December 27, 2008
Defending Spending
Red Sox fan Daniel Drezner defends the Yankees spending:
First, it would be awesome if American corporations acted more like the Yankees. One cause of the deepening recession is that firms are afraid to do anything other than hold cash in hand at the moment. The smart ones should invest in expansion -- capital is ridiculously cheap right now and they'll be well-poised once the economy takes off again. If enough firms acted that way, the economy actually would take off again.
In signing these players, the Yankees have made long-term investments while keeping their expenditures constant relative to last year's payroll. Given their move to a new stadium, their revenues should increase. They have made these moves in order to improve their chances of competing. That's how corporations should behave.
The Yankees are like Mr. Potter from It's a Wonderful Life. He was buying up bank shares cheap during the depression, but he was also supplying liquidity. The Yankees are doing the same, as their luxury tax and revenue sharing bills help keep other teams competitive.
A reasonable argument from a business practice point of view, and it has reached beyond the corporate world: http://tinyurl.com/risk-aversion
However, the "capital is cheap" argument is utterly incorrect. the capital markets have seized, commercial paper frozen, auction rate securities the same, the IPO market the worst in memory. Goldman Sachs paid Buffet Gambino type interest to borrow, so Drezern seriously must revisit that side of the equation.
Secondly, as he notes the Yankees revenue forecast is up, while 90% plus of the S&P is forecast down, but they should all spent more? Highly debatable, but not as absurd as the capital is cheap assertion.
Supplying liquidity? Wasn't that the same rationale in the 50-60's when then Yankees bought the upcoming stars from other teams in return for their has-beens? I believe baseball was so competitive then that the Yankees won every year.
The Yankees won every year in the 1960's? You should brush up on your baseball history.
The Yankees finished in first place 13 out of 15 years from 1950-1965 including 8 WS titles. It wasn't until CBS bought them 1964 that they showed any signs of vulnerability and that ended in 1973 when Steinbrenner entered the picture.
I would say BFox was only off a few years in his comment. He more accurately describes the 1950's Yankees with a few of the early years of the 1960's.
You win. Supplying "liquidity" is a good idea.
Signing off...
