Chances are you've read this post (like 200 times) from a few years ago where Gregg Easterbook expresses outrage at Ed Liddy's "kings ransom" like compensation package that he and AIG LIED about. Well the wait is over, because now we have the exciting conclusion to this story.
While looking up Apple's proxy for the last post, I remembered the old AIG post and I thought it was a good time to do a follow up.
For reference, Gregg took issue with AIG paying certain of Liddy's living expenses - calling it out as being essentially the same as base compensation. See, Liddy lived in Chicago, and he was asked to step in as CEO during an insanely turbulent time (remember that financial crisis thing? No? Remember Bear Stearns and Lehman Brothers? Riiiighhht....that crisis). They structured his compensation as $1 salary, he declined stock options, and AIG would pay certain living expenses for him in NYC since he already was paying for ongoing living expenses in Chicago. Sounds reasonable, right? The intent, as disclosed by AIG, was to make it so that Liddy wasn't paying to work for AIG. What did Easterbrook say about Liddy's $1 a year salary and zero stock options?
Yet he lied through his teeth about this and got away with it.
Sure. He said that the living expenses WERE salary and said that zero stock options was actually 200,000 stock options, based on what a different CEO was given. Kind of a jerky thing to do, right?
What does this encourage? More CEO lying. Liddy also received stock options. AIG has never said how many; suppose it was 200,000, the number just granted Benmosche. When Liddy went to AIG, its share price was hovering around $5; if that's the strike price, 200,000 shares would be worth about $7 million right now. Plus AIG quietly said Liddy may receive a bonus payable in 2010. The man who was widely praised for claiming to work for $1 may end up with a king's ransom in his pockets, all pilfered from the average taxpayers. Why have the media dropped this story?
At the time, I took issue with Easterbrook's hypothetical stock option grant and $7 million gain being passed off as if it was in Liddy's bank account. AIG specifically disclosed that Liddy turned down an option award, and Easterbrook still told you the opposite.
I checked AIG's proxy for 2009 here. What did I find?
Final tally of options granted to Ed Liddy during his tenure at AIG: 0 shares
Restricted Stock awarded Ed Liddy: 0 shares
Gain on exercise of stock: $0
Gain assumed by Easterbrook in calling Liddy a liar: $7 million
Amount Easterbrook was off by: $7 million
% Easterbrook was of by: 100%
Bonus paid to Ed Liddy: $0
Why did the media drop the story? There was no story. You made up the story.
So Easterbrook frequently rails on the New York times for making mistakes in their reporting, but not issuing corrections with the same level of prominance.
Where was his correction? Since he insulted someone's integrity - where was his apology?
Showing posts with label Business shit. Show all posts
Showing posts with label Business shit. Show all posts
Friday, September 14, 2012
Monday, September 10, 2012
Gregg Easterbrook Distorts Tim Cook's CEO Restricted Stock Award
Ahhh the NFL season is upon us, which means that Gregg Easterbrook has his forum on ESPN to write misleading half-truths and totally point out when people prepare for Christmas too soon.
Anyway, a couple of weeks ago, Easterbrook took issue with Apple CEO Tim Cook's compensation. Let's see if he played it straight, or if he was misleading (he was misleading).
Is Apple the New Exxon/Mobil?
Timothy Cook, CEO of Apple, received $378 million in compensation for 2011.
Well, that’s clearly a lot of money – imagine if your compensation was $377,996,537 of cold, hard cash – all of it “received” in 2011. Pretty crazy! Now, what if I told you that $376,180,000 of that compensation would be paid in stock? Does that change your opinion? Maybe not. Sell stock, convert to cash. Couldn’t be more simple, right? What if I told you that 50% of that stock (500,000 shares) wouldn’t be yours unless you’ve been successful at your job for 5 years (your job requires you to maintain Apple’s impossibly high growth rates and market share). You may reply, “okay, but I get the other 500,000 shares now?” No – you get the other 500,000 shares in 10 years. A bit of a catch. So what Gregg has done is he's latched onto the proxy compensation reported by Apple. Not wrong, but horribly misleading. Usually, it's a good proxy (see what I did there) for annual compensation. But when I saw Gregg's note, I knew it was impossibly high, and quick control-f in the proxy would tell the real story. Let's see...
This is appalling avarice: Cook could have paid himself half as much and still been the highest-paid CEO in the United States! Cook pulled down $126,000 per hour, more per hour than the typical American family makes in a year.
Does my above paragraph change your view on whether or not Tim Cook “PAID HIMSELF” $378 million in 2011? The board paid him $900,000 of salary, a $900,000 bonus and gave him 1,000,000 shares of stock, vesting 50% in 5 years and 50% in 10 years.
But how could I possibly know this information, and why the board decided to give him that award? Well, maybe we could read the public filing?
In connection with Mr. Cook’s appointment as CEO, the Board granted Mr. Cook 1,000,000 RSUs as a promotion and retention award. The RSUs are payable, subject to vesting, on a one-for-one basis in shares of the Company’s common stock. Fifty percent (50%) of Mr. Cook’s award is scheduled to vest on August 24, 2016 (five years after the award date) and fifty percent (50%) of Mr. Cook’s award is scheduled to vest on August 24, 2021 (ten years after the award date), subject to Mr. Cook’s continued employment with the Company through the applicable vesting date. In light of Mr. Cook’s experience with the Company, including his leadership during Mr. Jobs’s prior leaves of absence, the Board views his retention as CEO as critical to the Company’s success and smooth leadership transition. The RSU award is intended as a long-term retention incentive for Mr. Cook, and, accordingly, should be viewed as compensation over the 10-year vesting period and not solely as compensation for 2011.
Interesting, what else?
Except for the longer 10-year vesting term, Mr. Cook’s award is subject to the same standard terms and conditions that apply to the Company’s RSU awards generally. Accordingly, the award provides that Mr. Cook’s unvested RSUs will be forfeited if his employment terminates in any circumstances, other than death or disability.
Sounds like a nice gig, 500,000 shares of Apple in 5 years, and another 500,000 in 10 years. All you have to do it is keep cranking out world class performance as the CEO of Apple and making your shareholders richer and richer. Sounds easy enough.
Recently The Wall Street Journal reported that Hon Hai Precision Industry, manufacturer of the iPad, pays workers about $345 per month. So if Cook had merely taken half as much, the money saved could have been used to double the wages of 46,000 Chinese workers. So which is more important, a better life for 46,000 people or greed for Apple's CEO?
There was no money to do anything with. You either didn’t read the filing (lazy) or you did and you’re being intentionally misleading to your readers (asshole).
Workers in China are not the sole issue. Apple's U.S. retail workers are much more productive than Costco or Best Buy workers, yet earn significantly less. Cook might say his extremely high pay is based on his being productive. But Apple's U.S. employees are productive, and are shafted on pay.
I have two counter points: Apple products are easy to sell (high demand, despite high prices), and you don’t make money in retail sales.
Also, nowhere in that article does it say that Apple employees earn less than counterparts at Best Buy and Costco. Though I didn't read the whole thing, I did some word finds.
Cook would probably say that his extremely high pay is based on Apple designing and manufacturing expensive products at a low cost that fly off of retail shelves.
Apple products are cool and offer value. But when the social equation is taken into account, Apple becomes disturbing. How did this happen to what was once a progressive firm?
Apple becomes disturbing when you cherry pick information and ignore material facts.
Anyway, a couple of weeks ago, Easterbrook took issue with Apple CEO Tim Cook's compensation. Let's see if he played it straight, or if he was misleading (he was misleading).
Is Apple the New Exxon/Mobil?
Timothy Cook, CEO of Apple, received $378 million in compensation for 2011.
Well, that’s clearly a lot of money – imagine if your compensation was $377,996,537 of cold, hard cash – all of it “received” in 2011. Pretty crazy! Now, what if I told you that $376,180,000 of that compensation would be paid in stock? Does that change your opinion? Maybe not. Sell stock, convert to cash. Couldn’t be more simple, right? What if I told you that 50% of that stock (500,000 shares) wouldn’t be yours unless you’ve been successful at your job for 5 years (your job requires you to maintain Apple’s impossibly high growth rates and market share). You may reply, “okay, but I get the other 500,000 shares now?” No – you get the other 500,000 shares in 10 years. A bit of a catch. So what Gregg has done is he's latched onto the proxy compensation reported by Apple. Not wrong, but horribly misleading. Usually, it's a good proxy (see what I did there) for annual compensation. But when I saw Gregg's note, I knew it was impossibly high, and quick control-f in the proxy would tell the real story. Let's see...
This is appalling avarice: Cook could have paid himself half as much and still been the highest-paid CEO in the United States! Cook pulled down $126,000 per hour, more per hour than the typical American family makes in a year.
Does my above paragraph change your view on whether or not Tim Cook “PAID HIMSELF” $378 million in 2011? The board paid him $900,000 of salary, a $900,000 bonus and gave him 1,000,000 shares of stock, vesting 50% in 5 years and 50% in 10 years.
But how could I possibly know this information, and why the board decided to give him that award? Well, maybe we could read the public filing?
In connection with Mr. Cook’s appointment as CEO, the Board granted Mr. Cook 1,000,000 RSUs as a promotion and retention award. The RSUs are payable, subject to vesting, on a one-for-one basis in shares of the Company’s common stock. Fifty percent (50%) of Mr. Cook’s award is scheduled to vest on August 24, 2016 (five years after the award date) and fifty percent (50%) of Mr. Cook’s award is scheduled to vest on August 24, 2021 (ten years after the award date), subject to Mr. Cook’s continued employment with the Company through the applicable vesting date. In light of Mr. Cook’s experience with the Company, including his leadership during Mr. Jobs’s prior leaves of absence, the Board views his retention as CEO as critical to the Company’s success and smooth leadership transition. The RSU award is intended as a long-term retention incentive for Mr. Cook, and, accordingly, should be viewed as compensation over the 10-year vesting period and not solely as compensation for 2011.
Interesting, what else?
Except for the longer 10-year vesting term, Mr. Cook’s award is subject to the same standard terms and conditions that apply to the Company’s RSU awards generally. Accordingly, the award provides that Mr. Cook’s unvested RSUs will be forfeited if his employment terminates in any circumstances, other than death or disability.
Sounds like a nice gig, 500,000 shares of Apple in 5 years, and another 500,000 in 10 years. All you have to do it is keep cranking out world class performance as the CEO of Apple and making your shareholders richer and richer. Sounds easy enough.
Recently The Wall Street Journal reported that Hon Hai Precision Industry, manufacturer of the iPad, pays workers about $345 per month. So if Cook had merely taken half as much, the money saved could have been used to double the wages of 46,000 Chinese workers. So which is more important, a better life for 46,000 people or greed for Apple's CEO?
There was no money to do anything with. You either didn’t read the filing (lazy) or you did and you’re being intentionally misleading to your readers (asshole).
Workers in China are not the sole issue. Apple's U.S. retail workers are much more productive than Costco or Best Buy workers, yet earn significantly less. Cook might say his extremely high pay is based on his being productive. But Apple's U.S. employees are productive, and are shafted on pay.
I have two counter points: Apple products are easy to sell (high demand, despite high prices), and you don’t make money in retail sales.
Also, nowhere in that article does it say that Apple employees earn less than counterparts at Best Buy and Costco. Though I didn't read the whole thing, I did some word finds.
Cook would probably say that his extremely high pay is based on Apple designing and manufacturing expensive products at a low cost that fly off of retail shelves.
Apple products are cool and offer value. But when the social equation is taken into account, Apple becomes disturbing. How did this happen to what was once a progressive firm?
Apple becomes disturbing when you cherry pick information and ignore material facts.
Thursday, November 10, 2011
News Flash - Gregg Easterbrook Massages the Truth to Make a Point
Haven't posted in 9 months....yeah why not.
I don't read much about Sports on the Internet these days. But I usually blow through TMQ for about 10 minutes a week. Here's the thing about Gregg - if you aren't very knowledgeable about his subject, and you don't pay much attention while you're reading it - and you don't research what he says....he sounds brilliant. But, as usual, his smugly made point completely falls apart when you actually pay attention or research the subject.
This paragraph caught my eye from the latest TMQ:
Groupon Issues Coupons for Its Own IPO: Groupon just had a successful IPO, raising $805 million. Eleven months ago, the same company turned down a $6 billion purchase by Google. Had Groupon accepted the Google proposal, its early investors and founding management would have $6 billion; instead, following the IPO they are holding a much smaller sum.
The IPO was only for approximately 6% of the company's shares. True, they are holding less cash - but they are holding $805 million in cash, and equity in a company now worth approximately $15 billion. So if Google wants to buy Groupon NOW? They'd have to pony up probably $16+ billion to buy everyone out.
Does that sound like they made a bad decision? It does if you ignore the fact that he's comparing 6% of the stock to 100% of the stock without quantifying the difference.
True, they also still hold equity,
94%!
and could wind up ahead in the long run.
"could" - if the stock goes down 50%.....they still wind up ahead.
Or they may end up way behind: Your columnist noted 11 months ago that Groupon someday may wish it had accepted the Google offer.
"May" "May" .......what the fuck is your point? This is meaningless non-analysis to mislead your readers into thinking you're smarter than some really smart people.
At any rate, rather than getting $6 billion in 2011, Groupon insiders got $805 million. Groupon issued discount coupons for itself, offering 87 percent off!
No! They didn't! They held out and the value of the company more than doubled!
Check my archives for more Easterbrook commentary.
I don't read much about Sports on the Internet these days. But I usually blow through TMQ for about 10 minutes a week. Here's the thing about Gregg - if you aren't very knowledgeable about his subject, and you don't pay much attention while you're reading it - and you don't research what he says....he sounds brilliant. But, as usual, his smugly made point completely falls apart when you actually pay attention or research the subject.
This paragraph caught my eye from the latest TMQ:
Groupon Issues Coupons for Its Own IPO: Groupon just had a successful IPO, raising $805 million. Eleven months ago, the same company turned down a $6 billion purchase by Google. Had Groupon accepted the Google proposal, its early investors and founding management would have $6 billion; instead, following the IPO they are holding a much smaller sum.
The IPO was only for approximately 6% of the company's shares. True, they are holding less cash - but they are holding $805 million in cash, and equity in a company now worth approximately $15 billion. So if Google wants to buy Groupon NOW? They'd have to pony up probably $16+ billion to buy everyone out.
Does that sound like they made a bad decision? It does if you ignore the fact that he's comparing 6% of the stock to 100% of the stock without quantifying the difference.
True, they also still hold equity,
94%!
and could wind up ahead in the long run.
"could" - if the stock goes down 50%.....they still wind up ahead.
Or they may end up way behind: Your columnist noted 11 months ago that Groupon someday may wish it had accepted the Google offer.
"May" "May" .......what the fuck is your point? This is meaningless non-analysis to mislead your readers into thinking you're smarter than some really smart people.
At any rate, rather than getting $6 billion in 2011, Groupon insiders got $805 million. Groupon issued discount coupons for itself, offering 87 percent off!
No! They didn't! They held out and the value of the company more than doubled!
Check my archives for more Easterbrook commentary.
Wednesday, September 23, 2009
Gregg Easterbrook Lies About AIG Lies
This week’s TMQ had 2 paragraphs I felt like commenting on. In the first, he talks about the outbreak of courage in the NFL this weekend because of the increase in teams going for it on 4th down.
Has courage broken out in the NFL? This weekend, team after team went for it on fourth down, eschewing fraidy-cat kicks…..(deleted: a bunch of examples)…..Overall in Week 2, there were 34 fourth-down conversion attempts -- some in desperation time when coaches had no choice, but most when kicking was a reasonable option.
Why this sudden burst of manhood?
The answer: because of cheer babes and football gods!
The real answer: There wasn’t, really. There were 34 fourth-down conversion attempts in week 1 too. This works out to 1.06 fourth down attempts per team per game. This is up from the 2008 season, which saw .96 fourth down attempts per team per game. I’m not trying to minimize this difference (10%), but it doesn’t strike me as huge and it probably won’t hold. Multiplying that out, it means that, on average, each team will attempt just under 17 fourth down attempts this season versus just over 15 last season. The way Easterbrook led off his column I expected it to be 20-40% higher.
So there is a slight increase over last year (as noted above). However, if you look at 2007, there were 1.04 fourth down attempts per team per game. This is virtually the same as 1.06. In 2006, it was .92. There actually was a much more significant increase from 2006 to 2007 than there has been in the small 2 week sample so far in 2009, when Gregg is applauding teams for being more manly men. In 2007 he was doing his usual (mostly correct) schtick of hammering the teams for being “fraidy cats” for punting too often.
Conclusion: Nothing to see here (yet)… keep moving. He probably just needed something to lead the column with.
The other piece I’m going to pick on is Gregg calling out the former interim CEO of AIG for essentially being misleading and dishonest. See, Liddy was asked by our government to come in to run AIG for a while to help maintain our economic system, which AIG had become an immense and important part of by insuring a large portfolio of subprime loans and basically propping up Wall Street for a couple of years. Ed Liddy was not the CEO of AIG when it helped to crash our financial system, but Easterbrook won’t clarify that for you. Ed Liddy was requested by our Government to be the CEO of AIG to help stabilize the company (and therefore the economy). Here’s what Easterbrook had to say:
Meanwhile, previous AIG CEO Edward Liddy repeatedly said he was working "for $1 a year." He asserted this on "60 Minutes" and in sworn congressional testimony, and was broadly praised for his dollar-a-year service. Now it turns out he was lying.
This is incredibly petty. Liddy did not say he was “working for $1 a year”. He was making a $1 per year salary. He wasn’t lying. Easterbrook says “now it turns out” like this is any big secret being uncovered or this is even recent news. Here is the Proxy statement filed with the SEC on June 5th. Scroll down to 2008 compensation. There it is. Nothing hidden.
AIG quietly said Liddy received $38,368 for a New York apartment, $47,578 for personal airline flights, $31,348 for car services and $180,431 "to cover tax obligations” " In what sense are these not income?
How did they quietly say this? Should they have issued a press release about some perquisites that frankly are quite small in the context of a CEO’s compensation package? What would you have done, if you were running AIG? They did not say he had no expenses paid, they said he had a $1 salary. I'll tell you in which sense those payments are not income. The entire purpose of the above expenses was to make sure that Liddy, in working for $1, was not actually paying to work for AIG. Since his home is not in New York, that required an apartment and transportation home. This is unfair and misleading, how?
You work at a job in order to be able to pay for your housing and transportation. You must earn income to pay your taxes; nobody pays them for you. If AIG was paying for Liddy's housing, personal travel and taxes, then he wasn't earning $1 a year.
He was earning a $1 salary. The expenses were paid for so that he wasn’t paying to work for AIG (at the government’s request, by the way).
Yet he lied through his teeth about this and got away with it.
This is an entirely inaccurate, misleading way to represent the situation, more so in any way than Liddy’s compensation package was a lie.
That's the core lesson of corporate scandals -- the CEOs tell lies, pocket cash and never pay any penalty.
What cash did he pocket? He had use of an apartment, a plane and some money went to federal, state and local governments. He did not live in New York, but was asked to run AIG. Was he supposed to call a realtor up and go apartment hunting or was he supposed to get busy running the company?
What does this encourage? More CEO lying. Liddy also received stock options. AIG has never said how many; suppose it was 200,000, the number just granted Benmosche.
Yeah, that seems fair, let’s just speculate that he received 200,000 stock options even though you have no evidence of that and then criticize him for it! I have been unable to find a record of Liddy receiving stock options (only positive statements to the contrary) and Easterbrook linked nothing to support this claim. If anyone has proof of this, please forward to me. I’m genuinely curious.
When Liddy went to AIG, its share price was hovering around $5; if that's the strike price, 200,000 shares would be worth about $7 million right now. Plus AIG quietly said Liddy may receive a bonus payable in 2010. The man who was widely praised for claiming to work for $1 may end up with a king's ransom in his pockets, all pilfered from the average taxpayers. Why have the media dropped this story?
This is very shady. If Liddy had been given 200,000 options upon arriving at AIG (which is what Easterbrook is implying/making up, because he’s using the beginning stock price as the strike price), then that would certainly be in the proxy I linked above. This is the number of Options that Liddy received upon joining AIG in September 2008: 0. Zero fucking options. Yes, but IF HE HAD THEN HE WOULD HAVE MADE A LOT OF MONEY! That's awesomely interesting. Except he didn't. If I had a 19 inch cock I'd be a porn star. Also interesting and made up. Fun, right?
This is from the proxy: “Mr. Liddy volunteered to receive only $1 in salary. He has received no cash incentive compensation and no equity-based compensation. It was expected that Mr. Liddy ultimately would be compensated through an equity grant. However, Mr. Liddy declined to move forward on work toward that arrangement as AIG addressed the immediate challenges facing it.”
This is directly in conflict with what Easterbrook said above. Is Easterbrook lying? At a minimum, his fictitious $7 million gain that he’s criticizing Liddy is wrong. Maybe Liddy did receive stock options, but name a cite and use those numbers in computing a gain to rail him on.
Here’s what they said about his tax obligations: “AIG also made additional payments to offset any tax obligation Mr. Liddy incurred in accordance with the preceding arrangements to avoid his effectively having to pay to work at AIG. AIG does not believe that any of the amounts described in this paragraph represents an actual compensation benefit for Mr. Liddy.”
Let’s say that you live in Florida. The government asks you to spend 9 months helping to build affordable low-income housing in Wisconsin. They provide a few trips home and an apartment in Wisconsin. Since you are still paying rent/mortgage in Florida, is that not reasonable? Is that really “income”? Easterbrook would call you a lying thief if you didn't call it income.
In the very same Bloomberg article that Easterbrook links to, it says this: "Liddy declined to accept equity grants for compensation, AIG said, canceling what was to be the largest component of his pay under an arrangement disclosed on Nov. 25.” But that didn’t stop Easterbrook from somehow computing a $7 million option gain for Mr. Liddy and calling him a liar for this $7 million gain.
Easterbrook is being more dishonest here than AIG or Ed Liddy.
Has courage broken out in the NFL? This weekend, team after team went for it on fourth down, eschewing fraidy-cat kicks…..(deleted: a bunch of examples)…..Overall in Week 2, there were 34 fourth-down conversion attempts -- some in desperation time when coaches had no choice, but most when kicking was a reasonable option.
Why this sudden burst of manhood?
The answer: because of cheer babes and football gods!
The real answer: There wasn’t, really. There were 34 fourth-down conversion attempts in week 1 too. This works out to 1.06 fourth down attempts per team per game. This is up from the 2008 season, which saw .96 fourth down attempts per team per game. I’m not trying to minimize this difference (10%), but it doesn’t strike me as huge and it probably won’t hold. Multiplying that out, it means that, on average, each team will attempt just under 17 fourth down attempts this season versus just over 15 last season. The way Easterbrook led off his column I expected it to be 20-40% higher.
So there is a slight increase over last year (as noted above). However, if you look at 2007, there were 1.04 fourth down attempts per team per game. This is virtually the same as 1.06. In 2006, it was .92. There actually was a much more significant increase from 2006 to 2007 than there has been in the small 2 week sample so far in 2009, when Gregg is applauding teams for being more manly men. In 2007 he was doing his usual (mostly correct) schtick of hammering the teams for being “fraidy cats” for punting too often.
Conclusion: Nothing to see here (yet)… keep moving. He probably just needed something to lead the column with.
The other piece I’m going to pick on is Gregg calling out the former interim CEO of AIG for essentially being misleading and dishonest. See, Liddy was asked by our government to come in to run AIG for a while to help maintain our economic system, which AIG had become an immense and important part of by insuring a large portfolio of subprime loans and basically propping up Wall Street for a couple of years. Ed Liddy was not the CEO of AIG when it helped to crash our financial system, but Easterbrook won’t clarify that for you. Ed Liddy was requested by our Government to be the CEO of AIG to help stabilize the company (and therefore the economy). Here’s what Easterbrook had to say:
Meanwhile, previous AIG CEO Edward Liddy repeatedly said he was working "for $1 a year." He asserted this on "60 Minutes" and in sworn congressional testimony, and was broadly praised for his dollar-a-year service. Now it turns out he was lying.
This is incredibly petty. Liddy did not say he was “working for $1 a year”. He was making a $1 per year salary. He wasn’t lying. Easterbrook says “now it turns out” like this is any big secret being uncovered or this is even recent news. Here is the Proxy statement filed with the SEC on June 5th. Scroll down to 2008 compensation. There it is. Nothing hidden.
AIG quietly said Liddy received $38,368 for a New York apartment, $47,578 for personal airline flights, $31,348 for car services and $180,431 "to cover tax obligations” " In what sense are these not income?
How did they quietly say this? Should they have issued a press release about some perquisites that frankly are quite small in the context of a CEO’s compensation package? What would you have done, if you were running AIG? They did not say he had no expenses paid, they said he had a $1 salary. I'll tell you in which sense those payments are not income. The entire purpose of the above expenses was to make sure that Liddy, in working for $1, was not actually paying to work for AIG. Since his home is not in New York, that required an apartment and transportation home. This is unfair and misleading, how?
You work at a job in order to be able to pay for your housing and transportation. You must earn income to pay your taxes; nobody pays them for you. If AIG was paying for Liddy's housing, personal travel and taxes, then he wasn't earning $1 a year.
He was earning a $1 salary. The expenses were paid for so that he wasn’t paying to work for AIG (at the government’s request, by the way).
Yet he lied through his teeth about this and got away with it.
This is an entirely inaccurate, misleading way to represent the situation, more so in any way than Liddy’s compensation package was a lie.
That's the core lesson of corporate scandals -- the CEOs tell lies, pocket cash and never pay any penalty.
What cash did he pocket? He had use of an apartment, a plane and some money went to federal, state and local governments. He did not live in New York, but was asked to run AIG. Was he supposed to call a realtor up and go apartment hunting or was he supposed to get busy running the company?
What does this encourage? More CEO lying. Liddy also received stock options. AIG has never said how many; suppose it was 200,000, the number just granted Benmosche.
Yeah, that seems fair, let’s just speculate that he received 200,000 stock options even though you have no evidence of that and then criticize him for it! I have been unable to find a record of Liddy receiving stock options (only positive statements to the contrary) and Easterbrook linked nothing to support this claim. If anyone has proof of this, please forward to me. I’m genuinely curious.
When Liddy went to AIG, its share price was hovering around $5; if that's the strike price, 200,000 shares would be worth about $7 million right now. Plus AIG quietly said Liddy may receive a bonus payable in 2010. The man who was widely praised for claiming to work for $1 may end up with a king's ransom in his pockets, all pilfered from the average taxpayers. Why have the media dropped this story?
This is very shady. If Liddy had been given 200,000 options upon arriving at AIG (which is what Easterbrook is implying/making up, because he’s using the beginning stock price as the strike price), then that would certainly be in the proxy I linked above. This is the number of Options that Liddy received upon joining AIG in September 2008: 0. Zero fucking options. Yes, but IF HE HAD THEN HE WOULD HAVE MADE A LOT OF MONEY! That's awesomely interesting. Except he didn't. If I had a 19 inch cock I'd be a porn star. Also interesting and made up. Fun, right?
This is from the proxy: “Mr. Liddy volunteered to receive only $1 in salary. He has received no cash incentive compensation and no equity-based compensation. It was expected that Mr. Liddy ultimately would be compensated through an equity grant. However, Mr. Liddy declined to move forward on work toward that arrangement as AIG addressed the immediate challenges facing it.”
This is directly in conflict with what Easterbrook said above. Is Easterbrook lying? At a minimum, his fictitious $7 million gain that he’s criticizing Liddy is wrong. Maybe Liddy did receive stock options, but name a cite and use those numbers in computing a gain to rail him on.
Here’s what they said about his tax obligations: “AIG also made additional payments to offset any tax obligation Mr. Liddy incurred in accordance with the preceding arrangements to avoid his effectively having to pay to work at AIG. AIG does not believe that any of the amounts described in this paragraph represents an actual compensation benefit for Mr. Liddy.”
Let’s say that you live in Florida. The government asks you to spend 9 months helping to build affordable low-income housing in Wisconsin. They provide a few trips home and an apartment in Wisconsin. Since you are still paying rent/mortgage in Florida, is that not reasonable? Is that really “income”? Easterbrook would call you a lying thief if you didn't call it income.
In the very same Bloomberg article that Easterbrook links to, it says this: "Liddy declined to accept equity grants for compensation, AIG said, canceling what was to be the largest component of his pay under an arrangement disclosed on Nov. 25.” But that didn’t stop Easterbrook from somehow computing a $7 million option gain for Mr. Liddy and calling him a liar for this $7 million gain.
Easterbrook is being more dishonest here than AIG or Ed Liddy.
Thursday, September 11, 2008
Hollywood VORP
Forbes magazine recently posted an annual review of the most overpaid movie stars. I’ve seen this linked on Yahoo, MSNBC, and various other places on the Internet. While I see some commentary about the list, everyone seems to take it at face value.
It’s extremely difficult to judge the actual value a movie star has on a movie, because you can’t separate the star power of the actor from the actual quality/marketing/buzz of the movie, and some combination of these things is what drives profits. To me, the true value of Russell Crowe is the dollar value of profit that he adds to a movies profit over what another actor would contribute in the same movie (released at the same time, same script, etc.). I think Forbes has a big flaw in their analysis, which I’ll try to illustrate, because they entirely focus on the ratio of the profit to the actor’s salary.
Forbes’ list is derived from a “payback” figure they compute to determine how fairly paid the star is in relation to studio profits. Below is the gist of how the figure was computed:
To calculate our payback figures, we took half of each film's worldwide box office (to roughly approximate the studio's cut of each ticket). Then we added the first three months of DVD revenues and subtracted the budget to derive the film's gross income. After that, the actor's total compensation (upfront pay plus any money earned from sharing in the film's profits) was divided into the gross income to get the actor's payback figure for the film. The payback for the last three movies for each actor was averaged to calculate ultimate payback. We deliberately used gross income rather than net income in our analysis because the latter figure is so easily manipulated by studio accountants, with marketing expenses treated differently for almost every film.
So it’s obviously more of a ball-park calculation, but, still, it sounds like a lot of thought went into the analysis.
Here’s an excerpt from the results:
Our list of the top 10 overpaid celebrities is rife with some of the biggest names in Hollywood. Tom Cruise ranks third with a $4 return for every dollar he was paid mostly because of last year's stinker "Lions for Lambs," which Cruise's studio, United Artists, produced. For every dollar the star earned the film returned only $1.88.
That the list is rife with the biggest names in Hollywood should be obvious, since the analysis focused on stars whose average fee was over $5 million and, more importantly, it severly penalizes big paydays, even if they are justified.
Cameron Diaz may be the highest-paid actress in Hollywood, with $50 million in income between June 2006 and June 2007, but studios might want to question whether she's worth the money. Her films returned a lowly $4 for every dollar Diaz earned.
The main problem is that their value is being distorted by only focusing on how much the movie’s gross income was in proportion to the actor’s compensation. They should focus on the impact the star had on the dollar value of the profit, not the percentage.
Here’s a very extreme scenario to prove my point:
Let’s say Tom Cruise is compensated $1 billion for his role in “The Little Albino That Could: The David Eckstein Story”, which we’ll just call “the movie”. The movie has a budget of $1.1 billion, including Cruise’s comp – so $100 million of non-Cruise budgetary costs. The movie then has gross receipts of $4 billion (the ½ box office + DVD sales). $4 billion less $1.1 billion is $2.9 billion of “gross income” as defined above. $2.9 billion divided by $1 billion is a “payback” of a mere $2.90 for every dollar that Cruise earned.
Now let’s say that David Eckstein stars in the movie, and is paid $5 million for his efforts. This is the same script, same director, same everything else except lead actor. David Eckstein grits out a tough movie, but ultimately doesn’t have the box office pop that Tom Cruise does. The movie grosses a highly respectable total (ludicrously high for a movie staring David Eckstein) of $300 million. The budget is now $105 million, leaving “gross income” of $195 million. The movie’s “payback” is a kickass $39.00 for every dollar earned by Eckstein.
$39.00 would make Eckstein a world class movie value and underpaid in the eyes of Forbes. Cruise would be way overpaid at $2.90.
So if you own a studio, would you rather make $2.9 billion in the first scenario or $195 million (that’s 93% less) in the second? I’ve rigged the analysis to look ludicrous to prove a point.
Further exacerbating the flaws in this analysis is the fact that top flight movie-stars typically earn a portion of the profits (as Forbes notes above). Movie accounting is terribly complex and I don’t have the requisite industry knowledge to really be thorough here (or the time to do the research), but I suspect what further skews these results is the fact that top stars often get a piece of the profits once the movie is in the black, which narrows the proportional gap between the movie’s profits and their pay….but only because the movie was wildly profitable, partly because of the star.
Let’s run through an example to show how Forbes’ analysis is distortive:
Again take two exact same movies and budgets – more realistic numbers (but still made-up and probably retarded). Use a budget of $50 million, except for lead actor’s pay. Eckstein and Cruise both agree to a $5 million base salary, except Cruise is a big star, is also acting as a Producer and will be heavily promoting the movie. So he is going to get 30% of the profits (in exchange for taking such a low base, for him) after the movie has gross receipts (the ½ tickets + DVD’s) of $100 million – to cover marketing and other ancillary costs that must be recouped by the studio on top of the budget. If the movie makes $100 million, then the "payback" for both Cruise and Eckstein would be $9.00. But a movie that makes $100 million with David Eckstein as its big star might make $300 million with Cruise, which is why he’d command a share of the profits. In my model, at $300 million, Cruise would take home $65 million. Forbes would say that his “payback” is only $2.85 per dollar earned. In their eyes, Cruise is 3 times more overpaid than Eckstein, because Eckstein’s pay as a percentage of gross profit is much less. But Cruise’s movie had “gross income” as defined by Forbes of $185 million compared to Eckstein’s $45 million. He only made more money because his movie generated more.
How is Cruise overpaid in relation to Eckstein in that scenario? I think the studio would happily take the extra $145 million. The only risk to the studio was that the movie was so good that Eckstein could have carried it to the same gross income (before 30% profit-share) as Cruise and the studio could have pocketed that profit-share money. I do realize how off these numbers are to reality, but the theory should hold.
I’m not saying Forbes’ method wouldn’t point out some overpaid stars, but I think it’s a terrible way to conclusively list them. In Forbes’ defense, I think they sort of realized the flaw in their logic and used the $5 million per picture floor in computing the pool of actors to review, which removes extreme outliers (if you paid me $.01, I could have a higher payback than any actor). But I have to think this can be done in a better way. The other glaring issue is that the movie may make no money for various reasons that have nothing to do with the ability of its star to generate box office receipts. The movie, not the star, could just be terrible – that doesn’t mean the star is overpaid.
Forbes had this revelation later:
In general, actors who earned under $10 million per picture did better on our list.
This is not surprising. If you pay Jennifer Love Hewitt $5 million and Angelina Jolie $15 million, the Jolie movie’s gross income doesn’t need to be triple Hewitt’s to justify the cost, it just needs to be $10,000,001 higher. Forbes would require Jolie to generate three times the income, and that makes no sense. There’s no variable costs tied to Jolie that would justify that extra profit burden on her.
So how should Forbes have modeled the calculation to be more reflective of the actual return on the actor’s value? Is there some way to measure a Hollywood equivalent of baseball’s VORP? VORA - Value Over Replacement Actor...tied to movie profitability? There probably is, but it would take someone with intimate knowledge of Hollywood’s accounting/compensation practices and someone much smarter than me to build that model.
It’s extremely difficult to judge the actual value a movie star has on a movie, because you can’t separate the star power of the actor from the actual quality/marketing/buzz of the movie, and some combination of these things is what drives profits. To me, the true value of Russell Crowe is the dollar value of profit that he adds to a movies profit over what another actor would contribute in the same movie (released at the same time, same script, etc.). I think Forbes has a big flaw in their analysis, which I’ll try to illustrate, because they entirely focus on the ratio of the profit to the actor’s salary.
Forbes’ list is derived from a “payback” figure they compute to determine how fairly paid the star is in relation to studio profits. Below is the gist of how the figure was computed:
To calculate our payback figures, we took half of each film's worldwide box office (to roughly approximate the studio's cut of each ticket). Then we added the first three months of DVD revenues and subtracted the budget to derive the film's gross income. After that, the actor's total compensation (upfront pay plus any money earned from sharing in the film's profits) was divided into the gross income to get the actor's payback figure for the film. The payback for the last three movies for each actor was averaged to calculate ultimate payback. We deliberately used gross income rather than net income in our analysis because the latter figure is so easily manipulated by studio accountants, with marketing expenses treated differently for almost every film.
So it’s obviously more of a ball-park calculation, but, still, it sounds like a lot of thought went into the analysis.
Here’s an excerpt from the results:
Our list of the top 10 overpaid celebrities is rife with some of the biggest names in Hollywood. Tom Cruise ranks third with a $4 return for every dollar he was paid mostly because of last year's stinker "Lions for Lambs," which Cruise's studio, United Artists, produced. For every dollar the star earned the film returned only $1.88.
That the list is rife with the biggest names in Hollywood should be obvious, since the analysis focused on stars whose average fee was over $5 million and, more importantly, it severly penalizes big paydays, even if they are justified.
Cameron Diaz may be the highest-paid actress in Hollywood, with $50 million in income between June 2006 and June 2007, but studios might want to question whether she's worth the money. Her films returned a lowly $4 for every dollar Diaz earned.
The main problem is that their value is being distorted by only focusing on how much the movie’s gross income was in proportion to the actor’s compensation. They should focus on the impact the star had on the dollar value of the profit, not the percentage.
Here’s a very extreme scenario to prove my point:
Let’s say Tom Cruise is compensated $1 billion for his role in “The Little Albino That Could: The David Eckstein Story”, which we’ll just call “the movie”. The movie has a budget of $1.1 billion, including Cruise’s comp – so $100 million of non-Cruise budgetary costs. The movie then has gross receipts of $4 billion (the ½ box office + DVD sales). $4 billion less $1.1 billion is $2.9 billion of “gross income” as defined above. $2.9 billion divided by $1 billion is a “payback” of a mere $2.90 for every dollar that Cruise earned.
Now let’s say that David Eckstein stars in the movie, and is paid $5 million for his efforts. This is the same script, same director, same everything else except lead actor. David Eckstein grits out a tough movie, but ultimately doesn’t have the box office pop that Tom Cruise does. The movie grosses a highly respectable total (ludicrously high for a movie staring David Eckstein) of $300 million. The budget is now $105 million, leaving “gross income” of $195 million. The movie’s “payback” is a kickass $39.00 for every dollar earned by Eckstein.
$39.00 would make Eckstein a world class movie value and underpaid in the eyes of Forbes. Cruise would be way overpaid at $2.90.
So if you own a studio, would you rather make $2.9 billion in the first scenario or $195 million (that’s 93% less) in the second? I’ve rigged the analysis to look ludicrous to prove a point.
Further exacerbating the flaws in this analysis is the fact that top flight movie-stars typically earn a portion of the profits (as Forbes notes above). Movie accounting is terribly complex and I don’t have the requisite industry knowledge to really be thorough here (or the time to do the research), but I suspect what further skews these results is the fact that top stars often get a piece of the profits once the movie is in the black, which narrows the proportional gap between the movie’s profits and their pay….but only because the movie was wildly profitable, partly because of the star.
Let’s run through an example to show how Forbes’ analysis is distortive:
Again take two exact same movies and budgets – more realistic numbers (but still made-up and probably retarded). Use a budget of $50 million, except for lead actor’s pay. Eckstein and Cruise both agree to a $5 million base salary, except Cruise is a big star, is also acting as a Producer and will be heavily promoting the movie. So he is going to get 30% of the profits (in exchange for taking such a low base, for him) after the movie has gross receipts (the ½ tickets + DVD’s) of $100 million – to cover marketing and other ancillary costs that must be recouped by the studio on top of the budget. If the movie makes $100 million, then the "payback" for both Cruise and Eckstein would be $9.00. But a movie that makes $100 million with David Eckstein as its big star might make $300 million with Cruise, which is why he’d command a share of the profits. In my model, at $300 million, Cruise would take home $65 million. Forbes would say that his “payback” is only $2.85 per dollar earned. In their eyes, Cruise is 3 times more overpaid than Eckstein, because Eckstein’s pay as a percentage of gross profit is much less. But Cruise’s movie had “gross income” as defined by Forbes of $185 million compared to Eckstein’s $45 million. He only made more money because his movie generated more.
How is Cruise overpaid in relation to Eckstein in that scenario? I think the studio would happily take the extra $145 million. The only risk to the studio was that the movie was so good that Eckstein could have carried it to the same gross income (before 30% profit-share) as Cruise and the studio could have pocketed that profit-share money. I do realize how off these numbers are to reality, but the theory should hold.
I’m not saying Forbes’ method wouldn’t point out some overpaid stars, but I think it’s a terrible way to conclusively list them. In Forbes’ defense, I think they sort of realized the flaw in their logic and used the $5 million per picture floor in computing the pool of actors to review, which removes extreme outliers (if you paid me $.01, I could have a higher payback than any actor). But I have to think this can be done in a better way. The other glaring issue is that the movie may make no money for various reasons that have nothing to do with the ability of its star to generate box office receipts. The movie, not the star, could just be terrible – that doesn’t mean the star is overpaid.
Forbes had this revelation later:
In general, actors who earned under $10 million per picture did better on our list.
This is not surprising. If you pay Jennifer Love Hewitt $5 million and Angelina Jolie $15 million, the Jolie movie’s gross income doesn’t need to be triple Hewitt’s to justify the cost, it just needs to be $10,000,001 higher. Forbes would require Jolie to generate three times the income, and that makes no sense. There’s no variable costs tied to Jolie that would justify that extra profit burden on her.
So how should Forbes have modeled the calculation to be more reflective of the actual return on the actor’s value? Is there some way to measure a Hollywood equivalent of baseball’s VORP? VORA - Value Over Replacement Actor...tied to movie profitability? There probably is, but it would take someone with intimate knowledge of Hollywood’s accounting/compensation practices and someone much smarter than me to build that model.
Wednesday, February 6, 2008
Gregg Easterbrook Thinks He’s Smarter Than Every NFL Team
If you’ve read Gregg Easterbrook’s Tuesday Morning Quarterback before you know that he likes to go off and discuss, at length, random things. Cheerleaders, astronomy, economics, environmental policy, etc. are the usual fare for Easterbrook. He also has a running commentary about the executive structure of NFL teams, which he finds to be ridiculously layered with executives. He spent some time on this topic in this week's column. I will focus on what he said about the New England Patriots for the simple reason that he says they are the most “top-heavy” and because I believe it’s a good example of how he doesn’t know what he’s talking about here.
First, a portion of his commentary:
• The Patriots, this year's winner for most top-heavy front office, have a chairman and CEO, a president, a vice president of player personnel, a chief administrative officer, a chief financial officer, a chief operating officer, three other vice presidents, two executive directors, two people who both hold the title director of sales, a director of strategic initiatives, and 12 other directors.
Morons! Easterbrook could run that shit with 5 people and a monkey. He’d of course add an Executive VP, Football God Compliance because he thinks Football Gods are real or something. Anyway, so that’s 26 executives.
Later he says:
When pondering football title inflation, bear in mind that individual NFL franchises are fairly small economic entities. Forbes magazine estimates that the Patriots earn about $255 million in annual revenue, with about $200 million in revenue being the NFL average. If $200 million sounds like a lot, it's half the annual revenue of Barney's, the New York department store. There are many enterprises viewed as small businesses whose revenue exceeds the $200 million brought in annually by the typical NFL team; $200 million in revenue just doesn't justify large numbers of grandiose executive titles. If General Electric had the same ratio of titles to revenue as the Patriots, GE would employ 652 presidents, 1,304 executive directors, 1,956 chief officers and 9,780 directors.
As usual, Easterbrook does a good job of oversimplifying things to support his argument. The statement that the revenue number is half the revenue of Barney’s (which is more than 1 store, of course) is meaningless, as they are completely different businesses. It’s also very misleading for a different reason, which I’ll explain later. He ignores the fact that the CEO of a company is almost entirely devoted to that Company. They typically serve on a few charitable boards and may possibly be on the board of other companies, but those are not their jobs by any stretch. Bob Kraft’s role as the CEO of the Patriots is not analogous to that of a CEO of a similarly sized company, for a variety of reasons. His job is to oversee his broad business holdings, of which includes the New England Patriots. Many CEO’s of pro sports teams are just rich guys who manage their investments, one of which is their team. The following is from the Patriots’ website:
Kraft founded The Kraft Group to serve as the holding company for the family's varied business interests, which are concentrated in five specific areas: the distribution of forest products, paper and packaging manufacturing, sports and entertainment, real estate development and private equity investing.
This guy’s role with the Patriots is not analogous to the CEO of Barney’s at all. Not unless that guy/girl is also running a timber operation or something. Also, the Kraft Group’s revenues in total are almost certainly higher than Barney’s, which makes Barney’s as a point of reference even more off-base. Using GE as an example is terrible, as I’m sure they have a startlingly high number of executives anyway given that they have about 320,000 employees. Using Easterbrook’s lame extrapolated supposedly-hyperbolic numbers (based on revenues) to compute that there are 13,692 executives at GE, you’d wind up with executives representing about 4% of their workforce. That’s low. I know my Company has more than 4% of employees classified as Director level or above. If your business has 50 employees, don’t you have more than 2 executives? Unless you are working in an all-manufacturing environment or a larger business with thousands of lower level employees with compartmentalized job skills, I would think this is true.
So Easterbrook has noted that the Patriots have a Chairman/CEO, that’s Robert Kraft (above), as well as a President, Jonathan Kraft. Let’s read what the Patriots website says about Jonathan’s job:
Kraft's NFL obligations are only a small part of his day to- day responsibilities, which are as diversified as the many different companies he oversees. The Kraft Group has a diversity of interests concentrated in five specific areas: the distribution of forest products, paper and packaging manufacturing, sports and entertainment, real estate development and private equity investing and Kraft is responsible for overseeing the operations of each division.
Does it sound like he’s spending the bulk of his time on the Patriots? Do you think the President of Barney’s job description starts with “so and so’s Barney’s obligations are only a small part of his/her day to day responsibilities”. What Easterbrook fails to recognize is that the top 2 executives of the Patriots are tied into to Kraft’s other businesses, and most others also devote a significant amount of time to Gillete Stadium, which the Kraft Group owns. Don’t forget that if the team owns the stadium then that is a year-round business that requires executives (operational, sales, finance, etc.) to oversee to make sure that this asset worth several hundred million dollars is being fully utilized for economic purposes while being maintained. That’s a full-time business. Here, let’s look at a portion of the Patriots’ COO’s job description:
As Chief Operating Officer he oversees the daily business operations of each department in the organization to ensure the efficient achievement of operational and financial objectives. With its active calendar of concerts, trade shows and private events within the Fidelity Investments Clubhouse, the stadium complex is a year-round convention center in addition to being a premier sports and entertainment venue.
Going back to his revenue number, if U2 performs a concert at Gillette Stadium, does it show up in the Patriots’ revenue figure? I don’t know, but I wouldn’t just assume it does.
It’s not entirely uncommon for a company with revenues of a few hundred million (let’s say domestic only, to keep it simple) to have the following executives:
Overall Executives
- CEO/President (could also be two roles)
- CFO
- COO (or some companies just call this type of role the President)
- CIO
- Could have….Chief Marketing Officer, Chief Technology Officer (hi-tech), Chief Accounting Officer, etc.
Functional Executives
- VP, Marketing
- VP, Research & Development
- VP or Director, Human Resources
- VP, Sales
- VP, IT/IS (could be two Director roles)
- VP, Professional Services (or manufacturing, Ops management etc. – industry specific).
- VP, Corporate Controller
- VP or Director of Finance (FP&A, budgeting, finance management of verticals, etc.)
- VP, Corporate/Business Development
- Other potential VPs = Strategy (related), Mergers and Acquisitions, Product Marketing, Customer Service, etc.
Business (verticals) Executives
- GM – Business line 1
- GM – Business line 2
- GM – Business line 3
Industry specifics and company size dictate the org chart of a company, that’s just meant to be a quick overview of what you tend to see.
Now here’s where it gets interesting (or probably really, really, painfully boring), each of the functional executives likely have at least 1 Director level executive reporting to them. In something as important as development for a hi-tech company or a pharmaceutical company (even a small one, pre-revenue), there could be 2-3 VP’s reporting to a Senior VP, and those VP’s could have responsibility for certain product lines possibly (or disciplines – pharmacology, chemistry for a biotech, etc.) with Director level employees under them. For sales, you could have a few Directors managing sales teams by geography or vertical or both and reporting to a VP of Sales. Or you could have a VP of Sales under each vertical. In finance, under the Controller or CFO, you probably have a director (or VP) of tax and Divisional Controllers. Each of the GM’s likely have a “Director of Operations” or something analogous for that line. Also, I’ve ignored legal but a fair number of small/mid-size public companies employ a VP/Director level internal legal resource.
What I’m saying is that you can easily get to 26 executives. While that may be a more robust org chart that he is considering when looking at an NFL franchise (and the 26 execs above), my point is that the number of executives is not surprising to me nor does he have any basis for saying it's extreme in comparison to businesses of similar size/complexity.
So the point of this long, boring post, is to say that Easterbrooks’ long running rant/joke about the number of executives at NFL teams is a stupid waste of time. I’m sure some teams are top-heavy, just like some companies, but this isn’t worth the effort that he (or I) have put into it.
First, a portion of his commentary:
• The Patriots, this year's winner for most top-heavy front office, have a chairman and CEO, a president, a vice president of player personnel, a chief administrative officer, a chief financial officer, a chief operating officer, three other vice presidents, two executive directors, two people who both hold the title director of sales, a director of strategic initiatives, and 12 other directors.
Morons! Easterbrook could run that shit with 5 people and a monkey. He’d of course add an Executive VP, Football God Compliance because he thinks Football Gods are real or something. Anyway, so that’s 26 executives.
Later he says:
When pondering football title inflation, bear in mind that individual NFL franchises are fairly small economic entities. Forbes magazine estimates that the Patriots earn about $255 million in annual revenue, with about $200 million in revenue being the NFL average. If $200 million sounds like a lot, it's half the annual revenue of Barney's, the New York department store. There are many enterprises viewed as small businesses whose revenue exceeds the $200 million brought in annually by the typical NFL team; $200 million in revenue just doesn't justify large numbers of grandiose executive titles. If General Electric had the same ratio of titles to revenue as the Patriots, GE would employ 652 presidents, 1,304 executive directors, 1,956 chief officers and 9,780 directors.
As usual, Easterbrook does a good job of oversimplifying things to support his argument. The statement that the revenue number is half the revenue of Barney’s (which is more than 1 store, of course) is meaningless, as they are completely different businesses. It’s also very misleading for a different reason, which I’ll explain later. He ignores the fact that the CEO of a company is almost entirely devoted to that Company. They typically serve on a few charitable boards and may possibly be on the board of other companies, but those are not their jobs by any stretch. Bob Kraft’s role as the CEO of the Patriots is not analogous to that of a CEO of a similarly sized company, for a variety of reasons. His job is to oversee his broad business holdings, of which includes the New England Patriots. Many CEO’s of pro sports teams are just rich guys who manage their investments, one of which is their team. The following is from the Patriots’ website:
Kraft founded The Kraft Group to serve as the holding company for the family's varied business interests, which are concentrated in five specific areas: the distribution of forest products, paper and packaging manufacturing, sports and entertainment, real estate development and private equity investing.
This guy’s role with the Patriots is not analogous to the CEO of Barney’s at all. Not unless that guy/girl is also running a timber operation or something. Also, the Kraft Group’s revenues in total are almost certainly higher than Barney’s, which makes Barney’s as a point of reference even more off-base. Using GE as an example is terrible, as I’m sure they have a startlingly high number of executives anyway given that they have about 320,000 employees. Using Easterbrook’s lame extrapolated supposedly-hyperbolic numbers (based on revenues) to compute that there are 13,692 executives at GE, you’d wind up with executives representing about 4% of their workforce. That’s low. I know my Company has more than 4% of employees classified as Director level or above. If your business has 50 employees, don’t you have more than 2 executives? Unless you are working in an all-manufacturing environment or a larger business with thousands of lower level employees with compartmentalized job skills, I would think this is true.
So Easterbrook has noted that the Patriots have a Chairman/CEO, that’s Robert Kraft (above), as well as a President, Jonathan Kraft. Let’s read what the Patriots website says about Jonathan’s job:
Kraft's NFL obligations are only a small part of his day to- day responsibilities, which are as diversified as the many different companies he oversees. The Kraft Group has a diversity of interests concentrated in five specific areas: the distribution of forest products, paper and packaging manufacturing, sports and entertainment, real estate development and private equity investing and Kraft is responsible for overseeing the operations of each division.
Does it sound like he’s spending the bulk of his time on the Patriots? Do you think the President of Barney’s job description starts with “so and so’s Barney’s obligations are only a small part of his/her day to day responsibilities”. What Easterbrook fails to recognize is that the top 2 executives of the Patriots are tied into to Kraft’s other businesses, and most others also devote a significant amount of time to Gillete Stadium, which the Kraft Group owns. Don’t forget that if the team owns the stadium then that is a year-round business that requires executives (operational, sales, finance, etc.) to oversee to make sure that this asset worth several hundred million dollars is being fully utilized for economic purposes while being maintained. That’s a full-time business. Here, let’s look at a portion of the Patriots’ COO’s job description:
As Chief Operating Officer he oversees the daily business operations of each department in the organization to ensure the efficient achievement of operational and financial objectives. With its active calendar of concerts, trade shows and private events within the Fidelity Investments Clubhouse, the stadium complex is a year-round convention center in addition to being a premier sports and entertainment venue.
Going back to his revenue number, if U2 performs a concert at Gillette Stadium, does it show up in the Patriots’ revenue figure? I don’t know, but I wouldn’t just assume it does.
It’s not entirely uncommon for a company with revenues of a few hundred million (let’s say domestic only, to keep it simple) to have the following executives:
Overall Executives
- CEO/President (could also be two roles)
- CFO
- COO (or some companies just call this type of role the President)
- CIO
- Could have….Chief Marketing Officer, Chief Technology Officer (hi-tech), Chief Accounting Officer, etc.
Functional Executives
- VP, Marketing
- VP, Research & Development
- VP or Director, Human Resources
- VP, Sales
- VP, IT/IS (could be two Director roles)
- VP, Professional Services (or manufacturing, Ops management etc. – industry specific).
- VP, Corporate Controller
- VP or Director of Finance (FP&A, budgeting, finance management of verticals, etc.)
- VP, Corporate/Business Development
- Other potential VPs = Strategy (related), Mergers and Acquisitions, Product Marketing, Customer Service, etc.
Business (verticals) Executives
- GM – Business line 1
- GM – Business line 2
- GM – Business line 3
Industry specifics and company size dictate the org chart of a company, that’s just meant to be a quick overview of what you tend to see.
Now here’s where it gets interesting (or probably really, really, painfully boring), each of the functional executives likely have at least 1 Director level executive reporting to them. In something as important as development for a hi-tech company or a pharmaceutical company (even a small one, pre-revenue), there could be 2-3 VP’s reporting to a Senior VP, and those VP’s could have responsibility for certain product lines possibly (or disciplines – pharmacology, chemistry for a biotech, etc.) with Director level employees under them. For sales, you could have a few Directors managing sales teams by geography or vertical or both and reporting to a VP of Sales. Or you could have a VP of Sales under each vertical. In finance, under the Controller or CFO, you probably have a director (or VP) of tax and Divisional Controllers. Each of the GM’s likely have a “Director of Operations” or something analogous for that line. Also, I’ve ignored legal but a fair number of small/mid-size public companies employ a VP/Director level internal legal resource.
What I’m saying is that you can easily get to 26 executives. While that may be a more robust org chart that he is considering when looking at an NFL franchise (and the 26 execs above), my point is that the number of executives is not surprising to me nor does he have any basis for saying it's extreme in comparison to businesses of similar size/complexity.
So the point of this long, boring post, is to say that Easterbrooks’ long running rant/joke about the number of executives at NFL teams is a stupid waste of time. I’m sure some teams are top-heavy, just like some companies, but this isn’t worth the effort that he (or I) have put into it.
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