Category Archives: Business – General

The lucrative sacrificial lamb market in college football

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lamb.jpgAlthough I enjoy most college sporting events, I have long maintained that the structure of major-college football in the US is fundamentally flawed (related post here). Along those lines, this NY Times article reports on a lucrative market that has evolved from the NCAA’s regulation of major college football — less successful football programs selling the opportunity to be a sacrificial lamb to the more successful programs:

The University at Buffalo football team went 1-10 last season and did not score a touchdown until the fourth game. For nearly a decade, it has been considered one of the worst teams in college football.
Buffalo is just the kind of opponent some of the nationís top-ranked teams are looking for ó and are paying rapidly rising prices to play this season. The Bulls will travel this coming season to play Auburn, a national title contender, and Wisconsin, a perennial Big Ten Conference power. Although Buffalo appears destined to be humiliated, the university will receive a $600,000 appearance check for each game.

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What’s really behind the Andrew Young-Wal-Mart flap

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wal_mart logo2.gifThis NY Times article reports on the flap over the recent remarks of Andrew Young, the colleague of Martin Luther King who went on to become the first black congressman from Georgia since Reconstruction and one of Atlanta’s most prominent politicians.
Young had recently become a consultant for Wal-Mart, but that particular job didn’t last long after Young was quoted during a recent interview “defending” Wal-Mart as not being so bad for black people because Jewish, Arab and Korean store owners had traditionally ìripped offî black neighborhoods by ìselling us stale bread and bad meat and wilted vegetables.î Concluding that Young’s defense of the company was faint praise, Wal-Mart understandably let him go.
As would be expected, the Times article focuses on the angst that Young’s remarks has generated among the folks who are preoccupied with race relations, but Larry Ribstein observes the much more troubling dynamic that is truly behind Young’s remarks:

I don’t believe civil rights hero Young is a bigot. But unfortunately the bigoted nature of his remarks will draw attention from the real prejudice here — against capitalism. It’s really all about people who want to make a profit, and those who insist that this is a zero sum game that has to be ripping off the customers.
The result of this attitude is anti-Wal-Mart laws like the one coming up in Chicago that hurt the very people Young fought to defend. Even when hired to defend Wal-Mart, Young couldn’t resist bashing it, and others who tried to make a buck.

Meanwhile, along the same lines, Jeff Matthews analyzes Senator Joe Biden’s recent anti-Wal-Mart remarks and how they reveal the leadership void within the Democratic Party. Check it out.
Update: The always-insightful Holman Jenkins of the Wall Street Journal chimes in with this column ($) echoing the same thoughts and more.

Not enough choices?

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country music.gifThis NY Times article passes along the news that the last remaining area-wide radio station in the Los Angeles market playing country music has changed its format, so the second-largest radio market in the country joins New York (the largest radio market) and San Francisco (the fourth largest) as big markets that no longer host a radio station with a country music format. Inasmuch as such a development seems unthinkable in a country-music hotbed such as Houston, the Times article provides the following explanation:

ìCountry is a tough format to do in a market that is an ethnic melting pot,î said Rick Cummings, Emmisís president of radio. ìThe appeal of the format is fairly limited when it comes to ethnicity.î In Los Angeles, he said, stations that cater mostly to white listeners are ìplaying for less than 25 percent of the marketplace on a good day.î
And while country music may draw a more diverse audience in cities like Houston, he added, it simply does not in Los Angeles, where Latino listeners have a wealth of choices for entertainment in both English and Spanish.

So, Latinos are forced to listen to country music more in Houston than in L.A. because they lack the variety of entertainment choices of the Los Angeles area?
My sense is that the Times reporter has not checked out the Houston radio market recently.

Nice gig if you can get it

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Downsizing the federal government.jpgCato Institute tax director Chris Edwards — author of Downsizing the Federal Government (Cato 2005) — addresses in this Washington Post article the myth that a job in the federal government involves much of a sacrifice of what the “servant” could earn in the private sector:

The Bureau of Economic Analysis released data this month showing that the average compensation for the 1.8 million federal civilian workers in 2005 was $106,579 — exactly twice the average compensation paid in the U.S. private sector: $53,289. If you consider wages without benefits, the average federal civilian worker earned $71,114, [which is] 62 percent more than the average private-sector worker, who made $43,917.
The high level of federal pay is problematic in and of itself, but so is its rapid growth. Since 1990 average compensation for federal workers has increased by 129 percent, the BEA data show, compared with 74 percent for private-sector workers.
Why is federal compensation growing so quickly? For one thing, federal pay schedules increase every year regardless of how well the economy is doing. Thus in recession years, private pay stagnates while government pay continues to rise. Another factor is the steadily increasing “locality” payments given to federal workers in higher-cost cities.
Rapid growth in federal pay also results from regular promotions that move workers into higher salary brackets regardless of performance and from redefining jobs upward into higher pay ranges. [. . .]
According to Bureau of Labor Statistics data, the rate of layoffs and firings in the federal workforce is just one-quarter the rate in the private sector. [. . .]
One sign that federal workers have a sweeter deal than they acknowledge is the rate of voluntary resignation from government positions: just one-quarter the rate in the private sector, the BLS data show. Long job tenure has its pros and cons, but the fact that many federal workers burrow in and never leave suggests that they are doing pretty well for themselves.

And that’s not even considering the enormous cost to businesses and lives resulting from the misguided work of some of those well-paid federal employees.

El Paso’s rebound

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elpaso.bmpJust a year of so ago, Houston-based El Paso Corp. looked as if it was a prime candidate to be the city’s next big corporate reorganization.
That’s not the case anymore. Earlier this week, El Paso announced that it had earned a $141 million profit in the second quarter on revenue of $1.21 billion. The natural gas pipeline company had a net loss of $246 million (38 cents a share) on $1.17 in revenues during the second quarter last year.
Good job, El Paso.

MotherRock’s bad bet

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natural gas flare.jpgThis Bloomberg article is reporting that former Nymex president and former El Paso Merchant Energy trading chief J. Robert “Bo” Collins sent investors in his hedge fund MotherRock L.P. a letter yesterday informing them that MotherRock is shutting down after betting big and losing on trades in the volatile natural gas market during June and July.
Collins formed MotherRock in early 2005. At its peak, the fund managed about $430 million in assets and reported net gains of 20% for 2005. Although its energy fund was up slightly as of the end of May, that MotherRock fund lost $230 million as investors fled and the natural gas prices moved contrary to MotherRock’s positions. After an unusally high draw in natural gas from storage last week and a a heat wave across much of the country, natural gas prices rose 17% during the week of July 24 and 14% this past Monday. Guess which way MotherRock was betting prices would go?

The latest boom

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bubblepop.jpgThe Wall Street Journal’s ($) Ann Davis reports from Houston on the funny money flowing into oil and gas investment opportunities, even those that do not own any oil and gas yet:

Barry Kostiner traded electricity and natural gas for eight years on Wall Street. Last fall, he reinvented himself — as a Texas oilman.
With no assets beyond plans to buy oil and gas fields, he set up shop as Platinum Energy Resources Inc. He had never worked in the oil industry or managed a company. Yet he carried out an initial public offering of stock and within two months persuaded several New York hedge funds to buy a large chunk of the shares, raising $115 million in all. . .
Energy-related endeavors of all kinds are a magnet for cash these days, thanks to the gravity-defying rise of oil prices and the recent boom in investment pools that cater to deep-pocketed institutions and the wealthy. Some energy investments, to be sure, are relatively low-risk and involve industry veterans. But private-equity firms, hedge funds and other professional speculators are also pouring billions into unconventional loans, management teams with limited track records and IPOs on lightly regulated stock markets.[. . .]
The fevered pitch reminds some of the Silicon Valley boom a few years back. “Energy’s about as hot right now as tech was in 2000,” says Ben Dell, an energy analyst with Sanford C. Bernstein & Co. [. . .]

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Air France competitors, listen up!

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Air_France_logo3.jpgAir France is right on the law in this recent Fifth Circuit decision (written by Judge Fortunato P. Benavides), but woefully wrong on the public relations front. In not settling the case, Air France has given an enterprising advertising firm for one of Air France’s competitors the basis for an effective “we’d never do this to you” advertising campaign against the airline.
Here’s what happened. Air France charged Edo Mbaba a $520 excess baggage fee for the four extra bags he took on his trip from Houston to Lagos. That was no problem, but when Mbaba flew through Paris, the flight was delayed and he missed his scheduled connection. As a result, he had to spend the night in the terminal and reclaim his baggage.
The next day, when Mbaba went to check his bags with Air France again for his flight to Lagos, Air France inexplicably advised him that he would have to pay another $4,000 in excess baggage fees. Thinking much as I would if confronted with such a demand, Mbaba requested that Air France simply return his luggage to Houston, which prompted the Air France personnel to inform Mbaba that if he didn’t quit griping and pay the four grand fee, they would take his luggage outside and barbecue it. Mbaba paid the fee, but then sued Air France in Texas for breach of contract and other state law claims.
Alas, the U.S. District Court and the Fifth Circuit concluded that Mbabaís claims are preempted by the Warsaw Convention. Nevertheless, here’s hoping that some of Air France’s competitors pick up on the decision and use it in the advertising wars so that the few bucks that Air France saved by stiffing Mbaba becomes an expensive lesson on how not to treat customers. Hat tip to Robert Loblaw for the link to the Fifth Circuit decision.

More rumblings at Dell, Inc.

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dell_logo_lg.jpgFollowing on this previous post from about a month ago, Round Rock-based Dell, Inc. announced late last week that — as Jeff Matthews aptly notes — it had “puked the quarter.”
Dell’s announcement sent its shares sliding almost 10% for the day on Friday to the lowest close in about five years (Dell’s stock was down $2.19 to $19.91 a share, its lowest since October, 2001). This type of announcement is getting a tad monotonous for Dell, which missed forecasts for its fiscal first-quarter revenue and earnings earlier this year, and missed sales projections last year for its fiscal second and third quarters. Dell’s basic problem is that the computer market is shifting away from Dell’s core strength in providing computers to business toward consumer PC’s, which is a smaller part of Dell’s business. To make matters worse, Dell’s cost-structure is such that it doesn’t have any room left to undercut competitors on the cost of PC’s.
Meanwhile, Dell competitor Hewlett-Packard is taking advantage of the situation. HP has restructured its operations to focus on sales growth in consumer PC’s, where its wide footprint in retail stores across the US gives it an advantage over Dell’s focus on web-based and mail order sales. HP’s PC shipments in the U.S. jumped more than 15% in the second quarter.
Finally, Matthews is not convinced that the slide in Dell’s stock price is over, either:

[Dell] has used options extensively as a key component of its employee compensation. . . Dell spent more than $15 billion in the last four fiscal years buying back stockóyet fully diluted shares declined a mere 200 million shares over that time, thanks to the companyís willingness to dilute its shareholder base with large option grants. This is all perfectly legal, of course, but as options lose their place in the hearts and minds of investors, Dell may have to figure out a better way to keep costs down.

Dome redevelopment plan lurches forward

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Reliant Astrodome Hotel.jpgHas it really been almost two years since we began talking about what to do with the Astrodome? (previous posts here, here, here and here).
After floating a Gaylord Texan-type concept for the past year or so, Astrodome Redevelopment Corp. and Harris County are ready to enter into a letter of intent regarding ARC’s $450 million plan to reinvent the Astrodome as a luxury convention hotel with a parking garage and new exit from Loop 610 South to keep the facility from interfering with Houston Texans games and the Houston Livestock Show and Rodeo. ARC is a consortium comprised of Oceaneering International Inc., a publicly traded firm working in engineering, science and technology; URS, an architectural and design firm; NBGS International, a theme park developer; and Falcon’s Treehouse, a Florida-based design firm.
Although touted “as a major milestone,” the letter of intent is not such a big deal. ARC needs it to be able to negotiate deals with the array of entities (Texans, Rodeo, Harris County, financiers, investors, etc.) that it will have to cut deals with in order to make a deal of this magnitude come together. The letter of intent requires ARC to have its financing arranged in six months and to have its final deal cut with the county in a year.
Although I’m surprised that this proposal has gotten this far, I give the chances of the Astrodome hotel actually coming together without public financing as roughly the same as the Texans making the Super Bowl this upcoming season.