Monthly Archives: August 2011

Kevin Sumlin’s big season on Cullen Avenue

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sumlinThe Houston area’s entertaining football season kicked off with high school and NFL pre-season football over the past couple of weeks. But the season really takes flight this weekend as the University of Houston hosts UCLA at Robertson Stadium. And for a variety of reasons, that game will be among the most interesting of the first weekend of the 2011 college football season.

The return of exceptional UH QB Case Keenum for his sixth (!) season is one of the obvious storylines. But an even more interesting one is whether UH head coach Kevin Sumlin will be able to steer the Cougars to a key win over a BCS conference opponent in what is his most important season of his 23 year college coaching career.

Last October, as UH’s football season hung in the balance after Keenum was knocked out for the year, this blog post noted that how the Cougars finished the season would go a long way toward defining the direction of Sumlin’s head coaching career.

Unfortunately, the finish wasn’t what Sumlin wanted. After wins over SMU and Memphis had the Coogs entering November 5-3, UH finished the season 0-4, albeit against good teams (UCF, Tulsa, Southern Miss and Texas Tech).

But add to that disappointing finish the fact that Sumlin’s Coogs lost to Rice for the second time in Sumlin’s three seasons at UH and legitimate questions arise over whether Sumlin has what it takes to build a consistent winner on Cullen Avenue.

There is no question that Sumlin can coach offense. Even after losing Keenum last season, the Cougars ended the year fifth in the Football Bowl Subdivision (“FBS”) in passing, 11th in total offense and 13th in scoring. Not what it would have been had Keenum been at the controls all season, but not bad considering that a true freshman QB (David Piland) was under center after Keenum and his backup (Chase Turner) went down in the UCLA game.

However, no one knows at this point whether Sumlin can piece together a decent – much less a good – defense. Sumlin fired defensive coordinator John Skladany after his second season and brought in Brian Stewart last season to implement a 3-4 scheme. The result? Stewart’s defense was far worse than either of Skladany’s two defenses as DC, finishing 110th among the 120 FBS teams.

So, incongruously, the offensive-minded Sumlin’s coaching career is largely dependent upon whether he can turnaround his team’s defensive performance.  Indeed, if Keenum stays healthy all season, the defensive improvement doesn’t need to be all that much – Houston’s explosive offense will cover up many warts on the defensive side.

But until the Cougars’ defense can show that it can stop even a hard-chargin’ marching band – something that Houston’s defenses haven’t been able to do consistently since Jack Pardee’s coaching stint over 20 years ago – Sumlin’s promising coaching career (as well as Houston’s BCS conference aspirations) will remain firmly planted in the second tier of big-time college football.

Why the Astros Deal Will Get Done

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Major League Baseball has been slow-trading approval of Drayton McLane’s proposed sale of the Astros to a group headed by Houston businessman, Jim Crane.

As a result of MLB’s lethargy, a cottage industry of skeptics – such as the Chronicle’s Richard Justice and Biz of Baseball’s Maury Brown – have speculated that Crane’s somewhat hard-knuckled past in business dealings may provoke MLB Commissioner Bud Selig to persuade MLB owners not to approve the deal.

That’s possible, but not probable.

I have no inside knowledge regarding the Astros deal. However, I’ve been involved in sorting out complex business deals for over 30 years, so I’ve got the perspective gained from that experience to pass along. And that experience tells me that this is a deal that will get done.

First, the suggestion that Crane’s past business dealings are giving other MLB owners pause is laughable.

I mean, really. MLB owners are a group that has endured such owners as George Steinbrenner copping a plea to criminal charges while he owned the flagship franchise in the business. And that’s not to pick on Steinbrenner — MLB owners are not exactly a pristine fraternity (remember the Yawkeys and Marge Schott?). Thus, a highly suspect EEOC complaint and problems with the DOJ over a fraction of the business that Crane’s companies supplied to the federal government’s war logistics over the past decade will not cause MLB owners to blink over Crane.

Similarly, Crane’s failure to close on the deal that he supposedly had to buy the Astros back in 2008 nor his attempt to buy the Cubs and Rangers over the past couple of years pose any real problem. MLB owners understand that the financial crisis in credit markets in 2008 doomed Crane’s earlier bid for the Astros. Likewise, even though Crane was not MLB’s favored bidder for either the Cubs or the Rangers, his participation in the bidding process ultimately increased the prices paid for those franchises. Believe me, MLB owners appreciate that.

Finally, even the somewhat highly-leveraged nature (at least for MLB) of the Crane group’s bid for the Astros (supposedly $220 million of the $680 million purchase price will be debt financed) is not a dealbreaker. Although that level of debt would put the Astros out of compliance with MLB’s self-imposed debt-to-equity rule (supposedly around 10%), at least nine out of the other 29 MLB clubs are currently operating out of compliance with that rule. The Crane group’s proposal is not close to being among the most highly-leveraged of those deals.

So, if none of the foregoing are real roadblocks, then what’s holding up approval of the Crane group’s bid?

It’s anyone’s guess, but my sense is that simple gamesmanship is far more likely the reason rather than any problem with Crane. Given his prior efforts to buy the Astros, Cubs and Rangers, MLB owners know that Crane really wants to own controlling interest in an MLB team. They also know that he understands that he will have no chance of doing so if he pulls out of a deal again.

In short, MLB owners know they can make Crane wait awhile without much risk of him backing out. Uncertainty at the top of an MLB team is rarely good (as reflected by the 44-90 Astros record so far this season). Crane’s soon-to-be-competitors don’t mind grinding the Astros down a bit more before approving the deal.

And why then do I think the deal will ultimately be approved? Well, that’s easy.

MLB’s business model is not exactly rosy right now. One club is currently in bankruptcy (the Dodgers), two other clubs just recently exited bankruptcy (Cubs and Rangers), and another club’s ownership is dealing with fallout from the Bernie Madoff Ponzi scheme (the Wilpons and the Mets). MLB attendance is flat this season and its media revenues are dwarfed by the NFL’s, which continues to distance itself from MLB as the premier sports entertainment business in the U.S.

On the other hand, Crane’s group will pay $680 million for the Astros, the lease on Minute Maid Park, and a stake in the newly created Comcast SportsNet Houston, a regional sports network partnership with the Houston Rockets that will launch in 2012. That sales price for an MLB team and related assets ranks behind only the $845 million that the Cubs sale generated in 2009 and compares quite favorably to the $593 million price that Chuck Greenberg and Nolan Ryan’s group paid for the Rangers last year.

The bottom line is that MLB owners are not employing Commissioner Bud Selig to scuttle a near-record purchase price for a franchise in a down and uncertain market.

And that’s the reason that the Astros deal will get done.

Sam Sparks’ Kindergarten Party

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If you have a hankering to attend a Kindergarten Party, then just file a frivolous motion to quash discovery in Austin-based U.S. District Judge Sam Sparks’ court. Maybe he will issue an order similar to the one below.

Sam Sparks Order

The flawed theory of bailout

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bailout3-300x290A couple of items from over the weekend are well worth reading for those who are interested in financial health of the U.S.

First, the Wall Street Journal’s Holman Jenkins, Jr. notes that Bank of America’s declining value reflects that the federal government’s bailout of Wall Street during the financial crisis of 2008 has been of dubious merit:

Let’s revisit the theory of the bailout. The government holds a safety net under the financial system, preventing a worse panic, with consumers and business cutting back spending more radically, with more people losing jobs, with more houses going into foreclosure.

It made sense on paper and underlies claims today that the government has been a net profiter from its bailout activities.

But it becomes apparent that the 2008 crisis isn’t over. And our bailout strategy?

In one presumed lesson of the Great Depression, a splurge of deficit-financed spending is supposed to support the economy while consumers and businesses get over their shellshock. But as George Soros noted to Der Spiegel, the U.S. government in the 1930s wasn’t saddled with huge debt. Unless today’s deficit spending is visibly directed at projects with a positive return, he says, it just frightens the public that the government itself is going bankrupt.

Meanwhile, this Bradley Keoun and Phil Kuntz/Bloomberg article reports that the Federal Reserve loaned an astonishing $1.2 trillion to Wall Street during the 2008 crisis. Interestingly, that amount is roughly equal to the amount that U.S. homeowners currently own on 6.5 million delinquent and foreclosed mortgages.

The foregoing does not surprise regular readers of this blog. Efficient operation of markets depend in large part on the allocation of losses based on who took the risk of loss. Remove the consequences of that risk and the result is that the politically well-connected profit, not necessarily those who carefully assessed and hedged risk.

Remember, it’s not rocket science.

So, why shouldn’t the rich pay more taxes?

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warren_buffet_0Warren Buffett’s NY Times op-ed of last week generated a substantial dose of self-righteous indignation.

I mean, really. If someone as wealthy as Warren Buffett thinks that the mega-rich people should pay more taxes, then why shouldn’t they?

Although the issue seems so simple, as with many things in life, it’s not.

Apart from the fact that Buffett is not averse to taking positions that protect himself at the expense of others, the taxes that the mega-rich pay are already highly disproportionate. 

And as Jeff Miron notes, assessing even an additional 10% surcharge on taxpayers earning over $1 million would not generate enough to make a meaningful difference in reducing the budget deficit. Miron zeroes in on Buffett’s error in reasoning in the following passage:

Buffett errs, most fundamentally, by focusing on outcomes rather than policies. The right question is which policies promote differences in incomes that reflect hard work, energy, innovation and creativity, rather than reward the unethical, the politically connected and the tax-savvy.

In economics, as in sports, we should adopt good rules and insist that everyone play by them. Then we should stand back and applaud the winners.

Indeed, check out what David Logan discovered when he crunched the numbers:

So taking half of the yearly income from every person making between one and ten million dollars would only decrease the nation’s debt by 1%. Even taking every last penny from every individual making more than $10 million per year would only reduce the nation’s deficit by 12 percent and the debt by 2 percent. There’s simply not enough wealth in the community of the rich to erase this country’s problems by waving some magic tax wand.

Finally, to put everything in perspective, think about what would need to be done to erase the federal deficit this year: After everyone making more than $200,000/year has paid taxes, the IRS would need to take every single penny of disposable income they have left. Such an act would raise approximately $1.53 trillion. It may be economically ruinous, but at least this proposal would actually solve the problem.

And as Charles Koch and Harvey Golub note, it’s not as if government has distinguished itself in the way in which it has used tax revenues.

Meanwhile, Peter Gordon insightfully points out why indulging in class warfare against the wealthy is dangerous.

Timothy Snyder’s Bloodlands (Basic, 2010) reminds us of the horrors of what occurs when the dynamics of racial and class warfare collide.

Are those who fan such flames confident that similar outrages could not happen here and now?

Or do they even care?