Hole.
How Web sites "change everything" by organizations being, book title: "Blown to Bits. This recent business book introduces us to four concepts of (1) reach, (2) richness, (3) affiliation, and (4) navigation. The authors sharply note that, in the new economy, the only competition is the consumer. The Internet has changed everything. "The real question is: what can we do for the consumer that she cannot do for herself? The answer, in an Internet world, is to enable people to get through the immenseness of so much choice. How? By being a good navigator". Navigation, according to Blown to Bits, will be the "fulcrum around which competitive advantage hinges." The Internet allows navigation to be cheap, and derives its power "by affiliating as closely as possible with the interests of the consumer." Providing both richness of content (video/DVD referencing and backed up by the teams Web Page) and reach (many users city and state and world-wide), and affiliation (the desire to use the teams web page as their web portal). Net Intrust can help the team develop a web portal that will serve as a navigator for those seeking information about the process from both sides of the debate.
Other trends and event horizons to watch
a. This model discusses throughout existing and upcoming event horizons for generating new, direct, and immediate revenue streams for the team. Some are in the future; but many can begin now, particularly many of the 40 ways in 26 categories of I.B. We list many in Section II of this proposal, and more in this appendix.
b. Money is not infinite, although invested money is very much a renewable resource Trees are renewable as well, if you dont cut them all down and burn them faster than replacements can be grown. China cut most of her trees down for fuel, etc., and now hasnt enough arable soil to feed its own population (their leaders do well but the majority do not). England was about to denude its rock when they discovered coal. England kept its trees, has arable land, and can feed itself. Ditto coal and oil in the U.S. Indeed, oil was seen as the end of pollution because it enabled the automobile to replace the horse and the horses thousands of gallons of horse urine that washed the streets daily, not to mention tons of fresh manure daily (projected to bury New York City under its then increasing amounts before the motor car and truck). The Internet is a new discovery, not unlike coal and oil, which preserves other resources. Businesses are using it save billions each. Schools could do the same if they would adopt it in that fashion, saving hundreds of millions in every major school district. In terms of business, the trees are operations dollars (see Appendix I). In terms of education, the trees are tax payer dollars. In terms of professional sports teams, the Internet represents not only a savings of operational dollars but also a contributor to revenue and a solidifier of their brand name and a spread of their fan base throughout the country and around the world through its web portal.
b. DITTO free agency: transition to (1) a senior management model, rather than union-management model, and (2) engage in joint wealth building, or teams will spend themselves into insolvency as baseball is doing and as the National Football League is on the brink of doing, given the break from the norm of first Jerry Jones of Dallas and now Daniel Snyder of Washington. See Appendix E.
c. The following player compensation figures
for the following players illustrate the over cutting of trees
by baseball, a lesson the National Football League needs to learn now,
or suffer its peril if it does not:
Alex Rodriquez to the Texas Rangers for $252 million over 10 years
Mike Hampton to the Colorado Rockies for $121 million over 8 years
Mike Musina to the NY Yankees for $88.5 million over 6 years
Ken Griffey, Jr. to the Cincinnati Reds for $116.5 million over 9 years
d. MLB Commissioner Bud Selig told a Senate subcommittee on November 21, 2000, that with the current labor agreement expiring next year, and with teams losing money, that it is time for sweeping changes in the sports economic structure. Please note: this model is the FIRST to outline sweeping change for sports economic structure.
e. One of the problems is approaching purchasing in the old way of debt (Washingtons debt ratio of 80% requires Snyder to break from the norm, just as Jerry Jones realizing Dallas was losing $1 million a month required him to do the same). A specialized investment model, especially for stadiums, can prevent increasing debt ratios as well as help reduce them considerably, as this model demonstrates.
f. One part of the solution is to create an investment pool that will pay players for years out of earnings of the pool, so that it eventually self pays.
g. Three keys to wealth building for the future, in order to avoid wealth busting for this senior executive team of owners, coaches, and players: (1) dealing with the salary cap and free agency such that the goose that lays golden eggs for all (team/owner/coaches/ players/municipalities, etc.) is not killed, maimed or injured. (2) give the teams more room to maneuver, and (3) transition the union to act in concert as partners, both representing part of the management group and being part of management nonetheless, and thus avoiding the ludicrous union strikes, that can only be a PR and wealth destroying nightmares (recall Patrick Ewings PR foot in mouth statement, in which he said players had a right to strike in order to put food on our tables so we can feed our families. Given his millions a year, this remark turned off a lot of fans. That players dont understand this is a revealing and compelling condemnation of agents who work to maximize their own returns without a larger picture of what is good for the game and the long term itself (their players can come and go, and they can offer up new sacrifices on the altar of near sightedness, placing the goose that lays the golden eggs on the sacrificial altar also.
h. Using the Executive Recruiter model can solve many issues, including viewing player demands within the realm of reality and parallel to the rest of society, and hence need to be listened to while transitioning from union-management model to senior executive team model. Points to consider from corporate America, with lessons for any team as well as entire professional leagues:
Revolving door at the top: 118 CEO exits in August 2000 (23 from
(2) A white hot market for talent
(3) NOTE: they really dont work for money anymore. Its beyond that. Its more about whether they like the work theyre doing and whether they are passionate about the company.
(4) With significant wealth being created, the corporate trend is to make changes based on quality-of-life reasons (hence the need for golden handcuffs)
(5) Mere money is not enough.
(6) But when money is important, the mantra in dot-coms is just pay me in cash, as stock is too volatile. Senior execs are paid signing bonuses, some six and seven figures in size
(7) Corporations take 3-5 months to do a search and another year to achieve integration into the organization: these are costs that dont show up on the companys financial report (nor do the future costs of golden parachutes demanded by top executives before signing). The same occurs in signing players.
i. MLB is in the process of setting up tremendous potential losses from the strike that now seems inevitable when the current contract ends (unless they adopt, in the meantime, the compensation Plan approach outlined in this model, in order to avert the strike).
j. The NHL has seen the future and doesnt like what it sees, calling salaries grotesque and calling for them to come down, identifying the increases as a tipping point moment in sports that can tip the enterprise as a whole away from wealth building. The battle, of course, is over the precise number [that] must be agreed upon by the league and the union. If they were partners, this would make sense. But they are set up as adversaries. And the grotesque led to a revolt by Canadian tax payers such that Canadians teams have or are about to move to the U.S., as Canadians chanted no tax dollars for billionaire owners and millionaire players (key here is to understand that all that was asked for from the tax payers was $3 million per team; think about that when thinking of the amounts being asked for in the U.S.). The goose is cooked in Canada. Warning has been given. Ditto in Florida where, in May of 2001, tax payers cheered when their legislature refused to consider the requested stadium deal for the MLB Marlins. The goose can still be spared in the U.S. Owners and players must consider themselves partners, not as adversaries. The old joke applies about when you owe the bank a million you are no longer in debt but in business with your partner. Players earning 6 and 7 figure incomes are partners, not employees.
k. Soaring MLB costs may be checked by insurance companies refusing to cover such high salaries. Instead of dealing with the problem of high salaries, especially the guaranteed ones, owners in MLB have hidden behind insurance policies that paid off the unplayed years. That Land of Oz curtain is about to come down, as insurance companies will soon lose money if thy continue underwriting such policies.
l. Potential backlash against billionaire owners and millionaire players. There are theories from the late 19th and early 20th century that state that modern life for many is a mediocre one, and they resent those with extraordinary lives, which is all the more reasons for a win-win media/public posture. When The TV Guide (May 19-25, 2001) features an article on sports (Phil Mushnick on Sports, p. 55), with this heading: Home Sweet Home: Facing rising ticket and food pries and volatile athletes, your best bet is to stay safe at home, then we know a backlash is well under way. This is another reason to use the investment financing vehicle (#4 of the 8 ways).
l. Two routes to take to ensure mutual wealth building: a macro-institutional one for the league as a whole, and a micro-institutional one for the team by itself (or any other team acting independently) and its players, as discussed below. Either way, owners and players will both be enchanted in both material and non-material terms.
m. Macro-institutional solutions to consider by the League
(balancing freedom of the group and the freedom of each team):
(1) Easiest: a severe luxury tax on big spenders to be divided among those who dont go over their cap, which is the least rocking the boat approach, and greatly slows down the inevitable switch of fans to cheaper sporting events, prolonging but not ultimately saving the goose;
(2) Laziest: adopt union wage structure policies, and attach earnings by years served only (the downside is that few players would play longer than five years before owners would cut them loose for the new crop of lower paid young players, which could hurt the goose and perhaps cause another league to form;
(3) Best: create an investment fund for all players, to parallel the union retirement fund, emphasizing life long earnings not just the playing years.
n.. Micro-institutional solutions to consider by individual teams:
(1). contract consisting of 12 salary parts (as described in II.A.), including salary, signing bonus, investment fund, and nine other salary parts;
(2). Provide an incubator for players interested in developing their own post-playing businesses, as Cris Carter of the Minnesota Vikings is interested in doing;
(3). Create a life style and corporate culture that the players, especially those with wives and children, are not going to want to leave.
o.. To avoid future conflicts, involve players now to participate in discussions regarding changing the model.
p.. To avoid the future horizon destruction down the black hole of price, the League needs to get everyone on the same page: as partners, not adversaries, and from there work to resolve the free agency and salary caps. Otherwise, they can work together to develop the service and ceremony of the future horizon event of burying the goose that laid their golden eggs.
q. There is a wise saying, Do good things and good things follow, and Like produces like. This is what is happens with community programs, which many teams dont have. This is what now can rise up to complement even more what teams are doing. To keep fans, teams need to return to the community with community programs. When teams feel they have now arrived, and no longer need to pay fans attention, they are squandering good will, and it wont be there when they need it. It is no longer an option. It part of the new fan-team relationship paradigm. It does wonders for both the community and the players, especially young people in the community. In a word, teams need to give back to those who give so much to them. Even though this is heart felt, it can also be good marketing and provide a positive way to maintain a good hold on to your community audience and fan base, as well as legislators and the media, especially when a team doesnt win the championship. Fine tuning the community work to complement the marketing efforts can contribute positively to the overall goal of wealth producing while simultaneously saving tax payer tax paying.
s. Free agency makes it all the more important to have continuity as much as possible with coaches and staff, so they can develop systems that help players improve, a system that players like, and enables them to realize, even with parity, that they can win, and if not win, then give them a very good game.
t. Professional sports are in the sports-entertainment-real estate-communications-public space business, although not all teams are run that way (resulting in their claiming they have to leave town to survive). But to achieve parity as well as exciting play, the need is to make a thorough and honest assessment of salary caps and guarantees as opposed to outcome incentives. A team is not helped when it has an inflated payroll not in line with earned accomplishments, which also precludes other options. But a pro sport is not a typical business, which can shutter, move to Indonesia, or wherever. Sports teams form a bond of trust with their fans, and therefore are not as easy to move, as moves injure the goose. And teams cant all move to NYC to duke it out with the Yanks and Giants for the loyalty of fans and the extra TV money. Hence, to make the League a greater business, it must spread out into new cities while at the same time stay with its parity process.
u. Players need to recognize that the salary pendulum has to swing back. As Klobuchar noted in 1991, there was no mobility or bargaining power accorded to players that was comparable to baseball, or, as noted by different writers, teams with high payrolls can still be under achievers (Redskins, Trailblazers) who could not generate a winning chemistry. Low payrolls reflected owners tight control, which is why players viewed themselves as workers for tough bosses. But that has all changed. Recommended here is to drop that labor-management model, which is no longer appropriate for the 21st century, and exchange it for an integrated senior executive structure as outlined in this model.
v. The future for any business is with the young of society. This quote from a high school student in 2001 illustrates what is at stake: professional sports are dying a death of money, causing high school kids, according to this high school writer, to lose interest in pro sports.
w. Without adopting this new model, there is the danger of the dilution by free riders profit strategy. A decade or so ago, the San Diego baseball team purposefully traded its highly paid players and signed youthful yet much cheaper players, and netted significant profits by eliminating the high pay roll. They provided top baseball players for their fans by producing the other teams at home games, essentially importing top talent for the pleasure of the ticket holder, and thus became free riders on the backs of the high payrolls of the other teams. Taken to its obvious conclusion, a few teams would have the best players, and attendance, in the stadium and before television, would dwindle, and with that, profits and salaries.