The NBA Lockout and Financially Replaceable Relationships

Guest blog by a personal friend of the Head Penny-Pincher

This is a tough time for me as an avid basketball fan. The first two weeks of the 2011-2012 National Basketball Association season have been cancelled, and the entire season is at risk, as team owners and the players’ union struggle to arrive at a new collective bargaining agreement that will dictate how they divvy up league revenues. In the midst of my basketball withdrawals, some forms of help are available. For example, NBATV has been broadcasting classic games from previous decades. Then again, the daisy dukes worn by pre-90's ballplayers have a limiting effect on how much of those games I can watch.

Unfortunately, though, some people are facing more serious challenges as a result of the current NBA lockout. For many arena employees (custodians, security officers, and food vendors, for example), NBA games can be an important source of income. The cancellation of even part of the basketball season makes it that much more difficult for these arena workers to provide for their families.

This got me thinking about the financial relationships involved in the dispute between the league’s owners and players. For instance, while the two sides have their differences, they’re ultimately indispensable to one another’s success (and, thus, will likely get a deal done eventually). Just as the players can’t expect the current owners to sell their teams off to a bunch of union-friendly billionaires*, the owners can’t expect to replace Kobe Bryant and Lebron James with me and Joe Schmoe and still sell tickets.

That touches on another financial relationship involved in the lockout: the relationship the owners and players have with NBA fans. To the extent that the current lockout disenfranchises the fans, it will be more difficult for owners and players to sell tickets (and reap revenues) when games resume. In this way, the fans are also irreplaceable to the league.

Then there are the arena workers. If they can’t wait out the cancelled games, others will be in line to take their place. Sadly for them, the arena workers are replaceable.

What does this have to do with us and our personal finances? The better we understand our own financial relationships with respect to replaceability, the better equipped we are to make sound financial decisions, decisions that line up with our personal financial values. Some examples:

- Does your employer view you as replaceable? If so, are there any professional certifications you could pursue to make yourself more irreplaceable to your company? Do you have the opportunity to take on any long-term projects that would be difficult for your employer to pass on to someone else if you were laid off?

- Is your employer replaceable to you? That may seem like an absurd question in the context of our current economy, but it has proven relevant to my own experience. I’m in the process of leaving one of my part-time jobs**, because the schedule and commute are no longer a good fit for me. When I discovered that I would be able to return to a former part-time job that is a good for me, the job I'm now leaving became replaceable, and that realization has helped me to make a positive change in my work-life.

- What about the financial institutions in your life? If your bank has recently introduced a $5 per month debit-card fee***, has it become replaceable to you? Do you use a financial planner? Does he or she view you as replaceable, focusing more of his/her attention on wealthier clients? If so, are you content enough to stay, or dissatisfied enough to find a new planner?

- Lastly, how does this issue affect the establishments you patronize? Who views you as more irreplaceable: McDonald’s, or the local burger place up the street? Is there a corresponding difference in quality and service?**** Whom do you view as more irreplaceable in terms of cost, job-creation, community contribution, etc.? Being clear on your financial values, whatever they are, will help you make more satisfying purchases.

In the comments section, how is the replaceability factor affecting your financial relationships? Are you intentional in incorporating these issues into your financial decisions?

*Wherever such a bunch of billionaires may be, I’m sure there are unicorn-riding leprechauns nearby.

**Oops! Now they know.

***Just, you know, hypothetically.

***Note: Local businesses do not always offer better service. See “Soup Nazi, The”.

Photo by Zawezome

The Indianapolis Colts and Your Finances

Tonight, the Colts and the Tampa Bay Buccaneers will face each other on Monday Night Football.  If you would have asked even the most casual of American football fans a month ago who would almost certainly win this game, you would have received the answer that the Colts will win in a blowout.  However, as of today, gamblers in Las Vegas are stating that Tampa Bay will win the game by 10 points.

What has changed in the last month?  It turns out that he-of-the-big-forehead, Peyton Manning, the Colts' quarterback, had neck surgery about a month ago because he was having trouble, you know, turning his neck to look at stuff (note: for those of you who aren't fans of the sport, it is super important to see stuff in football).  While there was originally talk of Manning coming back this season, it now seems unlikely that that will be the case as the Colts have lost every game so far, and it makes more sense for the Colts to let their star QB recuperate instead of rushing him back into action and risking further damage.  As such, the Colts have already (after 3 weeks of a 16 week season) basically thrown in the towel on the team's chances this year.

"Huh, I guess I do have a big forehead."
- Peyton Manning

As an NFL fan, the Colts' plight is interesting to me for a variety of reasons, but the more I thought about the story, the more I realized that there were some personal finance lessons that can be gleaned.  Here goes.

Reflecting on Military Service

I mentioned last week that I was going to an NFL pre-season game with a couple of buddies. I am unhappy to admit that my Chargers lost the (meaningless) game, but there was another item that I briefly wanted to talk about.

San Diego is a military city, with significant influence from the navy in our harbor and from the marines up north at Camp Pendleton. With the area’s ties to the military, there are frequently “fly-overs” before games, in which a couple of military jets loudly fly over the stadium. The game I went to had the jet fighters fly over, but it also featured another military aspect.

At halftime, a group of young veterans, some younger than I am, made their way to mid-field. These men were being honored as local heroes. All of them had received the purple heart for their service, and nearly every one of them was missing at least one leg. Their wounds were most frequently the result of IED explosions, though at least one man had been mutilated by a suicide bomber and another had been shot.

As we all remember, last week was (at least) an unpredictable week for the stock market. Many of us spent some time considering whether or not our investments were sound, whether and at what point we should consider selling, and how frustrated we were that partisan politics was affecting our retirement plans in a very negative way. Given how the market looks today, it seems those of us who held onto our investments were in the right. Still, last week with the S&P’s downgrade of the U.S.’s credit, there was a very real sense that the sky was falling, and all we Chicken Littles could do was watch it happen.

But as I stood there, watching the soldiers who were willing to give their lives for this country, my irritation melted, and I began to feel ashamed. All last week, I was frustrated at the government and the economy, when these men believed in America enough to put their lives on the line. How blessed am I to have both arms and legs? How blessed am I to even have retirement accounts? How blessed am I to not be in want?

In twenty-first century America, things are tough all over, and prudent spending and saving can go a long ways toward achieving goals that we set out for ourselves. But no amount of money can keep us alive indefinitely, and no amount of planning can entirely save us from the unknown. The only thing we are able to directly control is our own attitudes about what is happening. Seeing the veterans was a good reminder to me that it wouldn’t be the worst thing to be more optimistic in general.

Amadeus and Economics - Are You Salieri or Mozart?

Last week, I had the opportunity to go see the play Amadeus at the Old Globe Theatre here in San Diego. Many of you are undoubtedly more familiar with the movie version from 1984 which starred F. Murray Abraham as composer Antonio Salieri and Tom Hulce as Wolfgang Amadeus Mozart. Nevertheless, it was originally a play, and its original Broadway cast featured Ian Mckellen (Gandalf!) as Salieri and Tim Curry as Mozart.*

For those of you who may be unfamiliar with the work, Amadeus (fictionally) dramatizes the relationship that composers Salieri and Mozart had. The work dwells quite a bit on Salieri’s jealousy towards Mozart, so much so that Salieri starts out the play by suggesting that he had a hand in the untimely death of Mozart. Much of the dramatic tension focuses on Salieri’s systematic dismantling of Mozart’s opportunities towards composing work and Mozart’s subsequent inability to take care of himself or his family. At the end of the play, Salieri, in comparing his own middling music with Mozart's genius, declares himself the “patron saint of mediocrity,” and this pronouncement seems to play out in the real world as Salieri is largely forgotten while Mozart is certainly within the first few classical composers nearly any person can name.

This leads me to my personal finance point. Salieri is shown in the play spending much time coming up with ways to destroy Mozart, but he is never shown composing music. Contrariwise, Mozart is frequently shown scribbling away in efforts to write his next piece of music which he hopes will provide him with economic stability.

My point is that every dollar that you or I spend is a dollar that cannot be spent somewhere else. This is the basis of much financial writing, such as the Latte Factor (if I buy a coffee drink every day, that’s three bucks that I can’t save for retirement or other life goals).

Similarly, each hour we receive on earth is a gift, and each hour we spend on one task is an hour that we cannot spend on something else. For example, I have stated that one of my goals is to write and submit a play to a playwrighting contest by the end of the year. However, if I spend my hours away from work watching television and not doing any writing, then I’m not achieving my goal because I am choosing to spend my time in a way other than one that is personally fulfilling.

Had Salieri spent more time writing music, and less time hating on poor old Mozart, perhaps he could have been better remembered by posterity.** Instead, if Salieri is remembered at all, it is generally as a fictionalized character in a play.

Each and every hour of our lives is precious, and once these hours are spent, they are gone forever. One key difference between the economics of time and money is that while money can be saved, hours cannot be.

So, how are you spending your time? Are you a Salieri who complains while others forge pathways to their dreams? Or are you a Mozart, who takes what you’ve been given, and uses it in a mighty way?

*What a cast! What a production it must have been! I wish I could have seen it.
**While one might argue that propensity towards a skill is more important than just spending a lot of time on that skill, I’d argue that even all the propensity in the world won’t pay off without putting a butt in a chair and starting to work.

Carnival of Personal Finance

I'm happy to be featured in this week's Carnival of Personal Finance over at Kitten a Go-Go.

Not Raising the Debt Ceiling Means Raising Taxes

The debate over the raising of the debt ceiling has been in the news quite a bit recently, and it has come up for good reason. If the U.S. does not raise the debt ceiling, the government will be unable to take on more debt in order to fund its current financial obligations. This new debt is significant; the monthly budget deficit in February, for example, was 223 billion dollars.

Now, if you’re reading this, you are likely fairly financially savvy, and you probably know that it is usually not a good idea to take on debt in order to pay off debt. This action is non-sustainable; you can only push money from one lender to another for so long.

The caveat to the rule of not taking on new debt to pay for the old debt is that if you’re able to borrow at a rate lower than your old rate, then you should almost certainly take on the new debt. As an example, if you have $1,000 on a credit card that is charging 14.9% APR, and you receive a 0% balance transfer option from another credit card or lender, you should pretty definitely transfer the money. On the flip side of the coin, if you have that thousand bucks on a credit card with a low interest rate, but you find that you’re short on money that month, should you fail to make, at least, the minimum payment?

No, you shouldn’t. You should always pay at least the minimum. Any why is that? Because if you don’t pay at least the minimum that you owe on a credit card, you will be subject to both late fees and having the APR on your debt raised. This is true of basicaly any and all debt a person, business, or country can take on.

And yet, this is, essentially, the untenable position that politicians who refuse raise the debt ceiling are taking. If the United States defaults, or is late, on any of its current debt obligations, the credit rating of the United States will get worse. Correspondingly, the low interest rates the U.S. has been afforded will likely go up, and so the U.S will effectively be paying more money to pay off its current debts.

Now, don’t get me wrong. Speaking in generalities, I lean towards the right politically (though, like many people in my generation, I don’t feel that I owe anything to any particular party), and I tend to favor small government. Also, I think much of the federal budget is due for an audit, and I think that certain social programs need to be reined in if not altogether done away with. Further $223 billion dollars is a ridiculous deficit for one month, and I firmly agree that spending needs to be cut. Even so, as it is the political right that is making a big deal out of raising the debt ceiling, I find myself at odds with my background.

To me, the issue of interest rates on the national debt is really what is at stake in the current debate. Is the current level of debt that the government takes on unsustainable? Absolutely. Should spending be cut? Certainly. Should we risk having the trillions of dollars that the U.S. currently has in debt face higher interest rates because one party is attempting to make a political point? Under no circumstances.

It is curious to me that those politicians who don’t want to raise the debt ceiling also are insistent on not raising taxes; it is also curious to me that these same politicians did not make a fuss any of the ten times the debt ceiling has been raised since 2001 (or the 74 times since 1962!). What those who are fighting to not raise the debt ceiling seem to fail to recognize is that should we default on parts of our national debt, the debt will only continue to rise anyway. If the debt rises today, more income is going to be needed to pay it off tomorrow. And how does the government raise income? By raising taxes.

Do you think the debt ceiling should be raised? Or are you of the camp that believes that not raising the debt ceiling will send a message to government that they can’t spend so much anymore? Let me know in the comments.

Carnival of Personal Finance Editor's Pick

I'm proud to be featured in this week's Carnival of Personal Finance where my post titled Three Personal Finance Lessons from the Dodgers' Bankruptcy Debacle was an editor's pick over at Bucksome Boomer.

I was included with many other thoughtful articles. Take a look when you have have a chance.

3 Personal Finance Lessons from the Dodgers' Bankruptcy Debacle

The Dodgers are among the most historic and beloved teams in Major League Baseball.* From team executive Branch Rickey hiring Jackie Robinson, the first African-American player in the majors, to Sandy Koufax's perfect game in 1965 (27 batters up, 27 batters out!), to Kurt Gibson hobbling up to the plate in the 1988 World Series with the game on the line and smacking a home run over the right field fence, the Dodgers have had more than their share of exciting moments.

However, in more recent days, the team's prospects have looked bleaker. There was Manny Ramirez, the team's big dollar acquisition, who missed a huge chunk of the season a few years back for violating the league's drug policy. Earlier this season, a couple of Dodgers fans severely beat a visiting Giants fan and put the man into a coma. And to top it all off, last week, the Dodgers' owner, Frank McCourt, announced that his team was filing for bankruptcy in order to free up some money to pay for the team's day to day expenses.

Now, anybody can get into a tight place, but I'm sure a lot of people think that professional sports teams that have the recognition that the Dodgers could never find themselves so far behind the 8-ball that they need to declare bankruptcy. As I looked at the story a little more closely, however, I found three key areas of the Dodgers' money woes that translate directly into a personal finance discussion.

1) It appears the genesis of the team's money issues stems from McCourt's divorce. If the McCourts are trying to split assets right down the middle, things become pretty easily muddled when one of those assets is a team of living, breathing ball-players. In fact, McCourt's recent television deal (that was rejected by league Commissioner Bud Selig) was, in part, an attempt to raise funds for a divorce settlement.

Personal finance lesson? Divorce Is Expensive. Ideally, when you get married, you are planning on spending the rest of your life with that person (though, as Flexo at Consumerism Commentary recently argued, there are times when a pre-nuptual agreement might make sense). In any case, it is worthwhile to really evaluate the person you are considering marrying to see if you think that a life-time commitment is something that you think is possible. If not, the consequences to your finances (and your personal well-being and happiness) can be dire.

2) As I mentioned above, the Commissioner rejected the Dodgers' television deal. He did so because he didn't think it was "consistent with the best interests of baseball," and that he thinks that "the action taken ... by Mr. McCourt does nothing but inflict further harm to this historic franchise."

Personal finance lesson? If You're Not the Boss, You Can't Make the Rules. If you are trying to advance your career, make sure that the work you're doing is making your boss happy. McCourt is unable to effectively run his team efficiently, and so Selig is denying him the opportunity to make money from a media deal. If McCourt had been responsible with his primary task (running the Dodgers), it stands to reason that Selig would have been more responsive to McCourt's branching out.

3) Remember Manny Ramirez? The player who was suspended for violating the league's drug policy and missed 50 games on the 2009 season? Court documents released last week show that the biggest single amount that is owed by the Dodgers is $21 million dollars, which they owe to Manny Ramirez. Oh, also, Manny Ramirez retired from baseball in April of this year (many people think it was because he was likely going to be suspended again for another drug violation). So, to put that more plainly, the Dodgers owe a huge sum to a player who doesn't even play baseball anymore. The Dodgers signed Manny at age 35, which is well into the winter of most baseball players' careers. He repaid the Dodgers for their generous contract by getting suspended, followed by leaving the team, followed by leaving baseball.

Personal finance lesson? Be Careful of Buying Too Much at the Wrong Time. It is true that Manny had had an exciting career with the Red Sox, but the Dodgers should have realized that age wears a body down. Still, people like to be optimists. Consider the run up in housing prices in the mid-2000s; everybody thought prices would keep going up forever, and very few people realized how over-valued real estate was actually getting.** Just as the Dodgers face bankruptcy, so too do many people who bought into a market that just couldn't seem to stop going up. Until it did.

In short though, I sincerely hope the Dodgers are able to overcome their monetary problems and get back to focusing on baseball for a variety of reasons. One of the most compelling reasons to me personally is that my favorite baseball player when I was a little boy was Don Mattingly, who is now the manager of the Dodgers. Maybe McCourt should take a lesson from Donnie Baseball, and learn to keep his eye on the ball, and focus on what a baseball team should focus on: baseball.

What do you think? Are the above reasonable points? Leave me a comment; I'd love to hear your feedback.

*And that's coming from a Padres fan, so you KNOW it's gotta be true!

**For more on just how few people realized it, check out Michael Lewis's The Big Short, which is an excellent book on the real estate crisis.