PART 2 – Lessons from Team Owners

Most professional sports teams have an owner.  He or she bought or inherited the team, has particular objectives in mind, objectives that include or invariably are enhanced by winning. 

PART 2 offers a select sampling of ownership styles that might inform retirement planning.

  • On Control
    • Charlie Finley, MLB Oakland Athletics,1960-1980
    • Jerry Jones, NFL Dallas Cowboys, 1989-

As owner of your retirement plan, how much control should you retain and how much do you delegate?  Most owners of professional teams accumulated their wealth from another industry or an inheritance, and were not former players or coaches in the sport their team plays.  Accordingly, they tend to take a more hands-off approach regarding day-to-day operations.  However, there are exceptions, and they can be instructive for considering the level of control you may want to exert over your retirement plan.  Charlie Finley was an insurance salesman, full of ideas, imagination, and himself.  He championed several ideas that changed the game (like the designated hitter rule and World Series night games), and others that fell flat (like orange baseballs, adding his pet donkey Charlie O to his bullpen, and carrying the sprinter Herb Washington on his roster as a designated pinch runner: Herb appeared in 105 games as a pinch runner, but never once came to bat or otherwise took the field). Such antics alienated fellow owners, as did his abrasiveness with his own players and fans.  Attention seemed his primary goal, and by that measure he was a success.  As fate would have it, several future Hall of Fame players combined under his reign to bring five straight championships to Oakland, which many view as a case of random good fortune rather than ownership skill.  There is a lesson here: an investor who bought a winning stock early (like Amazon) can be rich without being wise.  Do not confuse good strategy with good outcomes, for elements of chance often play a major role.

Like Finley, Jerry Jones doubles as both owner and general manager of his team.  Unlike Finley, or most NHL owners, Jones played the game in a highly-ranked collegiate program, where he earned all-conference selection and was co-captain of the 1964 national championship team.  Soon after purchasing the Cowboys, he fired Hall of Fame coach Tom Landry and named a former teammate as replacement, then shortly thereafter named himself general manager.  The team won only one game that first year.  Jones did not panic, because he knew the game well and had confidence in his judgment regarding football operations and personnel.  Three years later the Dallas Cowboys won the Super Bowl.  To this day, Jones listens, but makes the call.

What should you directly control as the owner of your retirement plan?  Three things, at least:

  • Your choice of Retirement Manager and Financial Advisor

Do you qualify to be your own retirement manager and advisor?  Do you want to assume one role and outsource the other?  Do you outsource both roles, and if so, to one professional or two independent professionals?  Going it alone can be hazardous.

  • Your calibrated level of “Risk Intelligence”

Limit your direct involvement in the planning and execution to what you know, which first requires that you know what you do know and what you don’t.  A Retirement Manager can help measure and calibrate your risk intelligence by asking a series of financial questions that are  (i.) loosely related to funding a retirement, but (ii.) unlikely to be answered with certainty.  For example, one could ask:

What is your best guess of the level of the DJIA at the beginning of 2020?

Select 2 levels such that the true level is equally likely inside or outside that interval?

If you are very confident of your best guess, then the interval should be narrow, and to the extent you are unsure of the value your interval should widen.  Either way, if properly calibrated regarding what you do and don’t know, the proportion of true levels inside their associated intervals should approach 50% as the number of independent questions increases.  Many people exhibit a behavioral bias known as “overconfidence”, evidenced by true values falling within the 50%-tile bands significantly less than half the time.  If you exhibit this tendency toward overconfidence, then you should defer to professional advice.

  • Your calibrated level of “Risk Tolerance”

How comfortable are you with the possibility of outliving your financial resources, perhaps moving into a spare room offered by your adult daughter?  Are you willing to sell your home, downsize, and use any home equity proceeds to help support retirement?  If your retirement plan anticipates spending 70% your current level of needs, would you make a risky investment with high upside potential that could reduce coverage to 50%?  If you are enticed by the prospect of gambing for higher returns, you are “risk-prone”.

If it is very important to avoid such risks to sleep at peace, then you are “risk-averse”.

Sports team owners often are risk-prone; retirement planners tend to be risk-averse.

It often is instructive to further consider your levels of relative risk aversion:

  • If you prefer to hold a smaller percentage of your assets in risky investments as your wealth increases, then you have:
    • Increasing relative risk aversion
  • If you prefer to hold the same percentage of your assets in risky investments as your wealth increases, then you have: 
    • Constant relative risk aversion
  • If you prefer to hold a larger percentage of your assets in risky investments as your wealth increases, then you have:
    • Decreasing relative risk aversion.
  • On Stability
    • Peter Holt, NBA San Antonio Spurs, 1996-2016
    • George Steinbrenner MLB, New York Yankees,1973-2010

The San Antonio Spurs are considered by many to be the single most successful franchise in the modern era of American competitive team sports, with the highest winning percentage and five NBA championships over the past two decades — but few fans can name their owner.  He remained hands-off.  By contrast, George Steinbrenner was the face of the NewYork Yankees for a generation.  Championships came his way as well, but many believe that, given the market and talent advantages, many more would have but for his constant meddling — replacing the team manager 21 times in his first 23 years as owner, including hiring and firing Billy Martin five times.  

Stability invariably trumps chaos, and the team (or retirement plan) owner sets that tone.  Select your management and advisory team wisely, develop a plan you embrace, and stick with both.

  • On Flexibility
    • James Dolan, NBA New York Knicks, 1999-
    • Joe Lacob, NBA Golden State Warriors, 2010-

Although he had never coached before, Steve Kerr was offered two head coaching positions in 2014.  Most assumed he would take the Knicks job, with the glamor and trappings of The Big Apple, and the comfort of working with Phil Jackson, the general manager who coached the Chicago Bulls to NBA championships with Michael Jordan (and Kerr) executing his patented “triangle offense”, and whom Dolan had hired after seeing that success followed by more of the same with the Lakers and Magic  Johnson.  But Kerr is a smart, independent thinker.  He saw that the Knicks lacked an MJ or Magic, lacked stable ownership, and was looking to the past.  By contrast, although the Warriors had not competed for a championship in four decades, they had fresh ownership with strong Silicon Valley roots, a data-informed approach to capitalizing on analytic insights, its pulse on the evolving future of the league, and the best shooting backcourt ever assembled, ready to exploit the 3-point trend.  Kerr chose the Warriors, and so far has coached five full seasons, with five appearances in NBA Finals.  A successful retirement plan owner has to remain nimble, ready to adapt to changing circumstances.

  • On Frugality
    • Marge Schott, MLB Cincinnati Reds, 1984-1999
    • Harold Ballard, NHL Toronto Maple Leafs, 1972-1990

Both these owners were notoriously cheap and universally despised, but there was a difference.  Schott was a chain-smoking alcoholic and outspoken racist, who twice was suspended by the league for her discrimination against and refusal to employ people of color.  She so resented high salaries of players that she made them pay for their own equipment, fly commercial, and personally handed out meal allowances herself, using dimes, nickels and pennies.  Ballard also was frugal, but with purpose.  He was a con man, eventually going to prison for fraud.  He had little apparent interest in hockey, still less in winning games; his sole interest was making money.  He was unwilling to increase payroll to improve the on-ice product, as every game was sold out regardless.  As owner of your retirement plan, spend as needed for guidance to achieve goals — but no more.

and There’s Always Next Season

Team sports share another characteristic; although the timing throughout a year varies, every sport has an annual cycle of pre-season, regular season, post-season, and off-season.  The off-season is similar across sports, and regardless of win-loss record: assessments, adjustments, and actions, all in an effort to maintain or pursue outstanding performance in future seasons.

Retirement planning should be no different.  Any variations in goals, significant deficiencies in performance metrics, or other relevant factors should be assessed annually with your “coaches” and “front office”, and adjustments or more substantial actions should be taken as indicated.

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