For those of you that follow NFL Football, the Philadelphia Eagles have been giving me lots material to work with lately on how to make better financial decisions. Eagles QB Sam Bradford and RB DeMarco Murray are having two of the most mediocre seasons of any blue chip contract holders in recent memory, showing us why it’s dangerous to pay a lot of money for shiny new toys. For those of you that don’t love following sports, looking at the structure of NFL contracts is a great way to learn how to think about spending, where being cheap is rewarded with Super Bowls.
How Bad Eagles Contracts Inspired Me to Never Pay Big Money For Anything
Sam Bradford is making $13 million this year, while DeMarco Murray is getting $5 million, with a much as $40 million possible as the contract value escalates over the next few years. Someone in the Eagles organization thought that he should be getting loads of money well into his thirties when a RB’s value is notorious for falling off. You could say at least Bradford wasn’t given a multi-year contract since Coach Chip Kelly wants to test him out and see what he’s got, but that would ignore the massive salary being paid for middling replacement level play.
If you look at season statistics through three games, it doesn’t look pretty. Bradford is ranked 31 in total QBR through three games, and there’s 32 starting QBs in the league. Murray comes in at 116 on the rushing leaders list, and if you’ve had the misfortune to have drafted him in the first round of Fantasy Football I know the hurt. To put that in perspective, last year’s rushing leader is currently tied with Tony Romo for total yards in the season. If you look other places on the Eagles roster, so far it looks like they overpaid for their blue chip Cornerback Byron Maxwell as well at $63 million over six years. So far all he’s been doing is looking at the butts of other receivers as they fly by him for long touchdowns.
The problem with doling out big dollars for expected production is it often doesn’t work out. NFL contracts are multi-year commitments and are great comparisons for mortgages, car notes, and other big ticket items. They can wreck your financial situation if you make the wrong choices. When you pay tons of money for a player and your expectations aren’t met, you’re in big trouble because all your money is going to a non productive resource. If all your money is taken up by a few guys, you don’t have any other financial assets to use on other players to make your team good going forward.
I call this the curse of high expectations. If you pay for potential and expect lots of it by spending a huge sum, then you can easily be disappointed. If you go out and pay $1,000,000 for a home you expect the very best. What happens when the pipes burst, or the roof leaks, or the place ends up with termites? It really sucks because you paid that much to NOT experience junk like that. If you buy a luxury car like a Jaguar and the thing breaks down all the time it really stinks because you were expecting the opposite. One time there was a blizzard in Philly and you know what the worst performing vehicles in the snow were? Foreign luxury cars with real wheel drive. It was almost comical seeing all the big spenders stuck on the side of the road while the powerful diesel cars with good tires and front wheel drive had no trouble.
Paying lots of money for big ticket items is a mark of a weak stomach. People get scared of uncertainty, and rather than embrace that and see what happens, you go with the brand name product and pay triple just so you don’t have to worry. If you make the trade up decision in all areas of your financial life, you will be broke AND will not be making your life efficient.
How Value Players Inspire Me to Seek Out Deals
Maybe you have sensed the frustration of an Eagles fan coming out here. However, this article truly is about making better financial decisions. Compare these Eagles players to the likes of the 3rd, 4th, and 5th leading rushers in the NFL after week 3. They are Carlos Hyde, Latavius Murray, and Giovani Bernard. Numbers 1 and 2 are blue chip names making big money so yes sometimes you pay and you get what you expected. Unfortunately there are a lot more big money RB’s that are way down on the list. The RBs ranked 3-5 on the rushing leaders chart are locked up to multi-year contracts and are making an average of $1 million per season. They have gained huge yardage and are playing like they have $50 million contracts. Some of them, like Oakland RB L. Murray, are even making the obscenely low figure (for NFL players) of $500,000 a year for the next four years. That means their teams can spend more money on other places in their roster to turn themselves into playoff contenders.
Another great example of a team with a nose for value was the Seattle Seahawks the past two years. They weren’t good because they had the best defense in the league with a great quarterback, they were good because they had multiple superstars making about 1/10th the fair market value of their skill level. Russell Wilson was making about $600,000 a year and played on that contract for a few years before signing his new monster multi-million dollar contract. Earl Thomas and Richard Sherman were likewise playing on pitifully small deals and the other members of the famed Legion of Boom were playing for nothing too. Because they had no big money players on the roster at expensive positions like Quarterback and Cornerback, the Seahawks could spend on other luxuries like depth at defensive tackle and pro-bowl Offensive linemen. Because so few teams had such great depth in the trenches there was a constant rotation of fresh guys in the pass rush as well as great protection and push up front for Russell Wilson to sling the ball and Marshawn Lynch to go Beast Mode.
The Seahawks will still be competent as they kept their core players but it will not be as good as before because of the salary cap rules that ensure parity in the NFL. The team had to pay their best players their fair market value and now all that money to keep really good players at other positions is no longer available. The result is players have been traded and let go. They will need to fill the resultant gaps with replacement level talent, which suggests that the yearly Super Bowl trips Seattle fans have enjoyed are far less likely. So Seattle dominated when it spent sparingly on players that drastically outperformed their contract value and struggled in the first few weeks of the season now that everyone is getting paid. I don’t believe it’s a coincidence.
Translating Being Football Cheap into Useful Financial Life Lessons
Consider what the different results from player contract spending suggests. Whenever you spend less for something, you should have lower expectations. If you pay a Cornerback $10 million a year though. you are hoping that he plays like one of the best in the league. When you go to a five star restaurant and pay $100 for a steak, you are banking on it being the juiciest and most flavorful hunk of meat a knife has ever had the pleasure of cutting into bite sized pieces. Ever wondered why so many steaks get sent back at high end joints like Capital Grille? It’s because people’s expectations are sky high and are frequently not met. A $100 steak is almost certainly not going to be 5 times as good as the tasty $20 steak I get at a local spot known for good food, but customers of the premium steak sure do think that it should be.
If you go out to eat at a cheap spot loved by locals, the utility you get out of your meal could be incredibly high for what you pay. Some of the best dinners in my life came at Chinese buffets and BBQ establishments charging less than $7 a meal. If you book a small hostel that is brand new and has fewer reviews you’re taking a chance that it’s bad, but if it’s great you saved 50%. Risking lower quality by spending less in aggregate almost always works out in your favor. As long as you’re being safe and not hitch hiking in the middle of some deserted American highway, taking the cheaper road will pay huge dividends (literally, as the extra cash can be plowed into a wealth building stock portfolio).
When you spend big money on anything, whether it’s a shiny new QB/RB combo or a $100 steak, you will often have your expectations unmet. When you spend much less on the same item or bargain hunt to find a possibly undervalued asset, your experience will often be pleasantly surprising. This is a powerful realization because you can set yourself up to have surplus value in your life or have unmet expectations. The former will make you rich and the latter will just make you sad. Don’t spend to be sad, spend to be rich.