The public good

Today two things caught my eye (and ear) that relate to what I think of as the public good. First, I read an editorial on the potential sale of the Pittsburg Steelers, a football franchise owned by the Rooney family since 1933. Secondly, I heard an ad on the radio by T Boone Pickens calling for an aggressive move towards wind and solar energy -- he has a website promoting his plan.

The Rooney family is looking to sell because of the looming whammy of the estate tax. With the value of their franchise now nearly 3/4 a billion dollars, the elderly family members who own most of the franchise could be hit with a large tax bill. Even though they own a valuable asset, it doesn't mean they have liquid assets to cover a big bill. As the article notes, the coming election may influence the impact of the tax on the current ownership--whether Congress decides to increase the estate tax or not.

I don't know much about Mr. Pickens except that he has a LOT of money from oil and has given a lot back to things like his alma mater, Oklahoma State. In this current gambit he makes an appeal to wind and solar energy, touting its cleanness along with the economic imperative that we come out of the clutches of foreign oil. Here is the thing--a major plank of his plan is to get Congress to act: "On January 20, 2009, a new President gets sworn in. If we're organized, we can convince Congress to make major changes towards cleaner, cheaper and domestic energy resources." Certainly looking for favorable conditions is the right of any company--including getting favorable laws and subsidies.

The question is whether Congress will make things better. While income redistrution is a popular tactic, it also has unintended consequences. The Steelers are being pursued by a hedge fund, private equity concern, making a family built business vulnerable. In the case of T Boone, he is coming off as a conscientious public citizen looking for help from Congress. The question is should Congress let the market work to determine the viability of wind and solar (in other words, Pickens should convince consumers more than Congress) or does it assist businessmen like Pickens who have now staked themselves to this strategy? While an unfettered market is problematic, I also doubt Congressional wisdom to determine ultimate public goods.

$400 Million

It is free agent season for the National Basketball Association and another star player signs a big contract -- $111 million for Gilbert Arenas. This is guaranteed money. Yet, this pales in comparison to another big contract announced today: talk radio's Rush Limbaugh signed with Clear Channel for $400 million over 8 years. While the topic of Limbaugh and his impact on the political environment could lead to a lively debate, I am interested in this question: Has he earned the windfall?



First, some comparisons. With the new contract, which includes a $100 million signing bonus, Limbaugh's annual salary ($50 million not counting ancillary income from merchandise, etc.) now surpasses celebrities like Leno, Letterman, and Dr. Phil but is still well behind Spielberg, Oprah, and J.K. Rowling.



Like many of these celebrities, Limbaugh is a businessperson. Unlike many of them, he created a new market, so he is in some ways a entrepreneur who hit it big. In the mid-1980's am radio was a dying medium. The radio played mostly to local audiences. In 1988, Limbaugh took the chance of taking his show national--identifying a market need for a point of view (and style) not found in other media venues. So he is much like the many entrepreneurs who identified a new market and were able to exploit it. This NY Times Magazine article, which also came out today, tells part of the story.



Not only did he create a new market, he built a strong buisness model. He saw his customers as not only his listeners but the advertisers promoting their products on his show. He built a loyal audience (customer loyalty is what every product or company seeks) that not only listened--creating the largest radio audience--but bought the products of the companies sponsoring his show.



And he has made this work for 20 years; a proven talent and formula convinced Clear Channel to pony up for $400 million for 8 more years. It was a business deal based on market results . . .

Corn

Last Friday I spent all day driving to northwestern Iowa and back to bring one of my daughter's home from a camp. Besides just missing a storm that blew through Omaha, we noticed many of the crop fields in high water. It is not news that Iowa has been hit hard by flooding--though the most severe problems are east of where we drove. One thing that I thought of looking at those corn fields was the rising price of corn.

Well it turns out that the dire reports of corn shortages may have been vastly overstated. Today's Wall Street Journal reports that while there has been signficant crop damage, estimates did not account for increased planting this year from last. An innocent mistake. Yet, that misinformation caused the price of corn to skyrocket (and plummet again based on this news).

No doubt in the market there will be winners and losers because of this -- I sure would like to have sold corn short! Still, this kind of news has business people pulling their hair, especially if they insist they can make data certain decisions.

Commodity Prices

I spent the last week with managers from several different industries--agriculture, steel, large industrial pipes, newspapers, technology services. These participants confirm the fact that commodity prices in addition to oil are increasing steeply. Biofuels and overall world demand is driving up the cost of grains. Skyrocketing steel costs are driving up costs for anyone using steel (gone up 75% in just last year according to one of these managers). Newsprint is also going up, impacting newspapers.

Today's Wall Street Journal reports that soaring transportation costs (along with other factors) is starting to bring manufacturing back to the U.S. If soaring fuel costs have this kind of impact (see chart), other chain reaction impacts will occur that will be upsetting to consumers and a number of industries. Commodity prices are causing havoc.

But are they? Commodities tend to be driven by supply and demand. These commodities that are going up are feeling supply and demand pressures (either increased demand, sagging supply, or both). When there is demand pressure, prices naturally go up, which incents companies to increase supply. So these price increases are actually a beneficial effect of supply and demand. In an environment where business is allowed to operate freely (relatively speaking) forces will soon emerge that increase supply or find less expensive substitutes. Also, consumers will change their habits to decrease demand as they have more trouble paying the high price.

And it does hurt a lot of companies operating in businesses using the commodities. But it also opens opportunities for businesses who identify market needs and find ways to exploit them. Of course, politicians will get involved and rarely do they make things better in the long run. So watch in this next cycle of the elections for politicians to pander on the rising commodity prices, promising to fix the short-term pain that is part of business. But don't bet any of their solutions will be effective . . . just hope they do little harm.

Gino Fever

The summer schedule allows me to do more reading -- and catch interesting articles such as the one in today's Wall Street Journal. On the back of the the Marketplace section is the story of Boston's new craze with an anonymous character from a 1977 American Bandstand video - you can find the article here (and don't need to be a basketball fan to enjoy).

Breifly, this video clip is being shown at Celtic games (pro basketball) and the shot of this young man (in the typical mid-70's style) has created quite a stir among the Celtic faithful. Funny thing is that you might find the video overrated after reading the article, but I guess you have to be there at the game to appreciate it. (Here is the link to the video).

In this day of million dollar marketing campaigns, it is still a mystery sometimes of what fad can take off on a life of its own, often making someone very rich. Interestingly, the "Gino" character drawing all the attention in the video is not around to enjoy his sudden posthumous fame. I imagine, however, there must be some relatives looking for a lawyer to cash in -- or more likely the other way around.

Loyalty

This past week Scott McClellan's new tell all book of the Bush Presidency has created some buzz. I haven't read the book, but the story is that McClellan has turned on his old boss by saying, for example, Bush mislead on the run up the war, for example. The most interesting assessment of McClellan and the book comes from Byron York. Here is one excerpt:

He [McClellan] was there because he was extremely loyal to George W. Bush, and there was a group of people who came with Bush from Texas -- Harriet Miers, Alberto Gonzales. Perhaps Matthew Dowd was in this group. These were people who were not particularly conservative. In some cases, they weren't even Republicans. So they come here, and their only thing is their big loyalty to Bush.

I think this analysis is about right. Although loyalty is a great thing in a family, including a dog, loyalty is overrated by many managers. Ironically, Bush came to the White House as one of the few, if only, MBA’s. Unfortunately, he has consistently overvalued loyalty in his selection of some top lieutenants. Also ironic in this case is that loyalty does not guarantee someone won’t go off the reservation. As York notes later, people like McClellan (especially ones put in a job they are unfit for) are likely to become disillusioned and turn on the very person they admire. Managers of all ilk should read this as a cautionary tale.

The Summer Phase

For students summer always means a change of pace -- time spent meeting short deadlines and "managing" a full set of courses along with other responsibilities is now free for other things. For professors, the change of pace is nearly as dramatic.  In this space, I will chronicle how we professors use our time, professionally, that is.

And I will try to avoid the mundane, except when it is relevant.  One week past graduation, I am now well past grading and closing of the spring semester.  While a big event of post semester is simply cleaning up my workspaces (and uncovering lost stuff), the best thing about it is now having time to really read.  Sometimes this leads to some real serendipitous finds.  As I was preparing my bag for a short 1-day vacation with my wife, I stuck in The Essential Drucker by the sage of management, Peter Drucker.  I didn't really think I would read it (as I had two other books in my bag), but always want to be prepared.  

Turns out I did look at the book and found a chapter relevant to a piece I was writing.  Every month I ghost write an article on management for this site. The chapter, as most of Drucker's stuff, was perfect for helping me finish the article (not posted yet).  The summer phase is great for faculty because it lets us explore topics in ways that are hard in the final half of a full teaching semester.