Performance at GM, Performance in Baseball

Today I read two starkly different news items. Both deal with performance. One seems to be about 10 years ahead of the other:

Rick Wagoner of General Motors vacated his CEO post today. The reason is that he didn’t do a good job anticipating the need for more fuel efficient cars. The US Federal Government is involved in the decision because of the impact to the economy a bankrupt GM would have. But all this started long ago and no one ever really took the time to fix the big problem. So what is the big problem? The separation of the worker from the company via the union. These two entities need to improve the standing of each other, but somewhere along the way it became adversarial and protectionist. Because of this lots of great car ideas are never developed. The worker has a defined job and management has defined terms for using its workers. It is no wonder robots have taken many of the jobs, the humans weren’t leveraging what made them better – their minds. As health care costs rise and pension payments continue to submarine the company it will be interesting to see what comes of the union. And I’m actually pro union, when the social contract is out of balance.

Stephen Strasburg is a pitcher for the San Diego State Aztecs. He can throw a baseball 103 mph. That is tied for the fastest recorded in a ball game. And he doesn’t just rear back and throw fastballs either, he has change ups and movement. Mr. Strasburg is likely to be the number one pick in the baseball amateur draft by the Washington Nationals. Being number one usually means a pretty good pay day. The top notch pitchers in the past have signed $10 million contracts. But being number one doesn’t necessarily mean greatness at the major league level, so there is risk. What is interesting about this pitcher is his agent. Scott Boras represents Mr. Strasburg and will negotiate on his behalf. Mr. Boras is very good at creating leverage for his clients and getting very good deals for them. The price tag he is asking for Mr. Strasburg is $50 million (over 6 years). That is a 400% increase over what the baseline is. The argument is that Mr. Strasburg is a once in a generation pitcher who can do things no other pitcher can do. This may be true, but as stated, the risk is immense. And what does this type of deal do for the economics of the draft? What is the price of next year’s once in a generation player? I’m all for a player maximizing their income when they can get it (you never know what the future holds), but it can’t be disproporate to the market for the product as a whole. Just ask Mr. Wagoner.


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