Monthly Archives: January 2008

The stadium ruse

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Houston%20Dynamo%20stadium%20013108.gifSomething to think about in regard to the City of Houston’s latest stadium boondoggle.
Skip Sauer over at The Sports Economist notes this Rick Eckstein op-ed on the myth of economic benefits from the public financing of sports stadiums:

. . . [M]y colleagues and I studied media coverage of 23 publicly financed stadium initiatives in 16 different cities, including Philadelphia. We found that the mainstream media in most of these cities is noticeably biased toward supporting publicly financed stadiums, which has a significant impact on the initiatives’ success.
This bias usually takes the form of uncritically parroting stadium proponents’ economic and social promises, quoting stadium supporters far more frequently than stadium opponents, overlooking the numerous objective academic studies on the topic, and failing to independently examine the multitude of failed stadium-centered promises throughout the country, especially those in oft-cited “success cities” such as Denver and Cleveland.

Meanwhile, Houston is bidding on another Super Bowl (XLVI in 2012). Get those yachts lined up, folks.

The wisdom of U.S. Presidential campaigns

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president-logos-2008.jpgMuch is wrong with U.S. Presidential campaigns. They last much too long, are far too expensive and the rhetoric is mostly mind-numbing.
However, for all its faults, the messy process does have a way of eliminating the candidates that need to be weeded out (see also here and here).
By the way, Megan McArdle has the New York City perspective on Giuliani’s withdrawal.

What time is it over there?

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Clock-11892TCH.jpgWhen I’m going to be involved in telephone conferences with folks overseas, I am constantly wondering what time of the day it is for them. This website helps me.

Arnold Kling’s Medicare experience

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Arnold%20Kling%20013008.jpgAs I’ve noted many times, EconLog’s Arnold Kling is doing some of the best writing and thinking about health care and health care finance issues in the U.S. right now. In his latest TCS op-ed, Kling describes the care received recently by his elderly father (who sounds as if he should have been a patient of my late father) and observes:

Medicare is wonderful for relieving the elderly from the burden of worrying about health care expenses. By the same token, it is wonderful for relieving doctors of the burden of worrying about the elderly as customers. You get paid for understanding the billing system, not for understanding your patients.

Read the entire op-ed. An update post is here.

NASCAR golf?

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johndalyteeingoff%20013008.jpgThis earlier post suggested a creative approach to generate interest for a PGA Tour golf tournament caught in the Tiger Chasm — i.e., the neverland of golf tournaments that draw nowhere near the interest or publicity as the 15-18 golf tournaments that Tiger Woods plays in each year.
Along the same lines, Angry Golfer John Hawkins points out that chronic party-boy John Daly is creating a similar type of niche for tournaments that are willing to grant him an exemption to play. Daly has made the cut in just 18 of his last 67 PGA Tour events, is currently tied for 156th place on the money list and is 531st in the World Golf Rankings and, in three tournaments this year, has earned a total of $9,805:

I called several tournament heads last week to get a read on whether Daly’s ability to sell tickets is worth the headache he has become. [Honda tournament director] Kennerly didn’t return my phone call, but others were quick to reply, and there remains little doubt that Long John Seismograph moves the needle more than a hundred John Sendens. “It’s a pretty easy decision for us,” says Clair Peterson, who runs the John Deere Classic and already has extended Daly an offer to join the field in July.
“He’s like Randy Moss,” says another. “He’s a freak, he can be a huge burden, but in terms of what he brings you, it’s a very unique dynamic. The NASCAR crowd, whatever you want to call it, is why 80 to 90 percent of the events will give him an exemption if he’s anywhere near the top 100.”
Or 531st, which is where Daly currently resides in the World Ranking, as if the NASCAR gang really gives a Hooters how well their man has been playing or whether he’ll ever contend again on the weekend. The recent face-saving contest between PGA Tour brass and Westchester CC reminds us that every sputtering, non-Tiger event is a possible endangered species. Perhaps 15 to 18 tournaments are in excellent health; the rest lack significance or sound economics.

The products of an entertaining form of corruption

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Okie%20STate%20stadium%20013008.jpgInasmuch as the corrupt sponsorship of big-time football and basketball by academic institutions is a common topic on this blog, the following articles caught my eye:

The Chronicle’s Richard Justice surveys several of the ugly recent incidents in big-time college football and calls for higher ethical standards. However, he ignores the perverse incentives built into the highly-regulated system that promote the unethical behavior.
Meanwhile, one of the coaches who has been accused of being ethically-challenged — former Texas Aggie coach Dennis Franchione — turns out to be an over-achiever with an interesting story.
And how exactly is it that Rick Neuheisel was able to persuade UCLA to hire him as its new coach in the face of this curriculum vitae?

Look, June Jones, Rich Rodriguez, Franchione, Neuheisel and the other supposedly unethical coaches of the moment are not, on balance, any more unethical than the rest of us. They are simply the products of a highly-regulated system that creates all sorts of perverse incentives to act badly. Change those incentives and the coaches’ behavior will change. A good start would be to quit paying the coaches the excess rents that should be paid to the players whose talents generate them.

The worst in Major League Baseball?

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Houston_Astros2 - Copy.jpgSabermetrics Godfather Bill James coined the “Law of Competitive Balance” to explain the trend that teams that win in professional sports tend to slack off in the following year because team management doesn’t work as hard, resists taking risks to make the team better, and generally thinks defensively.

For example, Stros management reacted to the club’s playoff appearances in 2004-05 by rationalizing that “if we won with Ausmus and Everett in those seasons, then surely we can do it again next season.”

As a result, the Stros made minor changes to their roster over the past two seasons through free agency and continued a decade-long trend of failing to develop MLB-level players through their farm system.

The Stros’ decline over the last two seasons of the Biggio-Bagwell era (from 89-73 in 2005 to 73-89 in 2007) is powerful evidence of the validity of the Law of Competitive Balance.

Well, the chickens are really coming home to roost now as Baseball Prospectus has now deemed the Stros’ farm system to be the worst in Major League Baseball ($):

The worst farm system in baseball has no top-tier talent, but plenty of older prospects.

[On the top players in the Stros system under the age of 25]: The fact that Pence is the only other player [other than minor leaguers] to qualify for this list, and that he does so by a mere few days, speaks volumes about just how sad the state of affairs is in Houston.

The team’s recent drafts have been downright laughable, and its once-fruitful Venezuelan pipeline has dried up, as other organizations had passed the Astros in Latin America in terms of committing resources.

This is the worst organization in baseball, made even more dreadful by some early moves in the Ed Wade administration that merely upgrade the big-league squad from dreadful to bad.

The future is very grim in Space City.

Here is how BP rates the Stros prospects:

Five-Star Prospects: None
Four-Star Prospects: 1. J.R. Towles, C
Three-Star Prospects: 2. Felipe Paulino, RHP; 3. Bud Norris, RHP
Two-Star Prospects: 4. Brad James, RHP; 5. Josh Flores, OF; 6. Chad Reineke, RHP; 7. Mitch Einertson, OF; 8. Eli Iorg, OF; 9. Jordan Parraz, OF; 10. Sergio Perez, RHP; 11. Collin DeLome, OF

What’s particularly odd about all this is that the Stros built a consistent winner in the late 1990’s and early part of this decade through their farm system, by developing the Venezuelan pipeline of young players, and picking up productive college players.

But the Stros have drafted poorly this decade, which required the club to invest heavily in free agents to remain competitive. Not only is that approach expensive financially, it has had the additional impact of negatively affecting the Stros’ drafts of young talent.

In three of the last five drafts, the Stros have lost their first-round pick as free-agent compensation. Inasmuch as the Stros have generally not offered arbitration to their own free agents, the Stros only once during that period have received bonus choices of their own.

Meanwhile, the Stros have been unwilling to pay much over MLB’s “slot” recommendations for draft picks. Accordingly, the combination of few bonus choices, lack of first-round picks and financial conservatism culminated in a particularly awful 2007 draft.

As a result of the Carlos Lee and Woody Williams free agent signings, the Stros didn’t have a pick in the first two rounds of the 2007 draft.

Then, by electing not to offer arbitration to three of their own Type A free agents (Aubrey Huff, Andy Pettitte and Russ Springer), the Stros lost the opportunity to collect three first-round picks and three supplemental first-rounders as compensation.

The Stros thought they could sign their first two choices — third baseman Derek Dietrich (3rd round) and righthander Brett Eibner of The Woodands (4th round) — but the prospects ended up asking for more than “slot” money and wound up opting for college ball.

Consequently, the Stros spent just a tad under $1.6 million on the 2007 draft, which was $3.6 million below the average of the other 29 MLB teams.

Meanwhile, the Stros Venezuelan pipeline largely dried up after former general manager Tim Purpura fired Andres Reiner, the former director of the Stros’ Venezuelan scouting and development, who was instrumental in the Stros signing of Venequelan stars Bobby Abreu, Carlos Guillen, Richard Hidalgo and Johan Santana.

New Stros General Manager Ed Wade has reorganized the club’s scouting department and brought in former Brewers scout Bobby Heck to run it, but it’s far too early at this point to assess whether those moves will stem the downturn in the Stros’ farm system.

Frankly, absent a concerted effort to collect draft picks and do a better job of drafting players who are likely to opt for pro ball, I have my doubts that the Stros have done enough to turn around the decline in their farm system.

Given how bad it is currently, that’s a frightening thought for the future of the ballclub.

What’s Fertitta’s real plan for Landry’s?

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Landry%27s%20logo%20012908.gifGiven this experience, Landry’s Restaurants CEO Tilman Fertitta’s offer to take Landry’s private in a deal valued at $1.3 billion is not particularly surprising.
But the question is this: Would Fertitta, who owns just under 40% of Landry’s, actually prefer what Jim Crane didn’t want?

The Power of Myths

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A common topic on this blog has been the power of anti-business myths within American society.

Take Enron, for example. We all know how the myth played out. Enron, which was one of the largest publicly-owned companies in the U.S., was really just an elaborate financial house of cards that a massive conspiracy hid from innocent and unsuspecting investors and employees.

The Enron Myth is so widely accepted that otherwise intelligent people reject any notion of ambiguity or fair-minded analysis in addressing facts and issues that call the morality play into question. The primary dynamics by which the myth is perpetuated are scapegoating and resentment, which are common themes of almost every mainstream media report on Enron.

The mainstream media — always quick to embrace a simple morality play with innocent victims and dastardly villains — was not about to complicate the story by pointing out that the investors in Enron could have hedged their risk of loss by buying insurance quite similar to that which Enron developed in creating their wealth in the first place.

Instead of attempting to examine and tell the nuanced story about what really happened at Enron, much of the mainstream media simply became a part of the mob that ultimately contributed to death of Ken Lay and hailed the barbaric 24 year sentence of Jeff Skilling.

Ambitious prosecutors, given wide latitude to obtain convictions of key Enron executives regardless of the evidence, gladly took advantage of the firestorm of anti-Enron public opinion to lead the mob.

Consequently, as Wall Street continues to endure massive equity write-downs that dwarf the $1.1 billion non-recurring charge against earnings that triggered Enron’s demise after the 3rd quarter of 2001, I was somewhat surprised to read this common sense analysis from NY Times columnist, David Brooks:

There is roughly a 100 percent chance that weíre going to spend much of this year talking about the subprime mortgage crisis, the financial markets and the worsening economy. The only question is which narrative is going to prevail, the Greed Narrative or the Ecology Narrative.

The Greed Narrative goes something like this: The financial markets are dominated by absurdly overpaid zillionaires. They invent complex financial instruments, like globally securitized subprime mortgages that few really understand. They dump these things onto the unsuspecting, sending destabilizing waves of money sloshing around the globe. Economies melt down. Regular people lose jobs and savings. Meanwhile, the financial insiders still get their obscene bonuses, rain or shine.

The morality of the Greed Narrative is straightforward. A small number of predators destabilize the economy and reap big bonuses. The financial system is fundamentally broken. Government should step in and control the malefactors of great wealth.

The Ecology Narrative is different. It starts with the premise that investors and borrowers cooperate and compete in a complex ecosystem. Everyone seeks wealth while minimizing risk. As Jim Manzi, a software entrepreneur who specializes in applied artificial intelligence, has noted, the chief tension in this ecosystem is between innovation and uncertainty. We could live in a safer world, but weíd have to forswear creativity. [. . .]

The Ecology Narrative is not morally satisfying. I wouldn’t bet on its popularity as a backlash against Wall Street and finance sweeps across a recession-haunted country. But the Ecology Narrative has one thing going for it. It happens to be true.

Along those same lines, this Landon Thomas/NY times story reports on how two Wall Street executives who were intimately involved in $34 billion in write-downs remain reasonably hot properties on the Wall Street employment market. The Greed Narrative apparently hasn’t caught up with those two yet, either.

But not so fast. This NY Times article reports that New York attorney general Andrew Cuomo, who replaced Eliot Spitzer as the Lord of Regulation, is currently putting the squeeze on a company that analyzed the quality of home loans for investment banks to provide evidence to prosecutors that the banks had detailed information that they did not reveal to investors about subprime mortgage risk. So, maybe that Greed Narrative still has legs after all.

But for the final word, don’t miss this Larry Ribstein post in which he exposes NY Times columnist Gretchen Morgenson’s stubborn adherence to the Greed Narrative even when it is clear from the subject of the story (in this case, the troubles of retailer Sears) that the narrative doesn’t fit.

In short, Morgenson is not one to allow the facts to get in the way of spinning a Greed Narrative morality play.