Monthly Archives: May 2015

Are Sports Players Overpaid?

Do you think sports players are paid too much? Why are they paid as much as they are? Is it just because they are good at what they do? If so, why does a professional lacrosse player with tremendous talent have to work a job as well as play lacrosse, whereas a baseball or football player makes enough money to retire after a few years of playing if they want to?

And why are they paid so much more than people who have other jobs who work just as hard. It can’t be because of physical danger. Otherwise we would pay police and firemen and miners a lot more money. Many people don’t understand it and are angered by it, like this article in TeenInk.

It is because of the leverage they bring. People like watching the games. Lots of people! Companies need to sell their products and they are always looking at different ways to market and advertise their products. So the large audience that the athlete’s generate is very attractive to the advertisers.

It is like a cycle that reinforces and gets stronger as it goes along. The companies advertise on television and radio because they know they have a large audience and they can determine some general interests of the audience so they know which products to target. The radio and television companies then pay the teams for the right to broadcast the games. The larger the audience, the more they will pay.

So that is why football and baseball teams can afford to pay so much more than a lacrosse team for instance.

But once this is set up, you have a lot of people with a vested interest in having it continue and helping it to grow. If the audience grows, advertiser will pay more, the teams will receive more money and the athletes will be paid more. The local newspapers, even though they aren’t directly involved in the way radio and TV are paying fees to air the game, they write about the games and the athletes because it helps sell newspapers. The writers and the TV and radio announcers have an interest in promoting the sport and games as well because it gives them a job and the more popular the sport, the more they are likely to get paid. Just not as much as the athlete’s.

Before they formed unions, the athlete’s were actually underpaid. If their abilities get enough people watching that the advertisers, the TV and radio stations and the teams are making millions or billions of dollars, the athlete’s should be getting a cut of that.

It is similar to television stars. The more people who watch a show, the more the actors will be paid.


Passive Income

Passive income should be everyone’s goal. It is how you can retire and enjoy yourself. What is passive income? It is income generated by doing little or no work.

Most people who work for a living are doing what is known as trading time for dollars. You work 10 hours and get paid 10 times whatever your hourly wage rate is. So if you make $10/hour, that would be $100 and if you make $50/hour that would be $500.

But what happens when you take vacation or time off? In some cases, companies have agreed to pay their employees for vacation time. But if you provide a service, such as a lawyer or a doctor, you don’t get paid for the time you don’t work (unless you are working for a company on a salary basis).

Granted, because of education, and providing a needed service, some people earn a very high $/hour amount, but they are still trading time for dollars.

Many small business people start the business because they have gotten laid off and decide to start a business, or they think they are going to be the next MacDonald’s or Starbucks. Although others just want to make a living. But many people don’t understand what is involved in running a small business and trade the rat race for something worse. As owners of a small business, they are responsible all the time. They can’t turn it off at the end of the work day. And they end up working harder and longer than ever.

But, a business doesn’t have to be a slog. It can be a form of passive income. What you need to do is set up systems, so everyone knows what needs to be done and how it should be done. You train good managers. Ultimately, the business can run effectively without you being there. At that point you can retire, or start a new business and do it again.

So, how do you get money working for you? You do it by various forms of investment that will generate a passive income. Examples?

Many people do it by investing in stocks and bonds. These pay dividends. If you build up a large enough portfolio, it will generate enough money to replace your income. In addition, frequently, if you have invested wisely, the value of the shares will increase in value over time which will add to your net worth. This is also passive.

Other people do it by investing in real estate. Granted, it is work to manage a property, but you aren’t getting paid by the hour. You still receive rents whether you are on vacation or not. And if you get a large enough portfolio of real estate, you can hire a manager, so you can truly be hands off. You still have to manage the manager but you don’t have to deal with the day to day headaches.

Then there are royalties. If you invent something and patent it, you can license it to different companies and sit back and collect royalties. It used to be that to open a can, you used a can opener to punch a hole in the end. Ermal Fraze invented the pull tab and made a fortune. Or Robert Abplanalp who invented the modern aerosol valve and also made a fortune.

Or, think of JK Rowling and the royalties she is making off the Harry Potter books and movies.

Then there are musicians and actors who receive royalties every time a movie is shown or bought or every time a piece of music is played. They don’t have to act or sing or play each time to get paid. They can get paid for what they have done while they are sleeping.

So whatever you do, try to figure out a way to turn it into a royalty stream or some way to create a passive income.

Whining about Wine

Supply and Demand and Ice Cream

Despite the name of the article, it is really about supply and demand. The basic idea of suppy and demand is basic to economics and business.

Here is an example. It is a really hot day and you are somewhat hungry and you have a chance to buy an ice cream cone. How much would you pay for it? You finish that and you are still hot, so you buy another. But how much would you be willing to pay for a third, fourth or fifth cone? Not much if anything. So the supply has exceeded demand and the price goes down.

Now, lets say that there are 4 people and there is only one ice cream cone to be had. They will fight over being able to get the cone and the price will end up higher than normal. In this case, demand exceeded supply and forced the price up.

Chinese and Fine Wine

Well, the same thing is happening with wine. There are many newly wealthy Chinese and a number of them have developed a taste for good wines, particularly from the Bordeaux area in France. There are so many Chinese and so many newly wealthy ones that it doesn’t take all that many to impact wine prices.

Typically if demand is driving prices up, you just make more until supply and demand balances and the price stabilizes. If you or you and other companies get over zealous and make too much, then supply will exceed demand and the prices will come back down again.

But with wine, it is different. Yes, you can make more wine, but the wines with a name and reputation are only grown in one place and there is no easy way to increase supply. That means there is only one direction for prices to go and that is up.

The Chinese obsession with red wines led to a bubble in prices in Bordeaux in 2011. A top wine like Chateau Lafite was going for $23,000 a case or almost $2,000 a bottle.

But, we said a bubble, implying that prices also came down despite no increase in supply. If there was no increase in supply, then there must have been a decrease in demand. Why would that happen?

Dutch Tulip Bulb Mania

Tulips were introduced to Europe from Turkey in the late 1500s. People really liked them. The more spectacular the variety, the more valuable it became. By the early 1600s, people being people were speculating on them and the price of tulip bulbs went up. Everyone wanted one and the prices went above anything reasonable or sustainable, but people figured prices were going to keep going up and they had been going up quickly, so better jump on the bandwagon and buy one.

But, it was artificial demand, stoked by people buying on speculation. When enough people decided they weren’t going to buy at the inflated prices, the process reversed and prices started to tumble.

Something similar happened to the wine market, where the prices started to drop after 2011 for the most expensive bottles and are now 40% lower than they were at the peak. But this means that they are still well above where they started. Even though the speculation has died out, the new added demand from China has probably permanently increased wine prices, at least at the high end.

One thing that has slowed down Chinese consumption is that a lot of the wine was given as gifts and over the last year or so, there has been a crackdown and conspicuous gift giving is much more frowned upon now.

Ironically, many people said the Chinese were new to the game and didn’t know what they were doing. But, unlike many Westerners who buy these top wines, they are actually drinking the wine. A number of Westerners buy the wine to cellar as an investment.