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May 21, 2007

[Business Day One] Harmful If Swallowed

Filed under: Business Day One,Football — Tags: , , , — Serpico @ 1:30 pm

Magic the Gathering Poison PillThe National Football League is a marvel in it’s operation. Profit sharing, a tradition of competent business leadership, a dedication to embracing new technology, and a heavily buttressed construct of free agency and union-ownership relations have created a magnificent machine. It is designed to make money, continually expand the fan base and put the best possible product on the field. I love it as both a sports geek and a business geek.

With any great and complicated system, from the NFL to Starcraft, there are exploits. Little wrinkles within the rules that allow for someone to cheat within the confines of the code. It’s like loading 4 Revised Edition Millstones into your Magic: The Gathering deck and grinding away your opponents’ card count until he (or she… in theory) loses by default. Nothing wrong with it, legally, but certainly a “slap your forehead for being a victim to it” move. These exploits are cruel and unfortunate when you are on the wrong end, but absolutely hilarious to watch. Particularly when they are done without apology.

In the NFL, my absolute favorite hack is something called The Poison Pill. It is a delightful little fold that can allow a franchise to pick up a restricted free agent by making his current team unable to match the contract. Allow me to explain how it works.

If a player has been in the league for less than four tenured years and enters free agency, he becomes a restricted free agent. He can sign an “Offer Sheet” with another team and his current one has seven days to make the identical offer. If the current team does, the player stays. If it doesn’t, the player walks and now-former team is compensated with draft picks. A poison pill is a condition in the Offer Sheet that would make it either very difficult or financially impossible for the current team to match.

In the spring before the 2006-2007 season, the Minnesota Vikings acquired Steve Hutchinson, a restricted offensive lineman from Seattle. They included a poison pill in the Offer Sheet (which allowed the acquisition to happen) stating that if Hutchinson was not the highest paid player on the line, his entire $49 million salary would become guaranteed. Because the Seahawks had a big guy that was higher paid, matching it would lock them into a monstrous multi-year contract that would cripple them salary cap-wise if Hutchinson got hurt. Teams hate paying out dead money.

Brilliant? Absolutely. Cruel and unfair? Undoubtedly. Breeds glorious contempt? Assuredly. When the ‘Hawks acquired wide-out Nate Burleson from those same Vikings, they fed Minnesota a poison pill that tasted just like sweet revenge. According to the Offer Sheet, if Burleson played more than five games in the state of Minnesota during any season during the contract, the entirety of HIS $49 million contract would become guaranteed. Ouch.

So a poison pill does have a cost – it creates a lot of bad blood. But, if you’re a fast-and-loose gunslinger of a team owner, you might not care. In fact, you may love putting the screws to other franchises as much as I love watching it happen. Steve HutchinsonAs such, I have a couple of good (and ready to use) poison pill templates. Just cut and paste one of these petty, deliberate blurbs into a contract and you too can be destroying relationships with other owners.

  • “If [desired player] wears a uniform containing [current team’s home colors], the entire contract becomes guaranteed.”
  • “If [desired player] plays at least three games in a stadium within fifty miles of the [current team’s city’s most important landmark], the entire contract becomes guaranteed and payable in Spanish gold.”
  • “If [desired player] competes on a team owned, in part or in full, by someone with the initials [current team’s owner’s initials], the entire contract becomes guaranteed and the owner must turn over his house to [desire player].

It’s dirty business that can exist in a intelligently crafted system. I’m not saying there should be any laws put on the books to regulate this, since owners will be regulating this mafia-style on their own. But I am saying that I hope it doesn’t get out of control. I can’t stand exploits.

That said, I’m off to go zerg-rush some n00b.

  • Duck

    Hey, you forgot Bert Bell! :-D>

  • Pedro

    I dunno man, I have a couple of minor disagreements with your article.

    1. Poison pills don’t seem inherently unfair – it just seems that restricted free agency is a different animal in reality than it seems at first glance. The relative fairness of issuing poison pills seems to me contingent on the value of the draft picks you get if the player walks, which in turn dictates the value of restricted free agency.

    I don’t know much about this outside this article, but it seems to me that if you lose a restricted free agent to a poison pill, you end up on top if:

    ((the expected value of the drafted players to your team)-(the expected cost of signing those players))


    ((the expected value of the free agent to your team)-(the expected cost of signing him))

    (Expectations factor in the likelihood of signing the players)

    In a valation model in an efficient market, the margin you get on either of these should approach one another, and the exchange should be equitable. If it isn’t, the means for determinating the value of the draft picks should be adjusted to make it equitable.

    But this is a problem of implementation, not of theory. What we’re really dealing with here is securitizing risk — the draft players are almost certainly a better investment for the team than the free agent as long as the team doesn’t go out of business — they have more volatility, but since the team is taking on the risk they won’t perform, the draft picks should be paying a risk premium out of their salaries to the teams.

    2. The real problem here, as is mostly the problem with “The big team is squashing the small team” is that the big team wants the championship more than the small team does —

    There are owners other baseball teams, for example, who are richer than the Yankees and who could hypothetically sustain a higher payroll than the Yankees, but it just isn’t worth it to them to put in the investment.

    If a championship has a higher expected value for one team than another, then that team is going to pay more for the same players.

    If the monetary value of the championship is the same for both teams, and it’s mostly fan expectations you’re dealing with, it puts big teams at a disadvantage for the long-haul in negotiations. Everything is more expensive for them, and their need to provide a championship for their fans hamstrings them. Over time, the value of well-managed small teams should rise and the value of large teams should fall.

    Whether or not this helps teams grow depends on how the owner positions the business.

    3. Large teams chase performance in their players, adding an extra premium to what the teams pay, making the exchange more favorable to the side on the receiving end of the poison pill.

    4. The millstone analogy doesn’t really hold unless you yourself are playing a slow control mirror or lockdown deck. If you’re playing a red beatdown deck, your clock is too fast for the millstone to matter. If you’re playing straight MUC, Stasis or some sort of Winter Orb + Icy Manipulator lockdown, then yeah, your opponent sticking a millstone back in 1996 could potentially have hosed you —

    but if you’re playing any of those decks, I don’t think you have any right to call the other guy an a******.

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