What Would Buddy Do?
The challenges of asset valuation in these wintry economic times
Posted on October 29th, 2008 at 11:27 am by Cheesesteak Hoagie

Great piece by Bob Brookover in this morning’s Inky about the Eagles’ likely approach to contract extensions and cap management in the face of an increasingly likely labor dispute in 2011. Brookover reports that the Eagles are not likely to hand out any extensions this year — exactly how he knows this is never explained, but he’s a reporter and he talks to plenty of folks who’d prefer not to be quoted down there (perhaps this is a topic for another post?). So I’ll take him at face value.

The interesting bits of the article are the compare-and-contrast views of faux starters Lito Sheppard and Sheldon Brown regarding the decision to take an extension early in your career versus risking injury for a bigger payday at a later date. Sheppard is a bit conspiracy-theory about the whole thing:

“That’s basically how it is right now. You can write a book about it. Talk to people around the league, they’re going to tell you if you don’t take the extensions, they’re going to get blackballed. You hate to say that about it, but that’s the way it is.”

And what did Sheppard mean by blackballed?

“If you’re on offense, they can limit your production and not let you do what you’ve been doing, and on defense, they can start finding fault,” Sheppard said. “Every little thing you do, they can use it against you.”

Sheldon Brown takes a different tack:

“You have to do what’s right for you and your family and not listen to anybody else,” he said. “Some people may say they are low-balling you, but if it’s enough for you and your family, then take it. If you don’t feel like it is, then don’t take it. Only you can make that decision.

“It’s definitely a tough choice, but it’s just like the lottery. You’re playing with fire because if you look at somebody like [ex-Eagles safety] Damon Moore, he . . . tore his knee up. I just think in the end, if it’s good enough you, go ahead and take it and don’t be too greedy. If you perform more after that, you’ll get more.”

I agree with Brookover that Brown has “the better perspective,” but for different reasons. (And yes, of course I don’t believe that Jim Johnson cares about contracts when he puts players on the field.) What I really liked was Sheldon’s approach to valuation and negotiation. That is, Sheldon seems to understand the fictions of valuation: (1) you’re worth what the market will bear at a given moment, (2) said market is subject to random fluctuations, (3) only you can make a determination of your own value/ BATNA, and, most importantly, (4) beware the hindsight bias! Sure, you can hold on for a couple more years and break the bank like Nate Clements, but you can also explode your knee. This talk of conspiracy theories and blackballing assumes that you’ll continue to perform.

(Also, given the seemingly increased level of uncertainty facing the League and the CBA (see here for Commissioner Goodell’s assessment of the NFL’s economic outlook in these wintry economic times), cash now feels like a good plan.)

Still, it’d be cruel to focus on football players as somehow being irrational economic actors. Lito may bemoan his decision to sign an early extension, but it’s not like he’s Jerry Yang. Lito left a few million on the table; by refusing Microsoft’s $31-per-share bid for Yahoo (now trading at $12), Yang left, oh, about $26 billion in value on the table. Yang insisted that YHOO’s prospects were strong and that the $31 bid undervalued his company. What he chose to ignore was the possibility that said bid overvalued his company — which is essentially what happened when the economy blew out its ACL and demand for banner ads, umm, dipped a bit.

Jerry, my man, next time give Sheldon Brown a call!

[Editor’s Note: Derek was kind enough to explain why I was an idiot over at Igglesblog in re: Joe Banner’s recent comments about extensions — while not referenced by Brookover, a more careful blogger might have figured this out — especially one who had saved it to his delicious!  I am not that more careful blogger. Mea culpa! Someone let me know if this counts as a retraction.]