A Finance Guy’s Look at the Detroit Lions
Valuing a company is damn near impossible. The publicly traded company stock price changes literally every second. As the company competes in its industry, sector and economy for market share and profits, analysts, experts and investors watch closely. Onlookers comb through technical analysis, financial statements, and the latest headlines to find information that will help accurately value a company. What formula gives you fair value of a company? To answer in the broadest sense and general manner possible, the fair value of a company is merely what someone would give up to possess it. What would you pay for it? The general rule of thumb for investors is to look at the present value of future cash flows.
Just plug the variables, find your answer, and compare to the market price. There you go folks, make your millions. If it were this easy, then why do experts with the same degrees, analysts with the same knowledge, from the same investment firms, value the same companies so wildly different?
Investors buy and sell companies stock and equity with such overwhelming volume, that according to the father of economics, Adam Smith, one hand asks (buyer), another gives (seller), and the invisible hand guides these two towards the most efficient outcome.
People negotiate what’s best for them until the best outcome is created for both involved. Investors negotiate based off information: technical analysis, industry trends, financial statement analysis, headlines, insider trading (the legal kind), and the good old feeling that comes from the gut. How does Warren Buffet, or Mark Cuban make their investment decisions?
How do you value a company prior to its initial public offering? The SEC doesn’t require private entities to publish nearly the information required of public companies. Investor confidence and industry trends become much more important.
The Detroit Lions are 5-2. They started the year strong, building a ton of fan confidence. They soared in the standings of the NFL as well as the power rankings of all those who watch. Vegas odds for the Lions to win the Super Bowl went from 60/1 before the season started, to 16/1 last week, and sit at 23/1 now. After week 2, Matt had the Lions ranked 12 out of 32. He had them as high as 3, before finding a home at 8 in his week 7 power rankings. According to @DaGoodOlBoys computer generated rankings, the Lions sit at 12.
The Lions are in a tough market. The Packers are the world champions from last year, and they didn’t even win the division. The Packers are a lot like the Facebook of the social media industry back in 2009. Taking this analogy further, the Lions would be Twitter, and the Bears would be Myspace. The Vikings? How about Adult Friend Finder (Love Boat Plug).
What makes a company attractive? Is it sales? Revenue? Profit? Earnings Per Share? What makes a company a good investment? Past performance doesn’t prove future success. Cash flow invested into the company doesn’t guarantee success of the company. Matthew Stafford is set to make $1.75 million more than Aaron Rodgers ($9 million vs. $7.25 million) in 2011. Don’t be too shocked. Mark Sanchez is making the most this year, bringing in $14.75 million. Calvin Johnson is making $8.875 million this year, he is the second highest paid receiver, behind Larry Fitzgerald’s $20 million. No wonder why the Cardinals are a mess. Calvin Johnson is slated to be the highest paid receiver next year with $14 million. A receiver never made MVP (yet), and if the Cardinals are any indicator, the Lions might be in trouble.
A company needs its financial house in order, make good investment decisions, and it needs to perform. An analyst needs to see all of the cards in the deck, and have the “eye test” to know where the industry is going, and whether the team has the tools to perform well when dealt any hand that the invisible hand deals.
Assuming you play Sheepshead, this is what the Lions hand would look like: an injury prone quarterback(J of Hearts) and running back(10 of Diamonds), a highly paid, and currently earning every penny (679 yards, 10 TDs to date in 2011) receiver in MegaTron (Q of Hearts), a shaky defense that gives up everything but points (J of Spades) and the rest are bull shit fail. With 4 trump, maybe you pick up and try and win, but without a black queen (Aaron Rodgers, Tom Brady, etc.), it’s hard to go the distance.
If you don’t play Sheepshead, learn to play Sheepshead. If you don’t play Sheepshead, how about this for an example. Your operations have given you solid results through the first half of the year (5-2 record). The Wall Street Journal is questioning the past 2 weeks performances (company showing 2 consecutive losses). The 2009 Broncos have shown us strong starts do not equate to strong finishes. Financially, the Lions are pretty damn close to their salary cap (less than 1 million in “wiggle room”), and their highest paid player next year will be a WR. To top it all off, they are playing in a market that is tough. They still have the Packer’s twice, the Bears once (in Soldier Field), Saints, Chargers, and don’t write off the Vikings. Well, for the Playoffs, write them off, but for being a good team, don’t write them off.
I guess, after all this meandering, you guys want some sort of foresight. I see this team finishing up 8-8 and not making the playoffs. For all of you OMGWTF folks, here’s the 10 second run-down. Beat the Broncos ( I am only doing this to do the #tebow trend ), Lose to the Bears, beat the Panthers (#camnewton), Lose to the Packers, Saints, Vikings, beat the Raiders, lose to the Chargers and Packers. Game over.