Lazy Man and Money

Baseball Contracts and Financial Security Revisited

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Retro Baseball Pitcher

[Today we’ll cruise into the weekend with a lighter article from staff writer, Kosmo. It’s spring training and a good time to turn your attention to baseball. That is unless you are a Red Sox fan like myself. Then the news about David Price seeing Dr. Andrews is a little like waking up in a Saw movie… though I haven’t seen any of those movies.]

In the past, I’ve written about a couple of baseball players who chose to hedge their bets financially – getting some immediate financial security in exchange for a lower ceiling on their earnings.  Today, I revisit two of those players, Jon Singleton and Andrew Heaney, to see how things have turned out.

Jon Singleton

In June of 2014, I wrote an article about a new contract signed by Jon Singleton of the Astros.  Singleton signed a deal that would guarantee $10 million over the next five season and had the potential to make as much as $32 million over eight years.

Pitcher Bud Norris, never one to show restraint, blasted the move:

“Sorry but this Singleton deal is terrible.  Wish the [sic] Jon listened to the union and not his agent.”

The issue was that Singleton was giving up some upside in the deal.  I estimated that he had the potential to earn as much as $65 million over eight years.  I was personally in favor of the deal.  Why?  Because $10 million dollars, invested reasonably intelligently, should provide comfortable lifetime income.

Why was I worried about Singleton avoiding a worst-case scenario, rather than being concerned that he might be leaving $30 million dollars on the table?  Mostly, because the worst case scenario sucks.  If he washed out of baseball without the guaranteed money, it could mean forty years of manning the checkout counter of the local Qwik-e-Mart.

Top prospects fail in the Major Leagues with startling regularity, and Singleton wasn’t even an elite prospect.  He was a good prospect, but definitely not considered a slam-dunk to succeed.

So, what happened?

Singleton flopped.  In 2014, he played 95 games in the majors, and was horrible, hitting .168.  In 2015, he played 19 games for Houston and hit .191. (If you don’t follow baseball, this is a very poor batting average).  Singleton spent all of 2016 in the minors – and hit .202 in the minors.  On November 20, 2016, the Astros removed him from their 40 man roster.  Any of the remaining teams could have claimed Singleton on waivers at that point, but none did.  None of the teams felt that Singleton’s upside was worth the remaining cost of his contract.

How much would Singleton have made if he had turned down the contract?  He would have made roughly $700,000 in 2014-2016 and would be lucky to earn another $500,000 in 2017 and 2018 combined.  That’s a far cry from the $10 million he’ll actually make.  The clear financial winner so far is Singleton, and there’s really no scenario where the Astros win the deal.  It probably won’t even make sense for them to exercise the “cheap” options on Singleton for the 2019-2021 seasons, because he simply won’t be worth the cost.

Andrew Heaney

About a year ago, I wrote an article about Angels pitcher Andrew Heaney.  Heaney had made news by agreeing to sell a 10% share of his future earnings to Fantex for $3.34 million.

At the time, Heaney was a decent, but not great, pitcher.  I also noted the following risk:

There’s also the risk of injury.  A third of major league pitchers have Tommy John surgery, which replaces the ulnar collateral ligament in the elbow.  It’s a tremendously successful surgery that has extended the careers of a great many pitchers.  Tremendously successful – some studies claims a 90% success rate – still means that sometimes it doesn’t work.  10% of the time, the pitcher never bounces back to pre-surgery form.

What happened?  Heaney pitched six innings in 2016 and begin experiencing elbow discomfort. The Angels tried stem cell therapy as an alternative to surgery.  However, this did not prove successful, and Heaney underwent Tommy John surgery in June.  With a 12-18 month recovery time, he might be ready to return by the end of 2017 – but it’s just as likely he won’t pitch again until 2018.

Heaney will still accrue major league service time for the 2016 and 2017 seasons.  However, when he hits arbitration after the 2017 season, he’s not likely to get much of a raise.

In my earlier article, I suggested that Heaney might have career earnings of between $50 and $150 million.  The upside is probably a bit generous at this point, but it’s still quite possible that he exceeds the $50 million.  Selling 10% of future earnings of $50 million for $3.34 million is pretty much a push, given the time/value of money.  If he hits $100 million in earnings, the Fantex deal will end up costing him money.

But there’s still a big caveat.  Not every pitcher bounces back from Tommy John surgery.  There’s a small, but very real chance Heaney never pitches again.  If that happens, the Fantex investors will get almost nothing for their $3.34 million investment.

While both of these hedging decisions appear to have been smart ones, this isn’t always the case.  Many young players sign extensions that cap their earnings, and many would have been better off not signing the extensions.  However, the stories of Singleton and Heaney highlight the negative situations that those playing are trying to hedge against.  While it’s true you want to bet on yourself, it never hurts to hedge.

Editor’s Final thoughts

I think Kosmo hit it out of the ballpark here with the worst-case scenario. In my view, if you can lock yourself into being well into a “1 percenter” for life, it’s a very good deal… even if you have to give up being a “0.1 percenter.” This is especially true if the downside means going back to being a 50 percenter or worse.

This doesn’t just happen in baseball. Years ago Mark Cuban protected his Broadcom sale to Yahoo with a stock market hedge. It worked out beautifully for him.

Minor League Baseball is a Great Value

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[Editor’s Note: This is one of the few baseball posts NOT written by our resident expert baseball addict Kosmo. I’m going to try my best to live up to the high standards he sets.]

Several years ago, when my wife and I lived out in California, we went to our first Minor League Baseball game. It was a Modesto Nuts game that was part of some work deal*. The experience made my list of one of the best ways to Save Money at Baseball Games.

Pawtucket Red Sox - Free Brady
Pawtucket Red Sox – Free Brady Friday

Last Friday, I went to my second minor league game… our local (Rhode Island) Pawtucket Red Sox playing some Louisville Bats**.

At the time, I noted that just going to a baseball game is great if you are a fan. The grass, the organ, the food… it’s just a great atmosphere. It isn’t obvious, but Minor League Baseball has a few advantages over Major League Baseball. There are more creative promotions. At the Modesto Nuts game, they had something every inning. (My favorite was the inning of Dollar Drafts.)

Another advantage is that it is extraordinary family friendly. I’ve only been to two Minor League games, but I didn’t find a single drunk, surly guy, heckling a 20 year old kid. This is in sharp contrast to the bleachers Fenway during Red Sox/Yankees games where I always learn a few new slang words.

Finally, there’s the obvious advantage Minor League Baseball… it’s much cheaper. Tickets are cheaper. Beer is cheaper. (The food unfortunately, was not much cheaper this time unlike the Modesto game.) Parking is cheaper. Souvenirs are cheaper.

There’s a trade-off to minor league baseball obviously. You don’t get to see the top stars. Also, if you follow the major league team, as most fans do, you probably don’t care about the results of the minor league game. You probably want the affiliate of your major league club to win, but it can be more about following the players.

The promotion last Friday was enough to get us to bring the kids to the park. With a 2 and a 3 year old, you never know what their attention span is going to be, especially for something that typically requires sitting in place for 3 hours in the evening.

The price of the tickets were $12 (a dollar off for Tom Brady) for a box seat. We got 4. So the best seats for a family of four run around $50 total. I think the face value on some of the Boston Red Sox tickets go between $140-175 for face value alone for these seats… and that’s just a single seat. Tickets alone for the family of four can easily run $400 or $500. (It doesn’t help that they are some of the most expensive tickets in baseball.)

Parking cost us $10, but I see that parking at Fenway is “$40+.” The concessions were probably not much of a discount, but still a little cheaper. We didn’t by any souvenirs… a blessing of having the oldest be only 3. I wouldn’t have said it was a cheap evening, but it could have been much worse. (If we planned to eat before, it also could have been much better.)

As for the event itself there were three things of note besides the game (the PawSox scored a lot early and coasted to an easy win):

  1. Great Promotions – Just like the Modesto Nuts, there was a promotion nearly every inning. My favorite was this Hurl the Pearl game for charity. If we had time before the games starts, we’ll look to do that next time.
  2. Linda the Usher – We had the best usher in the history of mankind. I hadn’t seen someone rock her job in such a long time. It seems somewhat of a local celebrity for her ushering skills. I learned that even mundane-looking jobs can be made exciting.
  3. Talked with an Important Executive – Around the 7th inning an important-looking person in a suit came by with Linda. I think he was intrigued that our 2 and 3 year olds where still having a great time that late. I immediately noticed his World Series ring and figured he was a top guy. We talked for about 5 minutes about the promotion. I learned that the competing Buffalo Bison promotion was politely discussed with the PawSox and approved because it was all in good fun and it went to help charity.

    Later on, I looked up who it was and it was Dr. Charles Steinberg, the President of the PawSox! That kind of stuff simply doesn’t happen at the Major League level.

We’re already looking forward to our next game.

* Interesting fact: I always associated the Modesto team with the Oakland A’s. They were called the Modesto A’s and were the minor league team for years. It wasn’t until I started to write this story that I realized they had been affiliated with the Colorado Rockies for more than 10 years, including the time that I saw them.

** Interesting fact 2: The Louisville Bats use the mammal as the core logo, which may be unexpected considering they are known for the bats are used to hit baseballs. Good pun, but on this particular night, they played like they were relying on their sonar a little too much.

Dream: Traveling The United States

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I hope everyone is having a good long weekend. Personally, I’m planning on grilling hamburgers and hot dogs and watching baseball. Baseball season is in full swing and my favorite team, the Boston Red Sox, is off to a great start.

Every year around this time, I’m reminded of my dream to take a few weeks off and travel around the United States visiting as many baseball stadiums as possible. I’m not a big on geography, but it seems like from Ohio you can get to a number of stadiums.

I had hoped to do the road trip with a friend in my early 20’s, but we could never work it out. Now that we’ve each gotten married and started families it’s much harder. So rather than do it with my friend, I’m thinking about doing it with my family.

It’s tempting to say, “Hey, you’ve had the dream for nearly 20 years, make it happen!”, but my boys are aged 2 and 3. They simply don’t enjoy baseball, yet. (I’m hoping that “yet” is a appropriate and that it is just a matter of time.) However, maybe when they are 10 and 11 it will make more sense.

One thing I’ve been thinking about is how would I travel the United States on such a trip?

Here are a few options that have bounced around my head:

  • SUV and Hotels – Last year we drove to Pennsylvania, but stopped in New Jersey and stayed at a hotel there. If we plan the trip well, we could do the same at each stop. I’m not sure how expensive it would be. It would vary greatly on what kind of hotel we’d get. This could work if we planned something that was just a couple of weeks. However, if it went on longer, hotel prices for a month could get pricey.
  • Recreational Vehicle (RVs) – I’ve had some blogger friends get RVs and travel the United States for a long time. This would be an option if we decided to go for something like the whole summer.
  • Trailer – I’ll start off by saying that I’m not the camping type and I’m not sure if this is even feasible. However, maybe we could hitch a trailer to our SUV. We’d put everything we’d need inside and camp out of that. (I learned the other day that in Europe and Australia they are called caravans.)

One Final Opportunity (or Obstacle?)

We live in a resort town where the population in the summer seems to triple with all the tourism. The prices for people willing to rent their houses out are crazy. We’d probably be able to get $5000 a month. If we were to travel for an extended period of time, it might make sense to put everything in storage.

On the other hand, the idea of putting all the stuff in my house in storage is very, very daunting. If not for that problem, it would be a no-brainer way to finance our trip (and probably make extra money).

I guess I have 7 or 8 years to figure it out, right?

Financial Case Study: Effectively Wild

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[The following is an article that I requested from Kosmo after reading about a similar topic in this GREAT NY Times article. This article goes behind the scenes to before the nerds ran a baseball team on statistics.]

A few years ago, I began listening to a baseball podcast called Effectively Wild.  The hosts are Ben Lindbergh (formerly of Baseball Prospectus and the now-defunct Grantland and now of FiveThirtyEight) and Sam Miller of Baseball Prospectus.  It’s a show that is ostensibly about baseball, but is as much about the behind the scenes aspects as the on-field action.  A few topics that have been covered:

  • Why isn’t the increase in defensive shifts lowering BABIP?
  • Catcher framing (Lindbergh is an acknowledged expert on the topic)
  • A cold call to a 90 year old former pitcher (Ned Garver) in search of an answer to a question about a specific game.  (Episode 722 – it’s a classic.  Ned is tremendous.)
  • A discussion about an effort to recruit former minor league players to play cricket (Switch Hit 20)

Ben and Sam have a tendency to look at many different perspectives before settling on an answer.  Instead of just seeing the finished result, you also see why other possibilities are disregarded – and that can often be even more informative.  Over the years, the show has grown to over 10,000 listeners and a Facebook group of more than 3,000.  It slows down a bit in the winter, but there are still multiple episodes every week.

Show me the money!

For years, the sole source of revenue was a single sponsor, the Play Index from Baseball Reference.

After volunteering their time for about 850 episodes – about 400 hours of air time, to say nothing of the additional work required to put the show together – Ben and Sam asked for money.  They used Patreon to solicit donations, quite clearly stating that this was voluntary and that those who didn’t have the money to spare should not contribute.

At the moment, 788 people have pledged a total of $6,434 per month.  It’s quite likely that will drop somewhat.  There are some rewards for being at various levels for a period of time, and some people will drop to a lower level after getting that reward.  Other people will find themselves in financial situations where they need to stop contributing or lower their contribution level so that they can keep food on the table.  For the sake of argument, let’s assume it stabilizes at around $4000 per month.  The podcast has about 20 episodes per month, so that is about $200 revenue per episode.  That’s overstating their hourly rate in a couple of ways.  First of all, they often do research before the show (well, Ben does, anyway).  Second, some of this money will go to hosting costs.  However, at the end of the day, these guys are going to be able to take home a decent chunk of change for their podcast.  A very fair reward for the entertainment value they provide for thousands of people.

The Stompers Experiment

Last season, Ben and Sam tried their hand at applying the principles of baseball analytics and took over the baseball operations department of the Sonoma Stompers, an independent league team.  For those of you who aren’t familiar with how baseball works, the independent leagues are where players go when they can’t find a home in the minor leagues.  The players make almost nothing as they chase the dream of catching the eye of a scout for a big league team.  The teams themselves are often run on a shoestring budget, and it’s unfortunately to see teams or entire leagues go bankrupt.  If you want to see baseball at it’s most pure level, indy ball is the place to go.  There are no millionaire players.

The GM and the announcer of the Stompers become members of the Facebook group and were welcomed with open arms.  Facebook members bought merchandise, attended games, donated their voices for commercials, and even contributed cash toward a full page ad in the Stompers program.  The group adopted the team as their own, following the broadcast on the internet when possible.

Ben and Sam wrote a book about their experiences.  Perhaps the best thing about the book is the fact that I am one of the people they thank – extending a somewhat odd streak of being listed in the acknowledgments of a baseball book for the third straight year.  The official release date of “The Only Rule Is It Has to Work” is May 3rd (yes, that’s today).

The spin-off

The podcast is a sideline for Ben and Sam – they both have “real” jobs – but they have turned it into something that will actually generate revenue for them.  That’s great for them, but does the buck stop there?

Of course not.  All good things need a spin-off.  For Effectively Wild, that spin-off is Banished to the Pen.  An innocent discussion about where one reader could host his content quickly turned into a discussion of having the Facebook group operate their own site.  I’m proud to be one of the founding members of the group that created the site. We have dozens of people creating and editing content, and the work of many of the writers has been acknowledged by some of the leading writers in the business.  We’ve had a half dozen writers snatched away by other sites.  Since the site was intended to be a non-profit (in fact, zero revenue) incubator for aspiring writers, this makes us quite happy.

Thus, Effectively Wild isn’t just making money for Ben and Sam – it has helped launch the writing careers of people who are now being paid for their work as well.

Ten Things I Think I Think

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It’s been a long time since I put out a random post of things I think I think (which I shameless ripped off of Peter King… though I won’t steal his convention this time by enumerating them).

I hope everyone is coming off a good Memorial Day. Just when I think I can’t have any great appreciation for the military, some terrorist event like the recent Boston Bombings brings it up a notch. I’ve read so many great words were said about the military the last couple of days that anything I could add would just sound like a rehash and I’d probably be subconsciously plagerizing someone.

It’s worth noting that we shouldn’t forget the Oklahoma tornado. Living in New England, I can’t begin to comprehend what I saw on the news with that. The next time we get three feet of snow and the governor makes it illegal to drive on public roads, remind not to complain.

It made me smile that the Comfort Dogs are helping the people affected by the Oklahoma tornado. Have you never heard of the Comfort Dogs? I can’t believe they fly all over the country… seems like there should be a pack in every state, just ready to deploy.

One last Oklahoma and Comfort Dog thought: Should You Have an Emergency Charity Fund?

Deal of the Week

Kentucky Fried Chicken (don’t give me that KFC re-branding crap) has a buy one get one free coupon for 2 pieces of boneless chicken, a side, a biscuit, and a drink for $4.99. I’ve been to restaurants that charge $5 for two soft drinks alone. The Angioplasty Association of America suggests you print out as many as you can and use them up by June 4th.

Entertainment

Did you know there were so many Great Gatsby movies? Me neither. With the new remake of that and of course the new Superman reboot, I’ve been thinking that it’s time to remake Brewster’s Millions. Most people I know don’t it was originally a play, and has been released as a film 6 times according to IMDB. The last one, in 1985 had a gap of 40 years between films… and we are approaching a 30 year gap. Short of resurrecting Chris Farley and pairing him with Adam Sandler, I don’t know how you can match the Pryor/Candy of the last film. Part of me says, “Why remake a classic?” when it was done to perfection. The other part of me says “How do we introduce a great concept of a movie a new generation?”

Having finished off season 3 of Arrested Development over the last week, I found the format of season 4 (streaming on Netflix) to be greatly disappointing. I suppose that getting the actors together for real episodes just wasn’t possible, but I feel like I’m watching just one watered-down episode of Arrested Development. I’m only a few episodes in and the biggest highlight was seeing that many of the actors of the Outsourced make an appearance.

The three teams with the best records in baseball are all Red-based teams… the Cardinals, Reds, and Red Sox. (Okay the Red Sox are tied with the Rangers, but don’t rain on my parade.)

Household

Strange world… I can get some millions of random products delivered from Amazon in 2 days or less, but it takes the fence contractor we hired a month to get the most common fence materials delivered to him.

My “luck” with service people doesn’t end with fence contractors. My wife and I tried to get a cleaning service for our home. In San Francisco, I was able to complete that task on my to-do list in about a half hour. In New England it seems no one wants my business. I called three places and my wife called five more. No one picked up or returned our calls. This includes the popular The Maids brand. We found one person who quoted us an estimated price of $135 over the phone, who offers a 15% military discount. I was expecting a price of $115. During the walk-through she asked if we were military and then came back with the price of… $135.

When I asked about the $135 price after it was quoted as being $135 on the phone previously, the cleaning service lady said, “Well a house this size is usually $150, but with the military discount it will be $135.” Being a bit of a math nerd, I realized that even if it was usually $150 that’s only honoring a 10% military discount. I waited a week and when no other cleaning services returned my phone calls, I decided to counter offer at $125, explaining that it is very close to a 15% military discount on $150. Weeks later, I still have no response to what I thought was a pretty fair proposal.

In the meantime, I checked with a local directory of trusted businesses and found an awesome cleaning service for $75. In all my other searches it didn’t come up. They were ready to clean the same day they toured the home and quoted the price!

I know some people might think I’m living up to my Lazy name with a cleaning service, and in some ways I am. However, one of the reasons I am frugal in many areas is so that I can splurge for a cleaning service.

Technology

CNET had a great article about upcoming seemless wifi connections. The promise is that your phone will automatically use a wifi connection when it is available without you having to select it or log in… as long as you have privileges to be on that network. (Sounds a little like Republic Wireless.)

I’m sure they’ll get the technology piece solved, there aren’t any great barriers to storing login credentials on a phone in advance and logging into wifi. The barrier to making this useful to consumers is a unifying entity to make wifi networks interoperable. For example, if my Bank of America ATM card only worked at Bank of America, it would be serviceable, but it is much better when it works at Chase, US Bank, Wells Fargo, and that shady place near Tijuana where Salma Hayek dances with a snake. Even if I have a pay a small roaming fee to use my wifi out-of-network, it is better than having to buy into that network completely.

Maybe cell carriers realizes that this is a good way to monetize these wifi networks and charge an extra $5-7 a month for roaming on the WiFi SuperNet (which I’ll use for lack of a better name).