Learning from Bad Deals

Like many Red Sox fans, I’m a bit sad to see one of my favorite players, Jacoby Ellbury, go to the Yankees.  However I’ll admit that news of his seven-year, $153 million contract actually provided a little relief since I will not have to witness his inevitable decline firsthand. With several long stints on the DL in his best years, I expect that he’ll be less durable as he gets older, making the last several years of his contract seem like wasted money. It’s appropriate that he’s in New York since paying old players for past performance seems to be part of the “Yankee way” and I’m happy that the Steinbrenners want to compensate him for the two World Series trophies he helped bring to Boston.

It’s worth noting that the Yankees aren’t the only ones dishing out the dough. Robinson Cano’s ridiculous $240 million ten-year contract with the Mariners shows that baseball teams haven’t learned that these obscene contracts just don’t work out and that putting their “eggs in one basket” is not a prudent path. So when fans like me gripe about wasting money, even though it’s not “our” money, it means we’re frustrated that our teams have not learned any lessons about long-term, big money contracts. I’m hearing the same frustration about Rhode Island’s disastrous, long-term, big money deal with a famous baseball player – and in this case, it is “our” money.

Most readers know the basic facts on the 38 Studios loan guaranty that brought the ailing video game firm to Rhode Island and left taxpayers holding the bag. A generation ago, the credit union crisis rocked Rhode Island and Governor Bruce Sundlun and the General Assembly created a commission to independently investigate what went wrong. Republican State Senator Dawson Hodgson is urging his colleagues to launch a similar investigation into 38 Studios and seems to be getting the silent treatment in response. Is it because many of the legislators voted in favor of financing the deal? Or worse yet, voted in favor of it, but didn’t know what they were voting for? Is there something even worse and we’re looking at a “full Rhode Island’ where someone’s cousin made money because her boyfriend knew a guy who worked with his sister on the deal? Who knows? We certainly won’t until it is appropriately examined.

While I think it’s important to investigate to examine the deal for malfeasance and (once again) embrace a “never again” approach for insider deals, I think it’s even more important to make sure that we have the opportunity to learn from the 38 Studios deal so we don’t cripple our economic development efforts going forward. There is an important role for public investment and partnerships with private companies, but until we know what happened with 38 Studios, the mere mention of that debacle ends any discussion about serious economic development efforts. We’re doing a disservice to ourselves and hamstringing future economic development with a “never again” strategy on public-private partnerships while our neighbors to the north and west attract businesses and give incentives all the time.  All because we don’t know what really happened with 38 Studios and really don’t want to talk about it. This is just dumb.

Baseball executives have an amazing array of statistics at their fingertips when they make a trade and invest in a player. Fans of “Moneyball” know that there are sabermetrics far more useful than old school stats like RBIs and ERA. WAR (wins above replacement) shows how a combination of a players’ skills makes him more valuable than another player at his position. Having these pieces of information allows teams to justify bringing Ellsbury (WAR 5.8 in 2013) and Cano (WAR 6.0 in 2013) on board for ridiculous amounts of money. Here in Rhode Island we need to amass all the information we can to make good decisions in economic development – and future leadership. Otherwise we’ll never be able to compete with our neighbors or know when to replace declining players with new candidates with better skills for the job.