Four years ago, Michael Vick was one of the highest paid and most recognizable players in professional football. A former No. 1 draft pick, he had dozens of corporations hitching their money and hopes to his rising star. Vick even graced the cover of Electronic Arts'
Then, all at once, he became nothing. Persona non grata.
Unless you were on Mars, you know why this happened: his involvement in dog-fighting. But what you may not have considered is the brilliance of the team that resurrected Vick's career: the Philadelphia Eagles. More than once, I've watched the Eagles pick up assets on the cheap and milk the value out of them for as long as it makes sense to do so.
It's high time someone declared the Eagles the NFL's superior deep-value investors.
The Vick files
After pleading guilty to a number of federal charges in 2007, Vick spent a total of 21 months in prison, doing hard time for his heinous crime. He was justifiably booted out of the league, he lost his contract, and he lost his endorsements. Just how much was all of that worth? Before it all came tumbling down, Sports Illustrated estimated he was earning some $25 million per year in total.
In 2009, Vick was released from prison and conditionally reinstated into the NFL. I'm not sure anyone was surprised to see that no team wanted to take a risk on the convicted felon once he was up for grabs. Vick was like Fannie Mae or AIG during the crash -- he was simply not worth the risk or the trouble, a troubled asset in an extremely risk-averse market. But what so many people failed to understand then (and now) is that buying a stock (or athlete, in this case) is a function of both value and price.
Enter the Philadelphia Eagles.
The price/value equilibrium
Assuming they are rational, knowledgeable investors will take the absolute worst stock off your hands if you're willing to offer it up for next to nothing. Why wouldn't they? Heads they win huge, tails they don't really lose much at all. In this case, next-to-nothing is essentially what the Eagles paid to get Michael Vick on their team.
Last August, the Eagles signed Vick to a $1.6 million no-frills deal, with an option to pick up another year for $5.2 million. Though the money itself was a bit much to shell out for the standard backup quarterback, it certainly was not far from the typical rate. Plus, Vick was not the standard backup. Without much on the table from an economic standpoint, all the team was putting at risk was a roster spot, and perhaps its reputation. In the world of pro football, reputation doesn't appear to be worth all that much, so for all intents and purposes, the team wasn't putting a whole lot at stake.
Almost immediately, Vick's presence paid off. He generated furious buzz, bringing fans and protestors alike to the games. Stories about the Eagles went national. Vick's new Eagles jersey quickly became a top-seller. Instantly, the Eagles name went front and center. And though Vick went on to have a fairly unremarkable 2009-2010 season, he continued to generate significant publicity throughout the season, pulling his own weight in a bizarre, but ultimately useful way.
Essentially, the Eagles organization played a round of deep-value investing: high-potential returns with limited downside risk -- big upside, small downside. See it? Now, fast forward to the present.
Right now the football blogs are abuzz with rumors that Vick is off to another team, perhaps the Carolina Panthers or the St. Louis Rams -- whatever team it is will probably pay up for the opportunity. I don't know the specifics, but you can bet your bottom dollar a competitor will have to give the Eagles a whole lot more than $1.6 million worth of consideration. So, regardless of what gets paid to them, Philly has already won.
And they've either won a little, as I've already described, or they'll win a whole heck of a lot when the market begins to reprice the Vick name. At the minimum, the Eagles received a boatload of media attention above what they'd normally get, sold some more jerseys than they probably would have, and got some better-than-backup-caliber play from Vick as a bonus. Anything that happens from here is pure profit.
This isn't the first time the Eagles have done this. Ever heard of Terrell Owens? In 2004, Philly took a risk on "T.O.," a widely hated player who was being oversold by the market. That gamble paid off handsomely. While Owens eventually became quite a divisive force on the team, ultimately leaving for the Dallas Cowboys, he also made 14 touchdowns for the Eagles, helping the team on their phenomenal run all the way to the Super Bowl in 2005.
Now, as a born Redskins fan, it's tough for me to admit that the Eagles generally operate like I try to invest. They acquire a bunch of great long-term assets, complemented by a few high-risk, calculated bets.
The art of the high-risk maneuver
In both investing and pro sports, deep-value investing has its time and its place. It's probably not appropriate for all types of investors, and you definitely don't want to build an entire team (or a portfolio) around those types of assets. But when done effectively, deep-value investing can take a well-balanced portfolio and shoot its performance through the roof, without a whole lot of added risk -- just as I suspect it will for the Eagles.
The Foolish bottom line
In the markets, emotionally driven market dislocations like what happened with Michael Vick happen all the time. It happened with Johnson & Johnson
Those of us who don't own a professional team need to remember that investing is a function of both value and price. There's a right price for every investment, even the most hated ones, if you're willing to take the risk. Want more? This is precisely the type of investing that we're about to roll out in our new Motley Fool Special Opportunities service, where advisor Tom Jacobs will expose and unlock deep values in the market, and then use them to magnify his portfolio returns. If you dare to unleash the power of the price/value dynamic, enter your email address in the box below.