A war wages on and nobody seems to back down. Each day both Reddit traders and hedge-fund giants prepare their plans to take advantage of the stock market. Imagine a penny stock’s price gaining over three hundred dollars, crashing down one hundred dollars, only to rise again. If you are looking for a good ole David vs. Goliath story with a little bit of fiscal activity, this is the action for you.
Now, compare today’s athletes to penny stocks.
A team may invest an ample amount of money into a young athlete with little-to-no profile and walk away a big winner or big loser.
For example, the San Diego Padres inked Fernando Tatis Jr. (22) to a 14-year, $340M contract despite playing less than a full baseball season’s worth (162) of games. He is on the fast track to stardom, and the Padres wanted to get ahead of the curve. However, he is playing through a left shoulder injury just less than two months into the new deal.
The Philadelphia Eagles made a similar investment when they extended a 26-year-old Carson Wentz to a four-year, $128M contract in 2019 despite multiple injuries, and inconsistent play. The Eagles showed “diamond hands” despite controversy, but those hands quickly switched to “paper hands” when the Eagles traded Wentz before the contract started.
Not to mention, this was the largest contract in North American sports history given to a, at the time, 24-year-old.
Here are other early investment examples:
The Los Angeles Angels signed Mike Trout (22) to a six-year, $144.5M contract in 2014.
Result: Great – widely regarded as the best player in baseball
The Buffalo Sabres signed Cody Hodgson (23) to a six-year, $25.5M contract in 2013.
Result: Bad – Sabres bought out his contract in 2015
The Washington Wizards signed Gilbert Arenas (26) to a six-year, $111M contract in 2008.
Result: Bad – injuries derailed his career
Is it wise or not wise for professional teams to heavily invest in a young athlete?
“There is not one answer for that question,” said financial expert, Barbara Friedberg. “If you are in a mega market like New York or LA, it is easier to justify the big money because of the chances of a higher ROI (return on investment) is greater. While a team like the Kansas City Royals simply can’t afford the payouts as it’s in the third-smallest media market and the second-smallest metropolitan area among all MLB cities.”
Zachary Zdanowicz, a Texas area college baseball scout, also responded to the same question.
“It’s always wise to invest in athletes. Organizations are constantly doing that, either through the draft, through free agency or international signings and the earlier the better. The earlier a major league organization can get their hands on a young talented athlete the better they can develop them. I don’t think teams should be investing in athletes with little experience, you have to have experience, you have to play the game.”
Zdanowicz also mentioned baseball being particularly difficult to project. “Baseball is one of the most physically demanding sports out there, but also takes fine-tuned athletic ability. You always hear ‘take a baseball player out of baseball, put him in any other sport, and he’ll do fine – i.e. football, basketball, track, etc. You can’t take a football player, and have him hit a 90 mph fastball’. So, there’s a lot of things that you can’t just teach an athlete to do in the game of baseball because there are so many small things about the game. Baseball is a tough game mentally. Something a lot of people on the outside don’t really consider oftentimes.”
Does potential risk outweigh the reward?
Friedberg said, “Getting out of an existing baseball contract is not cheap or easy. You might be obliged to continue paying for a player, if you can’t trade him and get another team to pick up the contract.” She referenced the most notorious deal of them all, the Bobby Bonilla deal.
“For example, the Bobby Bonilla contract was a bad contract on many levels. Whoever constructed that deal made extremely generous assumptions about future interest rates, that crushed the Mets. Deferring payments from 2000 to 2011 is extremely irresponsible without a working crystal ball. Agreeing to pay for 25 years is just ridiculous.”
Zachary Zdanowicz noted projecting a player is not easy either.
“Projection is one of the most difficult parts about scouting. It’s easy to see what’s in front of you and how a player plays. The more difficult part is what that player is going to be like in two to three years or five years (whatever you are scouting for – i.e. college or pro). Projection comes down to a multitude of different things, but can probably be boiled down to age, body type, height, weight, and athletic ability. Some variables and different things that can play into that are work ethic/demeanor, and even character at some points.”
Zdanowicz says, “an average player drafted in college at 20-years-old to 21-years-old is going to start to figure it out (or you’d hope) around that 24-year to 25-year-old range in the hopes that you hit your peak when you are the most developed, which tends two to three years after that 27 to 28 years of age.”
Financial investors and franchises alike must project carefully, and proactively do their homework in order for their plans to succeed.
The New York Mets most recently extended Francisco Lindor to a 10-year, $341M contract.
The MLB free agent class of 2022 could break records as four star shortstops, all under the age of 30 with more to prove, could garner close to three-quarters of a billion dollars.
Barbara Friedberg is a financial expert and owner of Barbara Friedberg Personal Finance. You can follow her on Twitter @barbfriedberg
Zachary Zdanowicz is a Texas area college baseball scout. You can follow him on Twitter @nsr_txscout
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