Aug

26

sign at Stew Leonard'sIn a not entirely pleasing article on Bloomberg, Scott Soshnick deplores that sports teams "are nothing more than profit-seeking companies– don't seem to care about the customer". He goes on to say with rancor that the reason that teams try to win is that "a winning team draws more fans who fork over ungoldy and unjustified sums for stadium drink and food." He deplores parking fees and the sale of accessories and "all the other junk that's hawked at stadiums." Apparently teams like to win because "a winning team makes more national tv appearances… escalating ticket prices". He admires Augusta which charges 2 for a domestic beer and 1.50 for a ham and rye compared to the 5 bucks the Yankees charge for a bottle of water and pizza. He suggests that fans "don't go, don't buy, don't watch."

Of course the main thing wrong with the article is that the author hates the people that he's writing about. He doesn't follow the Rabelaisian idea of rolling around with the audience, making them feel that you are one of them, that you share their likes and weakness and can together look at the human predicament as wonderful in its folly and greatness.

On a more positive note the article from the sports editor or Bloomberg leads one to think of many ideas that might make the stock investor better. The first is that the only way to get customers to buy your product is by giving them what they want. The customer is king and is becoming much more so in these days. That's why Walmart, and Costco and Target are able to prosper with profit margins of 3 to 6 % on the dollar of sales. All their cost savings are passed on to customers. If they charged more, the competition from internet and imports and all the other competitors who provide a more luxurious retail environment at a higher price would put them out of business.

An interesting article attributing the merger of Gillette and Proctor and Gamble to competition by James Surowieki of all people has many poignant points about how the customer is king, the reign of consumer sovereignty has become even more pronounced than the days of Ludwig Von Mises in the 1940s when he first memorialized the idea in Human Action and was followed by Milton Friedman in Capitalism and Freedom.

The studies of consumer satisfaction by consumer reports which list 98% satisifaction on all fronts for almost all major companies they survey show how satisfied the typical customer is. By following these surveys and buying the companies that have the highest consumer satisfaction, e/g Costco, Target and Walmart, I hypothesize an investor would do much better than random. The editor of this site is a typical out of college consumer, and recently bought the 8 companies she was most satisfied with as documented above and made about 5 times as much as the market in the last 5 months in this regard.

The question emerges as to why big businesses, big billionaires such as the founder of the firm that put the article up are so prone to hate the customers. The reason has to be related to the idea that has the world in its grip, that the purpose of life is to do good for others rather than to pursue happiness. This idea is behind the multifarious handout and bail-outs and vote getting that big business must be behind if they are going to participate in those emoluments. Thus, the 40 rich who have signed on with the oracle and the upside down man to give 50% of their wealth away.

The idea of buying companies based on their selling cost as a % of sales, or the number of salesmen they have relative to total employees comes to mind as profit making. Instead of looking at the sales relative to guidance one would suggest a better measure would be the increase in salesmen relative to cost of goods.

All these ideas must be tested. (to be continued). vic


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  1. Sam Humbert on August 24, 2010 10:37 am

    Later in his essay http://j.mp/alXq9x Soshnick does touch tangentially on the real problem with pro sports teams — their insistent rent-seeking behavior. Regrettably, there are taxpayer-funded sports stadia strewn across America. Public cost, private gain, a la Fannie & Freddie.

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