Sports Finance Report: Service Time Manipulation to Cost Top Prospect Millions
Editor’s Note: Welcome to a daily column breaking down the day’s biggest stories in sports finance. It comes to us via our friends at JohnWallStreet, publisher of a free e-mail newsletter (you can sign up here). It’s sports business with a financial spin. Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star , blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.
Service Time Manipulation to Cost Top Prospect Millions
Vladimir Guerrero, Jr. is the #1 prospect in baseball, but the Toronto Blue Jays recently announced they were calling up another top prospect from the club’s farm system (Danny Jansen) to replace the injured Yangervis Solarte, in a case of “service time manipulation.” Though the team loses financially in the short-term (think: increased ticket sales, merchandise sales), by leaving Guerrero, Jr. in Triple-A through the first 3 weeks of the ’19 season the club picks up an additional year of the player’s services prior to free agency; Guerrero will be 26 in ’25 and theoretically in the prime of his career. It’s worth mentioning that Jansen won’t be the only rookie on the Blue Jay’s September 40-man roster; Sean Reid-Foley made his MLB debut for the club on Sunday August 12th.
Howie Long-Short: No one debates that it’s in Jays’ best interest to leave Guerrero toiling in the minors through early next season. The team isn’t making the playoffs and it makes little sense to trade a full year of a star in his mid-20s for a couple of weeks of one at the age of 19; it’s also been theorized that club could save upwards of $30 million by pushing his free agency back a year.
What I don’t understand is why Jays’ fans would support ownership’s decision. There’s a quid-pro-quo between sports fans and their favorite teams. The franchise makes its best effort to win, in exchange the fan pleads his/her loyalty. Fans can’t expect teams to always put a winning product on the field, but they should be able to expect their favorite team puts its best product out there. The Jays intentionally keeping Guerrero down, to save Rogers Communications (RCI) money 7 years down the line, violates that agreement.
I’m also baffled as to why working class fans would back ownership’s decision to restrict an employee’s earning potential. As Keith Law wrote, “how many fans cheering on service time manipulation would be cool with their employers denying them a tenfold pay increase and forcing an extra year of indenture on them?”
Fan Marino: Service time manipulation is certainly not a new tactic, the Cubs did it with Kris Bryant, yet some are calling Guerrero Jr.’s case the most egregious in baseball history. The son of a Hall-of-Famer, Guerrero is hitting .339/.437/.576 in 17 AAA games; including a recent span where he hit a home run in 4 straight games.
Fila Sales Rebound with Rerelease of Disrupter II
Fila, Inc. has returned to prominence with the updated rerelease of the Disruptor II, a bulky sneaker that first debuted in 1996. With the rerelease, Fila has successfully capitalized on two current fashion trends, retro apparel and the stereotypical “dad shoe”; particularly popular amongst women. The Disruptor II’s affordable price point ($65-$70) and widespread availability (think: Urban Outfitters, Journeys) has also contributed to its success. Foot Locker CEO Dick Johnson labeled the Disruptor II one of his chain’s most popular styles.
Howie Long-Short: Fila U.S. (KRX: 081660) sales rose +21% during Q2 ‘18, with the Disruptor II heavily contributing to the record earnings period. The company’s “conversion from wholesale to retail” and a revised sales strategy (see: targeting younger demo) has also been effective. Fila grew sales +10.9% (to $687 million) and operating profit rose +24.1% (to $90.6 million) during the most recent quarter.
Fila, Inc. owns 53% of Acushnet (GOLF), the maker of Titleist golf equipment. For those who missed Monday’s piece on rising golf equipment sales, GOLF grew Q2 sales +11.7% YoY (on a consolidated basis); Titleist clubs (718 Irons, Vokey SM7 Wedges) and Titleist golf ball sales were credited for driving the top line growth. GOLF shares are up +60% over the last 12 months; they’ll open at $27.51 on Wednesday.
Interestingly, Anta Sports (ANPDY) owns the rights to use the Fila brand in China (Fila controls 15% of the JV). Anta, China’s largest sportswear maker, reported H1 revenue increased +44% (to $1.5 billion); strong sales of the Fila brand contributed to the growth.
Fan Marino: For those old enough to remember the 90s, Fila was a major player in the footwear and apparel space; in 1997, the company generated $687 in U.S. sales. Grant Hill even signed an $80 million endorsement deal to serve as the brand. Remember these?