TIB 16: The power of doing it yourself

Let’s play a word association game.

When I say “Lamar Jackson,” what words come to mind? For those of you who are football fans, you might think “Heisman Trophy winner” or “former NFL MVP”.

For the trolls out there, you might think “running back”.

But I bet very few of you think “savvy businessman” when you hear Lamar’s name, and that is a shame, because Lamar is exactly that. He is a savvy and shrewd businessman, and he is someone that we can all learn from.

Let’s take a look at (i) how Lamar negotiated a record setting contract without the help of an agent and (ii) what we can learn from his experience.

Lamar Jackson’s unconventional route to the NFL

Lamar Jackson is known for his unique style of play on the field. He is a once in a generation athlete that plays a position that has not historically valued his type of athleticism.

When he was coming out of college, scouts wanted him to play a different position because he didn't fit the traditional definition of what a quarterback looks like. He was too fast, too shifty, and to them, he too often relied on his feet than on his arm to beat defenses (see an example below).

Even though he had won the Heisman Trophy (awarded to the best college football player in the country), NFL teams doubted whether his game could translate to the next level.

Five years into his career, he has an MVP award to his name and has the same win percentage (75%) as Tom Brady had at this point in his storied career.

Suffice to say that he shut some (but not all) of his haters up.

As much as I love watching him play on Sundays, in my opinion his most notable achievement has been how he has conducted himself off the field and at the negotiating table with the NFL.

Life without an agent

So I've explained what makes Lamar different on the field, but what makes him so different off the field?

He is one of the few players in the NFL who does not have an agent.

Instead, he has chosen to represent himself with the help of his mother.

What does an agent do for an NFL player?

An agent's primary job is to negotiate contracts with an NFL team on behalf of the player.

A good agent can also help secure lucrative endorsements that can bolster a player’s earning potential. An even better agent can also help to massage the narrative in the media by strategically leaking certain things about negotiations to paint the player in the best light possible.

When you come out of college as a rookie there isn't a lot of wiggle room to negotiate salaries, because there is a rookie wage scale. That means that an agent doesn’t really do much and collects a hefty sum in return.

Because an agent generally takes 3% of your salary, Lamar ended up saving himself $690,000 dollars on day 1 just by choosing to represent himself without an agent.

The other thing agents help with? Helping to position you in a favorable light to teams who are looking to draft you. 

Lamar and his mother refused to entertain any thought of Lamar playing any position other than quarterback.

Teams asked him to try out for other positions and he politely declined. Even though refusing to agree to these requests ran the risk of having him viewed as “difficult” and “not a team player”, Lamar and his mother stood firm. Even though trying out for other positions might have helped score brownie points with potential employers, he wanted to make sure everyone saw him as nothing other than a quarterback. 

They had a vision for where his career was going to go.

Fast forward to draft day, Lamar was passed up by every team in the first round, until the last pick in the first round when the Baltimore Ravens took him as a quarterback. 

Mission accomplished

1. He was drafted by a team that wanted him at quarterback, and 

2. He saved $690,000 in agent fees for a contract that wasn't going to be negotiated anyways.

Seems pretty savvy to me! 

Now let's fast forward five years and take a look at how his last contract negotiation went. 

Setting the table

To understand the tension that came with this contract negotiation, you have to understand a bit of background on how the NFL works.

Agents have to maintain good working relationships with teams, because they represent many players who play for many different teams. This means that an agent might not want to push for something that would get him on the wrong side of an owner.

As mentioned above, agents also strategically leak certain information to the press to help paint players in a favorable light. That means that media members and insiders have a vested interest in agents having a role because much of their content comes from agents.

Naturally, while Lamar was negotiating his contract with the Ravens, there was almost no news that came out of Lamar’s camp or the Ravens camp for months.

Insiders were on the outs. Lamar wasn’t feeding any media members any news and neither was the team.

A number of news outlets ran entire stories about how stupid Lamar was being by not having an agent. They couldn’t report on the actual negotiation, so they had to post opinion pieces about how he was conducting his business.

The piece goes on to say that players who choose to represent themselves “think they’re saving money for services they don’t really need, without ever fully understanding the full breadth of the services that a good agent can and will provide”.

Sound familiar? Sounds like everyone who has ever told you that you can’t manage your own finances and that you need some guy with an MBA and a suit telling you what to do.

So what ended up happening?

1. Record setting contract - Lamar signed a $260 million contract, which made him (at the time) the highest paid player in the league.

2. Cash Flow - Lamar negotiated for the highest three-year cash flow of any player in league history, $93 million more than Patrick Mahomes received.

3. Control over where he plays - He got a no-trade clause which gives him total leverage if things were to go south in Baltimore.

4. Future contract leverage - He pushed for a very specific right which allows him to hit the open market when he will still be in his prime to maximize his leverage and negotiate another record setting contract in five years.

5. Fees! - He saved $7.5 million in agent fees.

6. The most important thing - He got to stay on a team that had valued him from the very beginning. Money is obviously important but working for an organization that values you is priceless.

Lessons we can learn

1. We all have it in us to manage our own finances - No matter how many people try to scare us into thinking we don’t have the aptitude or the expertise to manager our own finances, we should always remember that we absolutely can manage our finances ourselves. If we take the time and make the effort, we can be masters of our own fate.

2. Fees can add up - Depending on what investment opportunities are available to you, the fees that we have to pay someone to manage our hard earned money can add up. Whether you are paying someone 1-2% to just track the market, or paying a fund manager exorbitant management and success fees, the point is that these experts get paid regardless of whether you make or lose money. It is important to remember that before giving someone your hard earned cash. This isn’t to say that you should never give someone your money, but just keep that in mind before making any decision one way or another.

3. Nobody can quantify your goals better than you can - Lamar obviously cared about (i) cash flow, (ii) being able to control his destiny when he negotiated his next contract, and (iii) finding a place of work where he felt valued and set up for success. He negotiated his contract with those goals in mind, and ultimately came away with all of the things that mattered to him. This isn’t to say he couldn’t have done the same thing with an agent, but there is something to be said about knowing what you want and then managing your destiny appropriately. Money managers generally are going to manage your money in a way that will aim to maximize returns, but that strategy might come with a lot more risk than you are willing to take. Even if you decide to give someone your money, it is vital to define your specific goals and communicate them to your manager. Otherwise you run the risk of taking on way more risk (or less risk) than you want.

Not all of us can throw a football or run the way Lamar does, but we can all learn from how he handles his business. He embodied so many of the lessons we have talked about in past weeks.

He knew is worth and negotiated for it. He did it by himself without the help of an “expert”. And he proved that he can go against the status quo and come out on top.

So what are you waiting for?

A recommendation for you all

Last podcast with Charlie Munger

Charlie appeared on this podcast just a few months before he passed. The interview is filled with Charlie’s famous wit and his views on life and investing. He makes a particularly compelling case for “doing it yourself” when it comes to money management (at around 32:15). As much as I admire Charlie, it is interesting to hear a few inconsistent thought processes that he had at this stage in his life. Just a few that I noticed:

1. He rails against Russia and communism in one section of the podcast and then says that we should not judge China for its chosen form of government.

2. He says investors should choose things to invest in that are win-win-win (shareholders win, owners of the business win and customers win). He says that you should sell things to people that are “good for them”. Then he mentions Dairy Queen as one of those investments where the shareholder wins, the manager of the business wins, and the customer wins. That is fine, but Dairy Queen is probably not the best way to have a healthy life for a customer (this might be a generational thing, so I might excuse Charlie for this one).

I admire Charlie and already wrote my homage to him a few weeks ago, so none of the above takes away from the respect I have for him. But even with our heroes, it is important to try and remain objective about their words and actions. Better to be a student than a fan.

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