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Journal of Indexes

Fix My Income … PLEASE! - The Curmudgeon

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Brad Zigler

Baseball has long been cherished as America’s pastime. With the baseball season nigh, Wall Streeters and Main Streeters alike are now looking to green outfields as chromatic relief from an engulfing sea of red ink. Yes, investors this spring hope the crack of the bat will soon replace the splintering of equity.

Baseball isn’t just escapism, though. There’s real money to be made in the game. Last year, Forbes clocked the value of Major League Baseball franchises growing at an 11 percent annual clip, easily outdoing the returns of most other asset classes. Over the past decade, says Baseball Prospectus’ Nate Silver, only gold’s appreciation rate has bettered baseball’s.

And why not? After all, baseball’s essentially a monopoly. There are only 30 teams in The Show to satisfy a population of some 300 million popcorn, peanut and Cracker Jack munchers.

Baseball franchises aren’t simply engines of capital appreciation, though. They spin off income better than most equities and debt securities, too. By the latest measures, in fact, the average team’s operating margin was 9 percent.

That’s a positive 9 percent, mind you, even in the throes of a recession. And the S&P 500? Well, let’s just say the average constituent’s operating income has fallen 60 percent from year-ago levels. True, dividend yields on the blue chip index—3.1% at last look—have risen over the past year, but that’s due to a deflation in share prices rather than upticks in cash payouts.

Fixed-income investments offer more equity-beating cash-on-cash returns. The average coupon rate for the NASD/Bloomberg Investment Grade U.S. Corporate Bond Index, for instance, is now 5.8 percent. What’s investment grade today, however, may not be so tomorrow. Default prospects loom darkly over many issuers nowadays, putting some paper holders in line for returns just slightly north of bupkes.

Seems to me that the way out of the current income pickle is through the ballpark. If corporate issuers ran their league the way MLB franchise owners operate, security holders might be assured of better, more-consistent returns and some entertainment value as well.

Take our moribund auto industry, for example. Grant the Big Three automakers a baseball-like exemption from antitrust laws and allow the companies to auction their marks to a regional or corporate entity, much as ballparks’ naming rights are marketed. Think “Ford’s Tough F-150, brought to you by Budweiser.” You think InBev wouldn’t pay something to have an additional 300,000 ads for its suds put out on American roads every year?

Certain marks are namesakes for localities that could be tapped for merchandising fees. Chevy’s Malibu, for example, could well be supported by the denizens of the seaside colony that gave its name to the midsize sedan. The town’s advertising message, though, would be going considerably down market, given the target for the low-cost family car. Charlie Sheen isn’t likely to be seen tootling down the Pacific Coast Highway in one of these babies.

There are better prospects for Chevy’s Tahoe hybrid SUV. Folks who live in the Lake Tahoe region are, in fact, likely buyers of the vehicles themselves.

Too bad Toyota tied up the Tacoma brand. Tacoma is home to the Frank Russell Company, an outfit, I’m sure, that would like nothing better than to see its logo festooned in parking lots all over the land just to thumb its nose at Standard & Poor’s.

There are plenty of other baseball-franchise-inspired merchandising ideas that can be used to help paper issuers and holders. How about adaptations of “Fan Appreciation Day”? The first 100 customers through the door of a bank on a given day could get tranches of a mortgage-backed security. Like baseball cards, these can be collected in series. Receive enough tranches to make up nearly the entirety of an MBS and the customer can then buy the rest of the paper at a discount, taking the asset off the bank’s book.

Yes, baseball is a worthy model, but there are some vexations. For one thing, how’s a George Steinbrenner going to fit in at Treasury?

 

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