Mailbag: More on Eagles Draft

Mailbag: More on Eagles Draft
April 30, 2007, 7:45 am
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Reader Alison writes in to point out the poll on DonovanMcNabb.com asking what position the Eagles should address with their first pick.  Not surprisingly, QB didn't make the list.

Reader George writes in from Boston with a nice long rant on the Eagles as a business.  He starts:

Something that I'm reminded of today is that pro sports is above all a business. I'm thinking of this as I reflect on the Eagles draft. I'm a displaced Philly fan living in Boston, working in finance, so I 'get it.' That doesn't mean that I have to like it. There's essentially two ways to run a business, one is for growth and the other is for cash. Running a business for cash is often perceived as the safe play.

The rest of his rant after the jump.

Once the business is established, it doesn't reinvest a lot of capital, maximizes profitability, generates a steady stream of income and cash flow, and so long as none of its competitors are really out-executing it or taking significant market share, the business can continue to hum along and make money for a long time. Eventually, however, many of these businesses either get diplaced by more agile or more innovative competitors, or by larger companies that have better scale and lower costs.   

   Running a business for growth is more risky. The growth business reinvests a lot of its earnings and cash in R&D or sales capacity to grow the business. It looks to make strategic acquisitions, and sometimes chooses to go into debt, potentially betting the future for opportunities that are available today. There is inherantly more risks to the growth strategy. A company could make bad investments, R&D could bear no fruit and acquisitions can carry significant integration and execution risk. And often, growth strategies fail and companies go bankrupt. But sometimes they don't, and we get a General Electric, a Microsoft or an Apple. From an investment perspective, investors like cash, but they pay up for and lust

for growth. Why? because one dollar is always worth one dollar, but the dream of what one dollar invested today could be worth tomorrow, next month or next year is a big part of what makes this country go. Everyone wishes they'd invested that dollar in Microsoft in 1990.

nbsp;   While the Eagles might appear to be in growth mode, from a business analysis perspective they are obviously in running the business for cash. By trading down and drafting for the future, the Eagles are conservatively choosing to sit on cash as opposed to making capital investments that could help the team win now. Moving down in the draft lowers their total cash outlay required to sign their total draftees, lowering capital expenses and total reinvestment rate. Strategic acquisitions in recent years seem to have been small and anything but risky. The Eagles have been running the franchise under the salary cap for years, maximizing profit margins at the expense of innovation and improving their competitive position in the market. This has resulted in the Eagles being an above-median performer over the last decade, but having constantly fallen short of absolute success as it is measured in their business segment.
   The company - excuse me, the Eagles - were not always running the business for cash. Reid, Heckert  & Co. used to be an innovative management team. The drafting of Donovan McNabb and the signing of Jon Runyan started the growth cycle. The Eagles were in full growth mode when they acquired Jevon Kearse and TO, and drafting players that could potentially make a positive contribution right away. Maybe that experience has left the management team more conservative, and understandably so. Here's the problem: in the NFL, the future is always now, this

season. Business performance gets judged annually. There is no carry over, no running the business for cash, everyone starts anew each year. Yes some of the players are carried over, but every team is remade each season. Every September, each team start with 0 wins and 0 losses before the first coin flip.

 
    So here's to imploring CEO Jeff Lurie. Jeff, grow the business. Invest, acquire, think strategically. Add valuable assets around your core capabilites. Boldly defend your market position. Bury the competition. Increase the returns for your shareholders, or us fans. See what that dollar in your pocket can be worth in November, December or even in January. Because come that second week in February, that dollar is worth just a dollar.
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