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Lillian
11-21-2006, 06:48 AM
I was an analyst on Wall Street for many years. My expertise has always been in market psychology, and technical analysis. I have also studied and written extensively about long term economic cycles. It is that background, and base of knowledge that gives me cause to ponder the current state of the economics of our favorite sport.

Baseball’s recent trend of ever escalating, insanely high salaries, for even mediocre talent, is reflective of the same set of causal factors that have produced the greatest bull market in the history of the stock market, and the completely irrational boom in real estate. The latter phenomenon is on a scale of the greatest speculative manias ever witnessed.

This is not the place to explain the reasons why, but it can be irrefutably demonstrated that all such irrational market frenzies end in catastrophic collapses. There are no exceptions, and there cannot be, based upon the laws of economics, and human nature.
That said; let me state something that I can strongly support with logic, and historical precedent. We are most probably near the end of an extraordinarily long economic growth cycle, dating all the way back to the end of the deflationary Depression of the 30’s.
This cycle has witnessed some of the most irresponsible, and imprudent practices of finance, and borrowing imaginable. The refinancing that has been aggressively solicited, and sold to the public in the real estate market, will surely be viewed by historians in the same light as the “Tulip Bulb Mania”, in 17th Century Holland. Future generations will be reading accounts of this madness with similar incredulity, as they ask; “what were they thinking?”

What effect might such a collapse in the economy have on the economics of baseball?
It’s hard to imagine that baseball executives would, or could continue the current player salary trends, in an environment of declining prices, wages, and rising unemployment. During a deflation there is a generalized price and wage decline.
Even if ownership could somehow command the ticket prices required to support these salaries, it would be difficult to justify such excesses to a public, experiencing great financial hardship. People struggling to make ends meet would be much less willing, or able to support grown men being paid tens of millions of dollars, to play a boy’s game.

If you accept the premise that the economy may be headed for a very long and difficult period, how do you think baseball might be affected? What might be the best strategy for management, in order to protect themselves against such a dramatically changing economy?
At the very least, it might not be a good idea to sign a lot of guys to contracts like the ones the incompetent executives on the North Side are handing out to any free agent with a bat and glove!

SouthSide_HitMen
11-21-2006, 07:39 AM
The owners are getting enough revenue from fans, broadcasters, their website and the billions in taxpayer subsidies for their stadiums.

Owners will always make more money than the players. The "insane" salaries indicate the entertainment industry continues to grow be it sports, hollywood or music where top performers command hundreds of millions over the course of their career.

The 'hot potato" will end when taxpayers cease funding professional sports largest fixed cost, broadcasters cannot generate the revenue to increase broadcast rights fees and fans / corporations can no longer afford the above inflation increases in ticket and merchandise prices.

Within the next decade the enormous unfunded liabilities of "entitlements" and retired workers will force all non essential government spending to decrease drastically. Jerry Reinsdorf and co. may say baseball stadiums are essential when he and his son bring their dog and pony show (http://www.washingtonpost.com/wp-dyn/articles/A49441-2004Dec8.html) to a city near you but more cities will do what Seattle did (http://seattlepi.nwsource.com/basketball/266691_sonics14.html) to David Stern and tell them to **** off. Only then will you possibly see a decline in the increase of salaries. This would be the first of three scenarios.

If there is a severe slowdown in the economy due to our unsustainable debt levels (both private and public) than you will see a drop in both broadcasting rights and ticket price increases. Perhaps this will happen before they start charging $10 for a beer at a Sox game.

eastchicagosoxfan
11-21-2006, 08:26 AM
In regards to Lillian's statement concerning the affects on baseball, contraction would certainly be in order. The league has avioded contraction by moving franchises; in the catastrophic scenario Lillian outlines, untapped markets would not exist.

SouthSide_Hitmen has nailed it, IMO. We pay, we watch, and we buy. Until we stop, there will be plenty of money to hand out huge contracts. Lillian sees the day, in the near future too, when we will stop.

I have a question, that I'm asking out of ignorance, because I don't have a firm grasp of economics, taxing etc. Would there be any merit to taxing the daylights out of the entertainment business to the extent that the costs of the taxes couldn't possibly be passed on to the consumer? Some sort of sliding tax, that would regulate the price of the ticket based on demand? I'm not advocating anything, I'm just curious as to whether it's sound or not.

Lillian
11-21-2006, 09:04 AM
"Would there be any merit to taxing the daylights out of the entertainment business to the extent that the costs of the taxes couldn't possibly be passed on to the consumer? Some sort of sliding tax, that would regulate the price of the ticket based on demand? I'm not advocating anything, I'm just curious as to whether it's sound or not.

What would be the desired consequence of such a tax? As an advocate of the Free Market, I would be very skeptical of any such tax.

At any rate, there is no strategy for avoiding the economic collapse which I assert is inevitable. Once these kinds of abuses have pervaded the market, there is no way to avoid their adverse consequences.

Baseball is surely going to be impacted, as will be almost all sectors of the economy.

The Immigrant
11-21-2006, 09:18 AM
What exactly makes these salaries "insane"? You have to keep in mind that only a small minority of MLB players are making A-Rod or Soriano money, and the top contracts in MLB are comparable to the top contracts in the NBA or the NFL (once signing bonuses are taken into account). The owners are paying what the market will bear and what their revenue streams will support. I expect that baseball's revenue stream will only grow in the future as Selig pushes for more international exposure for the game, as Stern did with the NBA. Either way, I don't think the current state of economics in baseball qualifies as irrational exuberance - it's just capitalism at its finest, a correction of the collusion that surrounded Guerrero's free agency period. Once the costs passed on to the consumer become too much for even the most fervent season ticket base to support, there will be a correction (as we've seen in the NHL). But, then again, idiots in Boston are already paying $100+ for box seats, so who knows when we'll reach the breaking point.

Lillian
11-21-2006, 09:35 AM
What exactly makes these salaries "insane"? You have to keep in mind that only a small minority of MLB players are making A-Rod or Soriano money, and the top contracts in MLB are comparable to the top contracts in the NBA or the NFL (once signing bonuses are taken into account). The owners are paying what the market will bear and what their revenue streams will support. I expect that baseball's revenue stream will only grow in the future as Selig pushes for more international exposure for the game, as Stern did with the NBA. Either way, I don't think the current state of economics in baseball qualifies as irrational exuberance - it's just capitalism at its finest, a correction of the collusion that surrounded Guerrero's free agency period. Once the costs passed on to the consumer become too much for even the most fervent season ticket base to support, there will be a correction (as we've seen in the NHL). But, then again, idiots in Boston are already paying $100+ for box seats, so who knows when we'll reach the breaking point.

If your base of comparison is other pro sports, then you have a valid argument. However, I'm talking about the escalation in the whole sports and entertainment industry.
The inflation rate has been in the low single digits for the last 26 years, and during that time salaries in all pro sports have sky rocketed. They reflect something much bigger. When trying to extrapolate this trend into a dramatically different economic environment, you can see the inconsistencies. As long as the economy, the stock market, and real estate remain in uptrends, perhaps this salary, and ticket price trend could be sustained. However, what would you expect in the climate which I describe?

caulfield12
11-21-2006, 09:59 AM
I'm not sure how a sliding tax would have any relevance here, except as it has bearing on low or middle income tax payers and the "earned income tax credit," lol.

You can't tax to punish the owners any more than is already being done with the Yankees and the Red Sox....and their revenues are so great as to not be adversely affected by the luxury tax.

I wouldn't say that the PE ratios are out of whack like they were in the 2000-2002 period with the Nasdaq and Greenspan's "irrational" exuberance comments. Is the market overvalued? Yes. Will house prices fall back with increasing inflationary pressures? Yes, probably a 25% correction, especially in the hot markets. We survived the junk bonds and the S&L Crisis in the 80's, 20% inflation and the gas shortage in the 70's (malaise was Carter's word)...we'll see. They said the same thing with the Hicks deal for A-Rod, Manny Ramirez, Kevin Brown.

One day, all of our debt payments will start to catch up with us...and the fact that the Federal budget is now allocating close to 30% of our spending to the War in Iraq. You have to the tremendous number of Baby Boomers retiring and living longer....rising health care and long-term care costs. Juxtapose that with the fact there were 20 workers for every 1 retired during the Great Depression, when FDR created Social Security. Now, it's 4-1. If trends continue and there is not a massive influx of immigrants to compensate, it will be 2 to 1 within most of our lifetimes.

This entitlement will swallow up a bigger and bigger piece of the pie...and it's like nuclear waste, no politician wants to fall on the sword and make unpopular choices like raising SS taxes, raising the retirement age, cutting COLA increases (is it a cut or a "lowering in the amount of increase," remember the debates between Gingrich and Clinton?)

The biggest concern has to be the massive credit card debt, margin buying of stocks, all these complicated hedge funds and derivatives...home equity loans, ARM's, reverse loans. Most Americans are leveraged up to their a--es.

How does this effect professional sports? Not at all, not while the tv contracts and corporate sponsors (who buy 25% of the seats and luxury suites as tax write-offs) keep throwing money at it.

Eventually, the middle class will be priced out of the game...families, etc. They will go to minor league games or watch on TV or find alternative sources of entertainment. I think the NBA is in more trouble, they have 41 games, no "likeable" superstars and a product that's losing momentum. You've seen NASCAR fill in that gap, although there's not much crossover between the two sports in their fans. NASCAR has yet to broaden its appeal to the Northeast and West Coast. It still is haunted by racist overtones (no minority drivers, although Montoya of Colombia could change that) and Confederate flags. However, if they can successfully tap into the Hispanic and Asian markets (same targets for MLB), they might have something.

Lillian, are you a man or woman? Just curious.

Ol' No. 2
11-21-2006, 10:02 AM
What would be the desired consequence of such a tax? As an advocate of the Free Market, I would be very skeptical of any such tax.

At any rate, there is no strategy for avoiding the economic collapse which I assert is inevitable. Once these kinds of abuses have pervaded the market, there is no way to avoid their adverse consequences.

Baseball is surely going to be impacted, as will be almost all sectors of the economy.Why is a collapse inevitable?? I don't see any reason for such an assumption. There maybe a correction, but that doesn't necessarily lead to a catastrophe, and may even be desirable in that it will stave off a collapse.

A big part of the revenue growth in MLB is from tapping new sources. Baseball has done a good job of creating new revenues from new ventures, like MLB.com. Overseas marketing is also bringing in a ton of cash. If new revenues came solely from escalating ticket prices, there may be a hard limit, but this is clearly not the case. Certainly there is some finite limit, but who's to say they're approaching that?

caulfield12
11-21-2006, 10:05 AM
If your base of comparison is other pro sports, then you have a valid argument. However, I'm talking about the escalation in the whole sports and entertainment industry.
The inflation rate has been in the low single digits for the last 26 years, and during that time salaries in all pro sports have sky rocketed. They reflect something much bigger. When trying to extrapolate this trend into a dramatically different economic environment, you can see the inconsistencies. As long as the economy, the stock market, and real estate remain in uptrends, perhaps this salary, and ticket price trend could be sustained. However, what would you expect in the climate which I describe?

The best parallel is with the spread between the pay of a CEO in the 1960's in comparison to an "average" worker.

You see the same jumps in CEO salaries and compensation packages as you do with the superstar salaries in baseball, the main difference is that the rest of the workers are being dragged up...while blue collar and even some white collar jobs are actually going in the opposite direction in "corporate America." The rising tide is not floating all ships and boats, except in the world of professional sports salaries.

Or you could look at the growth (or lack thereof) of the minimum wage over the last 20 years vis a vis inflation.

The spread is now between 400-500X greater with the average Fortune 500 CEO and the "middle level" manager. In the 1950's, it was 55-1. Which is the exact same difference you see in Japan today...although Japan's economy has been in the toilet for 10+ years now.

caulfield12
11-21-2006, 10:10 AM
Why is a collapse inevitable?? I don't see any reason for such an assumption. There maybe a correction, but that doesn't necessarily lead to a catastrophe, and may even be desirable in that it will stave off a collapse.

A big part of the revenue growth in MLB is from tapping new sources. Baseball has done a good job of creating new revenues from new ventures, like MLB.com. Overseas marketing is also bringing in a ton of cash. If new revenues came solely from escalating ticket prices, there may be a hard limit, but this is clearly not the case. Certainly there is some finite limit, but who's to say they're approaching that?

Even if the Red Sox end up spending $22 million per year (average of bid price and per season salary) on their Japanese hurler, they expect to make half that back on Japanese sponsorships.

Which is why it makes more sense to pay him that instead of Zito or Schmidt in the $15 million range. Of course, he needs to be a true ace or superstar and not the next Hideki Irabu or Mac Suzuki or Chan-Ho Park.

They're starting to reach their limits with luxury suites, outfield billboard placements....new stadium revenue creation.

But always, new ideas. Naming rights. Sponsorships on the jerseys or helmet or on the backstop or the bases. Athletic companies like Nike and Adidas "sponsoring" teams like the Yankees.

With Hispanics being the biggest influx in terms of immigration and expected to evolve to at least 25% of the US population, and Asian numbers rising to 10%, that bodes well for baseball in the future. Both are not strong markets for the NFL.

Minnie Me
11-21-2006, 11:39 AM
Yes, demographics are against the continued bull run however many people will continue to work well past the traditional retirement phase and continue to pay taxes.
Current estimates are that you will need 80% of your current income to retire. Want to retire and you need 80K per year? You better have 2 mil in the bank.

caulfield12
11-21-2006, 12:10 PM
Yes, demographics are against the continued bull run however many people will continue to work well past the traditional retirement phase and continue to pay taxes.
Current estimates are that you will need 80% of your current income to retire. Want to retire and you need 80K per year? You better have 2 mil in the bank.

If you had $2,000,000 in the bank (not counting SS or other investments, like an IRA or pension), you would need to generate a 4% rate of return to "create" $80,000 a year in "new money" without touching the principal.

Factor in 3.5% inflation and and another 0.5/1.0 percent for taxes, you're looking at an 8-9% rate of return to generate that $80,000 per year.

Lillian
11-21-2006, 12:28 PM
As I stated when I introduced this topic, the reasons why a deflationary depression is inevitable are too complicated to go into in a baseball forum, unless of course, you all really want to go there.

However, I will elaborate to this extent. Please be very careful about making projections regarding the future of the economy, based upon the history which you have witnessed. When a deflationary depression occurs, and this is the longest period that this nation has ever gone without one, it changes the economic, and financial landscape entirely.

There has never been a period comparable to the last 70 years. The normal cycle is 50 to 60 years, and we have never had the kinds of imprudent, and reckless financial management, like the current speculative manias in stocks and real estate, as well as consumption and debt. There are other elements in this equation, however again this may not be the proper forum for that. Suffice to say that all such behavior has ended the same way, in a bust. The historical record corraborates that, and there are irrefutable causal factors that explain it. This being an instance of even greater excess, and imprudence, it should be reasonable, even for the most skeptical, to at least contemplate the possibility. Given that, the question here is how would such a deflation affect baseball?

Minnie Me
11-21-2006, 12:43 PM
I agree the world is due for some crappy economic times ahead, as the boom/bust cycles play out.
Baseball will always survive. It can go back to original pre expansion teams or expand into other countries. It will never die, although I will be dead soon.

caulfield12
11-21-2006, 12:47 PM
For that answer, look no further than how baseball was affected in the 1930's.

How the Negro Leagues were affected.

Of course, there wasn't the competition in the sports marketplace like there is now with NASCAR, NBA, NFL, golf, etc.

You start talking about 1 in every 3 or 4 without a job, it's going to lower the attendance...corporations are going to cut back on their sponsorships, luxury boxes, season ticket packages.

One thing will start to affect another....at one point, there were thousands of minor league and semi-pro teams in the US. They all were forced to consolidate, just like the Negro League teams did (that was because they started losing their marquee players and "niche" market to the majors with Jackie Robinson, Doby, Mays, Aaron, Campanella, Satchel Paige, etc.)

Lip Man 1
11-21-2006, 01:02 PM
Everytime someone brings up the 'outrageous' or 'insane' salaries for pro athletes I tell them they are right.

And as soon as folks stop allowing Tom Cruise to make 30 million for a single movie or the Rolling Stones 50 million, or U2 75 million for twenty concert dates or so, I'll be right there with them in the trenches.

It's amazing how often those folks immediately go quiet.

I can understand how 'average' folks get upset over these salaries but keep in mind something Howard Cosell said oh around thirty years ago or so. I paraphrase, 'if you beat odds of 100,000-1 to get to the very top of your profession, be it athlete, heart surgeon, trial lawyer or inventor you deserve to collect big...very big.'

In point of fact MLB players have to play 162 games (in theory) to 'earn' their pay. That's a hell of a lot more taxing then Tom Cruise making a single movie and collecting two and three times more then the highest paid player.

Lip

Oblong
11-21-2006, 01:09 PM
I agree in the sense that the life of a ballplayer is not the cake walk many people think it is. I'm 33 with a wife and two kids. If I achieved my dream, I'd not see them very often from February to October. The month of Feb/Mar is spent in FL or AZ. Then half your time is on the road. The other half you spend 6 or 7 days a week at the stadium from around 3 pm to midnight. If you have small kids think about all the activities you'd miss out on with them.

Athletes get what they deserve. As long as nobody holds a gun to anyone's head, then that's what they are worth. It's entertainment. If every player made $50K a year, ticket prices would be what they are today because they are set based on what people are willing to pay. They are not set to pay the salaries.

I've always been on the side of the players in labor issues.

Ol' No. 2
11-21-2006, 01:10 PM
As I stated when I introduced this topic, the reasons why a deflationary depression is inevitable are too complicated to go into in a baseball forum, unless of course, you all really want to go there.

However, I will elaborate to this extent. Please be very careful about making projections regarding the future of the economy, based upon the history which you have witnessed. When a deflationary depression occurs, and this is the longest period that this nation has ever gone without one, it changes the economic, and financial landscape entirely.

There has never been a period comparable to the last 70 years. The normal cycle is 50 to 60 years, and we have never had the kinds of imprudent, and reckless financial management, like the current speculative manias in stocks and real estate, as well as consumption and debt. There are other elements in this equation, however again this may not be the proper forum for that. Suffice to say that all such behavior has ended the same way, in a bust. The historical record corraborates that, and there are irrefutable causal factors that explain it. This being an instance of even greater excess, and imprudence, it should be reasonable, even for the most skeptical, to at least contemplate the possibility. Given that, the question here is how would such a deflation affect baseball?Except there were so many structural changes put in place after the Great Depression that there's a good reason why we haven't seen a true deflationary period since, and may never again. Many of the worst business practices that contributed or exacerbated the cycles are no longer legal. I wouldn't regard it as inevitable at all.

DumpJerry
11-21-2006, 01:14 PM
Ok, here's a little secret about those sky-high salaries: they are not as big of en expense as they appear to be.

When a player signs big contgract for, say, ten million a year, he does not acutally collect all ten million in that year. Instead, an annuity is set up by the team which will pay out to the player over his lifetime. The amount put into the annuity is less than ten million because with interest, it will grow to a ten million payout by the time it is paid out.

This allows the ego (player) to strut his contract to his peers as well as guaranteeing an income well after retirement since most 28 year olds cannot be trusted to save for the future.

caulfield12
11-21-2006, 01:17 PM
Ok, here's a little secret about those sky-high salaries: they are not as big of en expense as they appear to be.

When a player signs big contgract for, say, ten million a year, he does not acutally collect all ten million in that year. Instead, an annuity is set up by the team which will pay out to the player over his lifetime. The amount put into the annuity is less than ten million because with interest, it will grow to a ten million payout by the time it is paid out.

This allows the ego (player) to strut his contract to his peers as well as guaranteeing an income well after retirement since most 28 year olds cannot be trusted to save for the future.

Sometimes, if the money is deferred or set up as an annuity for tax purposes (or to divide a hit from an impending divorce), but this is not the norm in the industry.

maurice
11-21-2006, 01:19 PM
I'm talking about the escalation in the whole sports and entertainment industry. The inflation rate has been in the low single digits for the last 26 years, and during that time salaries in all pro sports have sky rocketed.

So has the average price of a cup of coffee. Americans are willing and (arguably) able to spend more on discretionary items. I agree that this "reflect[s] something much bigger." Whether this has to do with productivity, demographics, inevitable economic collapse, global warming, or something else . . . I have absolutely no idea. I'll leave that to the folks with PhDs in economics. I'm not saying that they unanimously know the correct answer (to the extent that they disagree, they obviously don't). OTOH, they certainly sound a lot more competent than most of us.
:cool:

caulfield12
11-21-2006, 01:22 PM
Everytime someone brings up the 'outrageous' or 'insane' salaries for pro athletes I tell them they are right.

And as soon as folks stop allowing Tom Cruise to make 30 million for a single movie or the Rolling Stones 50 million, or U2 75 million for twenty concert dates or so, I'll be right there with them in the trenches.

It's amazing how often those folks immediately go quiet.

I can understand how 'average' folks get upset over these salaries but keep in mind something Howard Cosell said oh around thirty years ago or so. I paraphrase, 'if you beat odds of 100,000-1 to get to the very top of your profession, be it athlete, heart surgeon, trial lawyer or inventor you deserve to collect big...very big.'

In point of fact MLB players have to play 162 games (in theory) to 'earn' their pay. That's a hell of a lot more taxing then Tom Cruise making a single movie and collecting two and three times more then the highest paid player.

Lip

I don't think Tom Cruise could get $20 million right now. Obviously, I see you point with musicians and actors/actresses.

I would guess that Wil Ferrell (for a comedy), Jim Carrey and Reese Witherspoon are the new top 3, although Borat might get $20 million for his next movie, which cost less than that to make the entire film and market it.

I would guess Owen Wilson MIGHT be moving in this direction, although his last few movies haven't opened big. Daniel Craig deserves $20 million for the newest James Bond, it has already made $100 million domestic/foreign ticket sales.

Ol' No. 2
11-21-2006, 01:24 PM
Ok, here's a little secret about those sky-high salaries: they are not as big of en expense as they appear to be.

When a player signs big contgract for, say, ten million a year, he does not acutally collect all ten million in that year. Instead, an annuity is set up by the team which will pay out to the player over his lifetime. The amount put into the annuity is less than ten million because with interest, it will grow to a ten million payout by the time it is paid out.

This allows the ego (player) to strut his contract to his peers as well as guaranteeing an income well after retirement since most 28 year olds cannot be trusted to save for the future.Not true. The CBA requires all deferred money to be funded within two years from the year it was earned.

caulfield12
11-21-2006, 01:26 PM
So has the average price of a cup of coffee. Americans are willing and (arguably) able to spend more on discretionary items. I agree that this "reflect[s] something much bigger." Whether this has to do with productivity, demographics, inevitable economic collapse, global warming, or something else . . . I have absolutely no idea. I'll leave that to the folks with PhDs in economics. I'm not saying that they unanimously know the correct answer (to the extent that they disagree, they obviously don't). OTOH, they certainly sound a lot more competent than most of us.
:cool:

The argument of Greenspan and Summers and Rubin was that it was "increased productivity" brought about by the advances in technology/Internet/automation.

They kept waiting for increased inflation and it never really happened in the 90's.

Lillian
11-21-2006, 02:16 PM
Except there were so many structural changes put in place after the Great Depression that there's a good reason why we haven't seen a true deflationary period since, and may never again. Many of the worst business practices that contributed or exacerbated the cycles are no longer legal. I wouldn't regard it as inevitable at all.

I'm sorry to have to refute your remarks, but this is simply not valid. The so called "safeguards" have nothing do with the real causes of deflation, and speculative manias, which contribute to them. The evidence couldn't be clearer. Ask yourself, how has the SEC or any other regulatory body, done anything to eliminate, or even mitigate the irrational behavior in stocks, real estate, or any other market? The excesses in these markets are all greater than they were just prior to the last depression. Oh sure, margin buying in the 20's required less equity than today (10% vs 50%), however the options, futures, and derivatives afford even greater leverage. More importantly, there is far more public participation.

Real estate leverage isn't even in the same league. The refinancing boom is unprecedented.

Lillian
11-21-2006, 02:34 PM
Let me reiterate something. It is a waste of time to debate the issue of whether or not we could have, or will likely experience another deflationary depression. Not only is the burden of proof totally on those who argue that what has always happened before, will cease to recur, but the evidence is compelling when you understand the cause of such economic events.

I have dealt with this issue for many years, and discussed it with many people, some who are probably much more knowledgeable than anyone on this board. I have never read, or heard a rational, compelling argument for why we should not expect to suffer consequences for the practices of this cycle. Moreover, the fact that so few here do not agree is very supportive of my hypothesis. The correct view on such matters is almost always held by a very small minority. That is the power of "contrarian" strategies.
The mere fact that so few worry about such an event, increases the likelihood of it's occurrence. This is so because their actions, based upon their confidence, contribute to the excesses, which in turn lead to the inevitable collapse. If most were mindful of the risk, and probability of a bust, they would not be so willing to participate in speculative manias.
Please try to address the issues that I raised regarding baseball in such an environment. That is really what interest me, at this point. I have studied, written, and debated the other topic enough elsewhere. I would really like to learn what you think would happen to future Collective Bargaining Agreements, and how you would prepare for such an environment, if you were the General Manager of the Sox.

TDog
11-21-2006, 02:55 PM
Everytime someone brings up the 'outrageous' or 'insane' salaries for pro athletes I tell them they are right.

And as soon as folks stop allowing Tom Cruise to make 30 million for a single movie or the Rolling Stones 50 million, or U2 75 million for twenty concert dates or so, I'll be right there with them in the trenches.

It's amazing how often those folks immediately go quiet.

I can understand how 'average' folks get upset over these salaries but keep in mind something Howard Cosell said oh around thirty years ago or so. I paraphrase, 'if you beat odds of 100,000-1 to get to the very top of your profession, be it athlete, heart surgeon, trial lawyer or inventor you deserve to collect big...very big.'

In point of fact MLB players have to play 162 games (in theory) to 'earn' their pay. That's a hell of a lot more taxing then Tom Cruise making a single movie and collecting two and three times more then the highest paid player.

Lip

Athletes are different sorts of performers. If you sign a high-priced actor to a contract, you know what you are going to get, regardless of the occasional hamstring pull. You do takes, bring in doubles and stunt men and get it right. You don't have other actors trying to stop them. The recording industry is different because many artists don't fulfill the promise of their record deals, but the recording industry is a place where the rules are changing, in part because of the changing technological landscape. The Rolling Stones get what they get because they reached icon status years ago, not because they have earned such adoration recently. Many ticket scalpers who speculated on the Rolling Stones in the U.S., by the way, couldn't get rid of their tickets. But when the Stones came to Bergen, Norway, it was almost a reason to declare a public holiday. U2 isn't even an American band. Movies and music are international. Baseball is far more limited.

The potential collapse I see in sports salaries also is related to technology. You will see it in other sports before you see it in baseball because baseball is exempt from antitrust laws. But as the method of delivering games electronically changes, eventually to pay television/radio and ultimately pay-per-view, the revenues teams are getting will dwindle. It isn't a matter of sports turning their backs on broadcast networks, but the broadcast networks not being there in the form that they can support the sports in the manner of which they have become accustomed, particularly in times of economic hardship and high unemployment.

I don't think a future collapse, while not something I would expect in the next five or six years, is outrageous as some believe.

Lillian
11-21-2006, 03:11 PM
The kind of discussion for which I was hoping, would focus more upon a strategy for trying to assemble a winner, without committing to huge, long term contracts. For example, could a G.M. try to acquire players in the last year or two of their existing contracts. They wouldn't be as expensive, the player's current owners might be eager to deal them before they are lost to free agency, and they are highly motivated to perform.

I'm sure that such thinking is common, but during an economic crises, and deflation, it could be a way to reduce exposure, to deflation as well. I doubt that many G.M.'s consider that. They all assume that salaries will just continue to escalate.

maurice
11-21-2006, 03:52 PM
Moreover, the fact that so few here do not agree is very supportive of my hypothesis. The correct view on such matters is almost always held by a very small minority.

This is not logical.

I am extremely skeptical of common wisdom, but the views of any given tiny minority of people almost always are wrong. Thus, on average, common wisdom >>> the opinion of a randomly selected "very small minority."

Moreover, even if it is true that "the correct view on such matters is almost always held by a very small minority," this does not support the notion that you are a member of the very small minority that is correct in this particular instance.

Oblong
11-21-2006, 03:53 PM
isn't that called Moneyball?

:tongue:

SouthSide_HitMen
11-21-2006, 05:03 PM
If you had $2,000,000 in the bank (not counting SS or other investments, like an IRA or pension), you would need to generate a 4% rate of return to "create" $80,000 a year in "new money" without touching the principal.

Factor in 3.5% inflation and and another 0.5/1.0 percent for taxes, you're looking at an 8-9% rate of return to generate that $80,000 per year.

A 4 % annual withdrawl rate (http://www.retireearlyhomepage.com/safewith.html) is a safe rate under any previous scenario where your assets are 50% stocks and bonds including if you retired the day before the stock market crash in 1929.

Of course America can be annihilated by nuclear attacks or become a socialist nation with all private assets confiscated during the revolution but then again a 0% rate would still be insufficient under such a scenario.

Lillian
11-21-2006, 05:21 PM
This is not logical.

I am extremely skeptical of common wisdom, but the views of any given tiny minority of people almost always are wrong. Thus, on average, common wisdom >>> the opinion of a randomly selected "very small minority."

Moreover, even if it is true that "the correct view on such matters is almost always held by a very small minority," this does not support the notion that you are a member of the very small minority that is correct in this particular instance.

Please don't take it personally, however you apparently don't understand the relationship between extreme levels of market sentiment, and the inverse way in which they affect prices. If you're really interested, I would be happy to help you to understand it. Honestly, I'm not interested in debating it. I've done it too many times, and it can be frustrating. This is one of those cases where I'm afraid that I don't have the patience. It is irrefutable, and not worth the time to argue.
Let me give you a clue. In an idealized, hypothetical case, if you could convince every single person that a given investment was the absolute best opportunity to get rich, with virtually no risk, what would everyone do at that point? What would that cause the market to do on that day?
Now, here is the key. With everyone still believing that tomorrow, but having acted upon it today, what would happen tomorrow?

If you see the point, you shouldn't ever question the concept again. It doesn't require a degree in Economics. Understanding it only requires rational thought.

maurice
11-21-2006, 06:00 PM
Please don't take it personally, however you apparently don't understand the relationship between extreme levels of market sentiment, and the inverse way in which they affect prices.

I won't take it personally if you don't take it personally when I repeat that you seriously lack logic. The rest of your post is circular, and your hypothetical bears absolutely no relationship to your original claim. A single investment and an international economy are not remotely analogous. Moreover, a large number of eminent economists disagree with you. I very specifically am NOT saying that they're right. (As I've said, I'm a skeptic.) I'm simply saying that the fact that most people agree with them and disagree with you is NOT "very supportive of [your] hypothesis," as you claim. It simply indicates that they have far more credibility than an anonymous post on a baseball website.

Again, the views of a randomly selected tiny minority of people almost always are wrong. Even if it is true that "the correct view on such matters is almost always held by a very small minority," you have entirely failed to prove that you are a member of the very small minority that is correct in this particular instance. Your entire premise seems to be that you are much smarter than those stupid PhDs who aren't sophisticated or rational enough to reach the "irrefutable" conclusion.
:rolleyes:

Ol' No. 2
11-21-2006, 06:54 PM
Of course America can be annihilated by nuclear attacks or become a socialist nation with all private assets confiscated during the revolution but then again a 0% rate would still be insufficient under such a scenario.So how would you prepare for such an environment if you were GM of the White Sox?:wink:

Lillian
11-21-2006, 07:23 PM
I won't take it personally if you don't take it personally when I repeat that you seriously lack logic. The rest of your post is circular, and your hypothetical bears absolutely no relationship to your original claim. A single investment and an international economy are not remotely analogous. Moreover, a large number of eminent economists disagree with you. I very specifically am NOT saying that they're right. (As I've said, I'm a skeptic.) I'm simply saying that the fact that most people agree with them and disagree with you is NOT "very supportive of [your] hypothesis," as you claim. It simply indicates that they have far more credibility than an anonymous post on a baseball website.

Again, the views of a randomly selected tiny minority of people almost always are wrong. Even if it is true that "the correct view on such matters is almost always held by a very small minority," you have entirely failed to prove that you are a member of the very small minority that is correct in this particular instance. Your entire premise seems to be that you are much smarter than those stupid PhDs who aren't sophisticated or rational enough to reach the "irrefutable" conclusion.
:rolleyes:

I was reluctant to get started with this, as I have been at it for a lifetime, and I know what I'm up against when engaging in these kinds of discussions.
Look, let's not start one of those contentious threads here, and all that goes with that. I have a lot of credibiliity on this issue, and I am only willing to discuss the premise of a deflationary depression, if those of you who want to debate it are willing to be completely intellectually honest. This is for your benefit, as well as anyone else interested in this very important subject. It is not for my benefit. I already figured this out many years ago, and it has served me very well in my career, and my personal investments.

The arguement is not "circular", as you assert. Please think about it, and answer the simple question, and I'm confident that you will understand the point. I didn't make this up, and I'm not the only one who understands this inverse relationship between extreme sentiment, and price behavior, though it is by definition, a minority position.

Trust me. If you will simply think this through, you may discover something that could make, and or save you a great deal of money in your investment lifetime.
Please go back to the previous thread and answer the question to the hypothetical circumstance. We can discuss your answer, after you do that, if you like.

caulfield12
11-21-2006, 08:14 PM
What, are you one of the Nobel Prize winners for Economics that lost your shirt when Long-Term Capital Management Group went down? Can we get a lesson in derivatives and hedge funds, Mr. Soros?

We get it.

Invest counterintuitively. Go against the crowd. Wait for the housing market to collapse and THEN start buying. Short airline stocks after 9/11 (well, that might be so patriotic). Okay, buy Halliburton, lol! It's one of the premises of the new James Bond movie and one of the Tom Clancy novels. Fortunately, there are "breakers" that are triggered in "crash" situations to stop a freefall with the temporary suspension of trading, and reserve requirements at banks will prevent a run like in "It's a Wonderful Life."

The rich always buy (and make big bets) against the grain, when those who can't afford to lose everything are bailing out because they simply cannot afford to risk it. Don't have more than 10% of your money in one company.

It's the way that Legg Mason's Bill Miller and Oakmark Funds tend to invest.

Heck, it's the way Warren Buffett has made $45 billion or whatever he has in Berkshire-Hathaway andancillary investments.

When those debt obligations (of both the US as a country and individual investors) come due, the domino will be so great that it will sweep over the world like the Asian tsunami. Which is like assured mutual deterrence of having nuclear weapons. Any bank, retirement fund, credit card company (etc.) knows that there will be no money left when they tip over the first domino...so we simply won't come to that point. Those who make such decisions will broker a "compromise" of some sort that protects the upper class and rich. Some countries might go under (like Russia in 1998) but it won't be the cataclysm you claim.

maurice
11-21-2006, 08:57 PM
I have a lot of credibiliity on this issue

Logical error: appeal to authority without basis.
You may very well have a great deal of credibility on this issue, but it is not evident from your posts that you are more credible than countless PhDs in economics.

if those of you who want to debate it are willing to be completely intellectually honest.

Logical error: irrelevant and / or ad hominem attack.
I am being incredibly honest. I am making no affirmative claims about the market (which probably is different than the other people you have debated elsewhere). I am a skeptic. I only know a bit about economics, but I know a whole lot about logic.

The arguement is not "circular", as you assert.

Logical error: non sequitur.
Sure it is. You essentially are saying that you are proven correct based on your assumption that everybody who disagrees with you is wrong and skewing the market in your favor.
Logical error: circular reasoning.

I'm not the only one who understands this inverse relationship between extreme sentiment, and price behavior, though it is by definition, a minority position.

According to your reasoning, the fact that other people agree with you makes your argument less likely to be true. If you were the only person who believed it, it would be the most likely explanation. I'm not mocking you. I'm just trying to illustrate your logical error. Here's another explanation . . .

Logical error: false dichotomy.
You're saying that you are correct because the majority opinion causes itself to be incorrect due to its popularity. This assumes that there are only 2 possible arguments--stated roughly (1) that the market is stable and (2) that the market is a bubble about to burst.

Yet, theoretically there are more than 2 possible arguments. For example, one could argue that the market is undervalued and that a boom is imminent. Buy low and reap the rewards! This is a position held by essentially nobody but, according to your reasoning, that makes it the most likely to be correct. By now you should be thinking to yourself "that's illogical." I agree. Such reasoning is illogical and that's why your explanation makes no sense.

Again, I'm not saying that you're wrong and that the PhDs are right. I'm saying that I don't know who's right and that your argument is not persuasive.

Please go back to the previous thread and answer the question to the hypothetical circumstance. We can discuss your answer, after you do that, if you like.

I'm not sure what question you're referring to. Please identify the question and explain why it is analogous to the international economy.

Lillian
11-21-2006, 09:07 PM
Maurice, don't over complicate this. It is a simple, and compelling principal. You will see it right away, if you just think about it. Your are obviously very intelligent, but you're trying to make it more difficult than it is. I'm not being inconsistent when I say that I am not the only person who understands this, yet if it were a very popularly held view, it would reduce the probablility that I was corrrect. Please don't try to win an argument, but instead, concentrate on understanding this simple, and yet profound and powerful principal. Here is the portion of my previous post, to which I am referring. This is the question which I assert will render this concept clear to you:
"Let me give you a clue. In an idealized, hypothetical case, if you could convince every single person that a given investment was the absolute best opportunity to get rich, with virtually no risk, what would everyone do at that point? What would that cause the market to do on that day?
Now, here is the key. With everyone still believing that tomorrow, but having acted upon it today, what would happen tomorrow?

If you see the point, you shouldn't ever question the concept again. It doesn't require a degree in Economics. Understanding it only requires rational thought."
http://www.whitesoxinteractive.com/vbulletin/images/misc/progress.gif

jabrch
11-21-2006, 09:12 PM
Any good economist only needs to know two words - Supply and Demand

That's the case here. Owners are making tons of money. There are a limited number of talented players. Owners are bidding them up.

Nuff said.

maurice
11-21-2006, 09:27 PM
That's what I thought you meant. I already responded to this by saying: "A single investment and an international economy are not remotely analogous" and, most recently, "explain why it is analogous to the international economy."

Perhaps I misunderstood you, but I believe you previously argued that stocks, real estate, and other entire categories of investments are simultaneously inflated. How is it possible that they're ALL inflated? Returning to your hypo, when stock market investors put their money into a single inflated investment (or type of stock), they take their money out of other investments (usually other stocks). If investors generally are putting too much money in the stock market, they are taking money out of other investments (like real estate) to buy stocks. I can see how a stock market or a real estate market can be inflated but, at a macro level, how can they ALL be inflated across the world at the same time through overvaluation? Moreover, it's certainly true that there can be a real estate bubble in certain areas, but probably not all areas of the world at the same time. I could be wrong, but I see no reason to anticipate a world-wide real estate crash any time soon.

Your hypo is more analogous to the tech boom in the 1990s, where worthless stocks were extremely overvalued. "If you could convince every single person that a given investment was the absolute best opportunity to get rich, with virtually no risk, what would everyone do at that point? What would that cause the market to do on that day?" This is close to what happened, and they all bought tech stocks. "Now, here is the key. With everyone still believing that tomorrow, but having acted upon it today, what would happen tomorrow?" The price of tech stocks went sky high. Smart investors cashed out before it burst and bought something else. The tech stocks crashed, but my condo went up in value 100% in the same time period.

I have a feeling that I'm wasting my time in this thread and that I'm stuck in an infomercial.

maurice
11-21-2006, 09:34 PM
Maurice, don't over complicate this. It is a simple, and compelling principal.

I'm not overcomplicating anything. Since the argument is illogical, it's neither simple nor compelling.

Please don't try to win an argument

Again, I'm not making an argument about the economy and, thus, cannot win or lose. I have no horse in this race. You may be 100% correct, but your reasons are not persuasive.

concentrate on understanding this simple, and yet profound and powerful principal.

This is why I feel stuck in an infomercial: heavy on the assertion but short on the logical arguments.

caulfield12
11-21-2006, 09:37 PM
I, too, sense that the "reveal" of the secret to wealth and happiness is more likely to be found from watching a Will Smith Christmas movie or Borat for the 3rd time.

At first I thought there was a possibility something profound might be offered, but I guess us inner city English teachers will forever remain in ignorant bliss.

I think of all the stocks in the world today, Google best fits the description that has been given. We all know the names from 4-5 years ago....Lucent, JDS Uniphase, Global Crossing, Tyco, Enron, etc.

The fact is, money has been driven out of the banks/CD's/bond market by the low interest rates. Why invest in something that doesn't keep up with the rate of inflation, let alone taxes on top of that?

Which drove the money into real estate, international and emerging markets, mid and small cap corporations. It can't all flow into the Vanguard 500 Index or a bond index. And that would be boring, wouldn't it?

I think the corrections have been good for the market, they've taught the "younger generation" (I'm 37) their first tough lesson in the market and made venture capital more carefully select investments (IPO's and start-ups). The best ideas and companies are still being funded, and the money is not being thrown at the wall by the billions with the hope that some of it will stick.

Lillian
11-21-2006, 09:42 PM
Maurice, you are very bright, but you are wrong in this case. If you want to understand this, I will do my best. However, if you are going to insult me, I am not going to invest any more of my time. It's up to you.
I'll email you a more detailed explanation, if you really want it. I don't see the need to take up space in this forum. You seem to be the only one who finds this so untenable, or at least the only one who has an interest.

If anyone else would like to pursue this further, I'll be happy to post a further explanation here. This is not for my benefit. I'm retired, and have nothing to sell, nor any way to profit from this discussion. I was reluctant to get started, because I knew that there would likely be one or more people who would respond as you have.

Lillian
11-21-2006, 09:46 PM
I put this together quickly, and I didn't take the time to do a lot of editing, however it should make the point.

Imagine an idealized, hypothetical case where on a given day, everyone could be convinced that a given investment was the best opportunity of all time, to get rich, with virtually no risk. What would everyone do on that day? They would all buy. What would happen to prices on that day?
Now, granting that optimism did not wane, on the subsequent day. What would happen on that following day?
What is always required for prices to continue to rise? Of course, more buying than selling. If everyone had bought the previous day, what would provide the new demand from that point on? What creates the downward pressure on prices? More selling than buying, or more money leaving, than entering a market.
What does the condition of everyone having bought with all of their available capital, create in the market? Are those new owners, potential buyers, or sellers?
Do they have to lose confidence in the investment in order to become motivated to sell?
What reasons might they have for selling, in spite of their confidence in the investment?
Sure, any number of reasons. They could have an unexpected illness, one of the household’s earners could lose their job, they could want to take a vacation, or need the money for children’s education. In any of these circumstances they may need to sell, even though they had not lost confidence in the market. The more the investor owns, and the greater the portion of their total worth they have committed to the market, the greater the probability that they will have to sell something, the first time they need to raise funds.

If you understand that the market direction is always a function of the net buying demand versus selling supply, then you can readily see that the greater number of people who have become enthralled with an investment, and greater portion of their assets that they commit to that investment, including borrowed funds, the less potential they have to provide new demand to the market. Moreover, their funds represent potential selling supply, if they should need to free up some funds. Now ask yourself; “does a greater degree of popularity, increase or decrease the possibility that market is nearing a point of exhaustion? In the same vein, if everyone had invested, how much selling is potentially built into the equation?

This is why the more people believe it, and more strongly they believe it, the higher the probability that the market is near a turn in a direction against the consensus view.
There are two well known and profound adages on Wall Street. One says that “the Bull climbs a wall of worry.” What do you suppose that means? It means that as long as people doubt and disbelieve the rising trend, there is still sufficient money which could ultimately be used to fuel the advance. When there is no more concern, or “worry”, everyone will have committed their resources, and the buying will be exhausted.

The other adage states that “the Bear slides down a slope of hope”. You should be able to deduce the meaning of this one.

caulfield12
11-21-2006, 09:46 PM
Maurice, you are very bright, but you are wrong in this case. If you want to understand this, I will do my best. However, if you are going to insult me, I am not going to invest any more of my time. It's up to you.
I'll email you a more detailed explanation, if you really want it. I don't see the need to take up space in this forum. You seem to be the only one who finds this so untenable, or at least the only one who has an interest.

If anyone else would like to pursue this further, I'll be happy to post a further explanation here. This is not for my benefit. I'm retired, and have nothing to sell, nor any way to profit from this discussion. I was reluctant to get started, because I knew that there would likely be one or more people who would respond as you have.


What is so difficult to understand? Yours is definitely not the majority opinion, but it's not a few "lone wolves" in the desert baying at the moon either. There's a huge number of financial analysts and economists predicting another crash (fueled by credit card debt, ill-conceived home purchases as investment)...the only question is when, and to what extent America will be affected, or insulated.

caulfield12
11-21-2006, 10:01 PM
Okay Lillian, I'll take apart the White Sox roster and how KW has managed it like a portfolio...

Dye...acquired for less than market value based on a fall in returns and concerns he would never return to "mean" of career statistics afte leg injury

Pods...acquired with the idea that allocating the same or a lesser amount of money to 6-7 ballplayers named Pods, Iguchi, Dye, AJ, Hermanson, Blum and El Duque makes the TEAM stronger than a cast of 3-4 All-Stars but fundamentally-challenged players

Garcia...bought Garcia when Seattle wanted to dump him due to signability concerns, "oversold" Jeremy Reed, who was never going to be worth any more and whose value would have collapsed had he been exposed at the MLB level (see Borchard and Rauch), a "hot" stock in Olivo who wasn't sound overall and a jack of all trades who didn't have one position (Morse) that he could play everyday

Contreras and Loaiza....got Loaiza for "free" (waiver claim), flipped him for Contreras, who was never going to reach his full value or potential in NYC

Jenks...another waiver claim, nothing to lose and everything to gain, dumped by Angels due to character/psychological isssues but fit in fine with crazy Ozzie

Konerko, Garland and Contreras sign for less than market value

Thome...coming off an injury and playing for a team that has to clear space for Ryan Howard, dumps an All-Star hitter on the Sox for less than $10 million per season, which is about what Juan Pierre will be making...only costing us Gio Gonzalez, essentially, because KW wanted to play Anderson over Rowand and Anderson was cheaper

Uribe acquired for "overvalued.scrappy" Aaron Miles

The only move a business manager would argue against is Vazquez. The White Sox would have been unable to trade El Duque after 2005 unless they provided an incentive to another team, which came in the form of Chris Young, the one player KW really wanted to keep from the farm system. With this move, he insured a predictable and controllable cost for his starting rotation through 07 and 08, with the exception of Buehrle and Garcia.

And he had insurance if one of his starters went down. Fortunately (or unfortunately), we never got to see McCarthy as the starter/savior in that role, or KW would have looked like a genius. Instead, all the starters proved to be too "healthy" to take out of the rotation at any point in the season, despite temptation at different points with all five starters.

Lillian
11-21-2006, 10:07 PM
I give up. I was asked to explain the concept of contrarian thinking in investments. You gentleman have missed the point. I used to do this professionally, but I've been retired for 15 years, and it is just more effort than it's worth.
This is a simple, and valid principal. I did't make it up, and I have observed it at work many times in my life. Moreover, history is full of examples of the value in applying this very useful tool in rational investing.
I find some of these comments a little demeaning, and offensive. I really don't need the frustration. Perhaps one day you will read this somewhere, or someone in whom you have greater respect, will present the principal to you again. I hope, for each of you, it will be something that you will try to incorporate into your rationale, and strategy, for successful investing.

I tried, but perhaps I'm a little rusty, in trying to convey the message.
At any rate, sorry I couldn't be of more help.

Let's go back to talking about baseball, it's a lot more fun.

Lillian
11-21-2006, 10:11 PM
Very well put. In Kenny we trust.

caulfield12
11-21-2006, 10:13 PM
Lillian, I bought JDS-Uniphase for $110 per share, watched it ride up to $140 per share when it was added to the S&P Index and then rode it all the way down to $2.30 per share.

I think I understand contrarian investing now. That's why I own Berkshire-Hathaway, Legg Mason and Oakmark Funds now.

I also have 20% of my money in bonds (the 120-your age rule), money in precious metals (gold, platinum, silver), baseball cards, coins, stamps, etc. The latter might be 5-10% total of my portfolio.

Diversification...etc., etc.

voodoochile
11-21-2006, 11:26 PM
I give up. I was asked to explain the concept of contrarian thinking in investments. You gentleman have missed the point. I used to do this professionally, but I've been retired for 15 years, and it is just more effort than it's worth.
This is a simple, and valid principal. I did't make it up, and I have observed it at work many times in my life. Moreover, history is full of examples of the value in applying this very useful tool in rational investing.
I find some of these comments a little demeaning, and offensive. I really don't need the frustration. Perhaps one day you will read this somewhere, or someone in whom you have greater respect, will present the principal to you again. I hope, for each of you, it will be something that you will try to incorporate into your rationale, and strategy, for successful investing.

I tried, but perhaps I'm a little rusty, in trying to convey the message.
At any rate, sorry I couldn't be of more help.

Let's go back to talking about baseball, it's a lot more fun.

It seems to me you are missing the market side of this equation. The owners can afford these prices so long as the consumers are willing to provide them with the revenue to do so.

For there to be a major decrease in revenue spent on players, the consumer has to be priced out of the equation. Since as has been pointed out, reveune streams have multiplied in the past decade with the advent of increased TV revenue, the no end in site expansion of the Internet and simple things like alternative jersey colors to appeal to various social groups the argument seems to be going the other way. Revenue is skyrocketing.

Provided the overall economy doesn't go into a major funk, the owners should be able to afford increasing salaries for a long time. Of course small market teams continue to be marginalized by their inability to spend with the big boys, but so long as MLB keeps it's anti-trust exemption those small teams will still get their shots at the big prize.

If you are arguing that the over all econmy is going to go belly up sooner rather than later, then you have a point, but so long as people have money to spend on entertainment, the owners will take in revenue. Teams that continuously put a winning team on the field will draw fans which will in turn allow those owners to increase their expenditures even more.

In additon, there was actually a lag in salaries since the big signings of the late 90's. Soriano's contract is the 5th biggest ever and is the first one even close to those levels in 5+ years. If anything the owners have become more conservative, but currently there are more teams that can afford higher salary levels, with the Sox themselves becoming the latest big market spender. More big money players means more big money contracts.

Barring a catastrophic overall market problem, baseball will be fine. However if the bid depression II hits tomorrow, baseball won't be the only entertainment industry that finds itself in the crapper...

Frater Perdurabo
11-21-2006, 11:32 PM
KW: Under the Radar. Contrarian. Mastermind. :D:

Brian26
11-22-2006, 12:01 AM
It seems to me you are missing the market side of this equation. The owners can afford these prices so long as the consumers are willing to provide them with the revenue to do so.

For there to be a major decrease in revenue spent on players, the consumer has to be priced out of the equation. Since as has been pointed out, reveune streams have multiplied in the past decade with the advent of increased TV revenue, the no end in site expansion of the Internet and simple things like alternative jersey colors to appeal to various social groups the argument seems to be going the other way. Revenue is skyrocketing.

Provided the overall economy doesn't go into a major funk, the owners should be able to afford increasing salaries for a long time. Of course small market teams continue to be marginalized by their inability to spend with the big boys, but so long as MLB keeps it's anti-trust exemption those small teams will still get their shots at the big prize.

If you are arguing that the over all econmy is going to go belly up sooner rather than later, then you have a point, but so long as people have money to spend on entertainment, the owners will take in revenue. Teams that continuously put a winning team on the field will draw fans which will in turn allow those owners to increase their expenditures even more.

In additon, there was actually a lag in salaries since the big signings of the late 90's. Soriano's contract is the 5th biggest ever and is the first one even close to those levels in 5+ years. If anything the owners have become more conservative, but currently there are more teams that can afford higher salary levels, with the Sox themselves becoming the latest big market spender. More big money players means more big money contracts.

Barring a catastrophic overall market problem, baseball will be fine. However if the bid depression II hits tomorrow, baseball won't be the only entertainment industry that finds itself in the crapper...

And because of all of this, kosher dogs are going to go up to $4.50 next year. :D:

Brian26
11-22-2006, 12:13 AM
The kind of discussion for which I was hoping, would focus more upon a strategy for trying to assemble a winner, without committing to huge, long term contracts. For example, could a G.M. try to acquire players in the last year or two of their existing contracts. They wouldn't be as expensive, the player's current owners might be eager to deal them before they are lost to free agency, and they are highly motivated to perform.

I'm sure that such thinking is common, but during an economic crises, and deflation, it could be a way to reduce exposure, to deflation as well. I doubt that many G.M.'s consider that. They all assume that salaries will just continue to escalate.

Bill Veeck tried that concept, and it failed miserably. Zisk, Soderholm, and Gamble gave the Sox one good year and left town in 1978.

Lillian
11-22-2006, 06:04 AM
It seems to me you are missing the market side of this equation. The owners can afford these prices so long as the consumers are willing to provide them with the revenue to do so.

For there to be a major decrease in revenue spent on players, the consumer has to be priced out of the equation. Since as has been pointed out, reveune streams have multiplied in the past decade with the advent of increased TV revenue, the no end in site expansion of the Internet and simple things like alternative jersey colors to appeal to various social groups the argument seems to be going the other way. Revenue is skyrocketing.

Provided the overall economy doesn't go into a major funk, the owners should be able to afford increasing salaries for a long time. Of course small market teams continue to be marginalized by their inability to spend with the big boys, but so long as MLB keeps it's anti-trust exemption those small teams will still get their shots at the big prize.

If you are arguing that the over all econmy is going to go belly up sooner rather than later, then you have a point, but so long as people have money to spend on entertainment, the owners will take in revenue. Teams that continuously put a winning team on the field will draw fans which will in turn allow those owners to increase their expenditures even more.

In additon, there was actually a lag in salaries since the big signings of the late 90's. Soriano's contract is the 5th biggest ever and is the first one even close to those levels in 5+ years. If anything the owners have become more conservative, but currently there are more teams that can afford higher salary levels, with the Sox themselves becoming the latest big market spender. More big money players means more big money contracts.

Barring a catastrophic overall market problem, baseball will be fine. However if the bid depression II hits tomorrow, baseball won't be the only entertainment industry that finds itself in the crapper...

Yes, I agree, that in this general climate of economic growth and prosperity, these salaries can be sustained. However, the "big Depression II" is indeed very likely to occur sooner, rather than later, IMHO. That was the point of my entire discussion. If you look at my original few posts on this thread, you'll see from where I'm coming on this issue.

SouthSide_HitMen
11-22-2006, 07:16 AM
So how would you prepare for such an environment if you were GM of the White Sox?:wink:

I am sure Kenny has this scenario covered as well though my services may be required in Queens (http://www.whitesoxinteractive.com/vbulletin/showthread.php?t=81348). :wink:

Steelrod
11-22-2006, 07:50 AM
And because of all of this, kosher dogs are going to go up to $4.50 next year. :D:
Just got back from the circus. $20 to park, $20 for program, $12 for a snow cone. What can they be paying the lion tamer?
My point is that the market sets the price.. If people don't buy, prices will go down. If however they do buy, the trends will continue.

Minnie Me
11-22-2006, 08:50 AM
The kind of discussion for which I was hoping, would focus more upon a strategy for trying to assemble a winner, without committing to huge, long term contracts. For example, could a G.M. try to acquire players in the last year or two of their existing contracts. They wouldn't be as expensive, the player's current owners might be eager to deal them before they are lost to free agency, and they are highly motivated to perform.

I'm sure that such thinking is common, but during an economic crises, and deflation, it could be a way to reduce exposure, to deflation as well. I doubt that many G.M.'s consider that. They all assume that salaries will just continue to escalate.

You seem to have all the answers yourself. Why ask the board, unless you just like to have the opportunity to show how smart you are? Go write a book, or teach a class somewhere.

voodoochile
11-22-2006, 08:53 AM
You seem to have all the answers yourself. Why ask the board, unless you just like to have the opportunity to show how smart you are? Go write a book, or teach a class somewhere.

Way to add something to the conversation...

GoSox2K3
11-22-2006, 09:12 AM
My question is, where to the Sox fit in with this salary spike?

If this new spending spree is a result of the MLB owners getting more and more revenue, does that mean that the White Sox have also experience this revenue boost and are not necessarily limited to the same payroll level as last year? In other words, if other teams are suddenly finding room to spend an extra $10 or $20 million or whatever, are the Sox in the same boat too?

Lillian
11-22-2006, 09:19 AM
That's what I thought you meant. I already responded to this by saying: "A single investment and an international economy are not remotely analogous" and, most recently, "explain why it is analogous to the international economy."

Perhaps I misunderstood you, but I believe you previously argued that stocks, real estate, and other entire categories of investments are simultaneously inflated. How is it possible that they're ALL inflated? Returning to your hypo, when stock market investors put their money into a single inflated investment (or type of stock), they take their money out of other investments (usually other stocks). If investors generally are putting too much money in the stock market, they are taking money out of other investments (like real estate) to buy stocks. I can see how a stock market or a real estate market can be inflated but, at a macro level, how can they ALL be inflated across the world at the same time through overvaluation? Moreover, it's certainly true that there can be a real estate bubble in certain areas, but probably not all areas of the world at the same time. I could be wrong, but I see no reason to anticipate a world-wide real estate crash any time soon.


There are a couple of important points which you raise here. First of all, it is indeed quite possible to have several markets "overvalued", simultaneously.
In fact a speculative mania in one market may afford investors extra capital generated from profits in one investment, with which they can then invest in others. They don't need to liquidate one investment in order to use those profits in another. They simply borrow against their equity. Perhaps one of the greatest such generalized asset booms in history was the Japanese stock, and real estate markets of the 80's. We all know how that ended.
In our current asset boom, people are borrowing money primarily from their real estate equity. The combination of dramatically escalating market values, and incredibly aggressive lending practices, have enabled investors, in ways never before possible.
The problem is that leverage is a double edged sword. When prices in one asset category begin to decline, the losses can force investors to sell all kinds of assets.

It is very dangerous for an investor to assume that he will simply exit the asset category that is finished with its bull run, and switch to the next "hot" investment. That takes extraordinary timing skill. Moreover, not all markets are liquid. Real estate in particular presents a significant challenge to investors who desire to make a rapid exit.

One final point; remember that when everyone is trying to get out, that creates tremendous downside pressure on prices. It is not possible for the majority to make a lot of money in the same investment, and all exit with their profits. As long as they are holding their asset, the high prices can be sustained, but if too much "profit taking" ensues, that selling depresses the prices.

AZChiSoxFan
11-22-2006, 10:54 AM
To answer your original question Lillian, I believe it means that KW should go out and acquire Carl Everett again.

Lillian
11-22-2006, 11:05 AM
Way to add something to the conversation...
Thank you. I appreciate it.
You see how an innocent question can lead to such a big deal.
I simply wanted to know what you guys would do if you were a G.M., and you felt that this salary escalation was coming to an end. The entire discussion of the economy, and markets was just the basis upon which I had concerns about locking up these players to such long term, expensive contracts.
At any rate, thanks again.

maurice
11-22-2006, 12:21 PM
Frankly, I'm overwhelmed by the sheer volume of text in response to what seems to be just a couple of simple points by me. Sorry, but I can't keep pace this close to a holiday weekend. IMO, this is the sort of thing better discussed over a beer. Cheers.

TornLabrum
11-22-2006, 02:43 PM
Frankly, I'm overwhelmed by the sheer volume of text in response to what seems to be just a couple of simple points by me. Sorry, but I can't keep pace this close to a holiday weekend. IMO, this is the sort of thing better discussed over a beer. Cheers.

I think you're right about that. I'd have to be totally plastered in order to understand any of this conversation. :D:

Lillian
07-18-2008, 07:16 AM
I posed the question about baseball salaries during an economic depression way back in November of 2006, in this thread. In view of recent developments in the markets, and regarding Fannie Mae and Freddie Mac, it might be interesting to revisit it. What do you think will happen to baseball salaries, if the fore mentioned economic collapse transpires?