Creating Value 

There is something not quite right about America. Every aspect of life and culture in America is driven by business. Whether it’s Hollywood, or electing the president, or being a writer or sportsman, it’s all about money. People say: “Wow!” He earned $300 million last year. That makes him the greatest sportsman of all time.
– David Potter, English physicist and technology entrepreneur

Learning hath gained most by those books by which the printers have lost.
– Alan Thomas Fuller (1608-1661) English Historian

Some forms of value creation can be quantified economically; others can’t. Business people, especially financiers, are used to dealing with numbers – market share, revenue targets, earnings per share, gross profits, the bottom line; the health of a business unit can be reduced to a complex series of figures. But the value of an individual businessperson cannot be quantified with financial figures – economic gain is not always, or even often, equivalent to value creation.

In the generally convincing logic of capitalism, the measurement of value creation is simple. If revenue from the product or services produced exceeds costs, then there is profit, which represents the new value that has been created. Some, such as the great Japanese industrialist Konosuke Matsushita, argue that failure to make a profit in this way is “a sort of crime against society. We take society’s capital, we take their people, we take their materials, yet without a good profit, we are using precious resources that could be better used elsewhere.” In this traditional way of thinking, more profit represents more value creation. Within the limited context of finance, this is all right and true. The great error is the idea that financial results can be extrapolated to measure value in some broader way. And thus, by tragic but routine implication, a more profitable person or business venture is more valuable than a less profitable one.

In discussing value, the key is to remember that value is based on individual judgment and preference; what has value to me may very well not have value to you. One of the richest people in media is Howard Stern, said to be worth something in the neighborhood of $400 million as a result of his deal with Sirius Radio, which resulted in moving his hugely popular morning show and other radio programming to satellite radio. Here is how he described his programming in an interview with Esquire magazine:

“I’ve got a show coming on called Crack Whore View. We take all the topics they discuss on The View that day, then take four crack whores and let them discuss those same issues. …We’ve got tissue time with Heidi Cortez. Heidi is not only hot, but she’s incredibly great at phone sex. Lucky guys are going to have phone sex with her. And we all (masturbate) together. Imagine, all Howard fans (masturbating) as one! A true family” A typical example of Stern’s brand of humor is having Jessica Hahn, of the Jim Bakker sex scandal, participate in a joke about having sex with a horse. Stern also tells a lot of fart jokes.

  • Ayn Rand

Let’s compare that sort of very profitable media with the works of, say, Ayn Rand, the Russian born novelist and philosopher who immigrated to the United States. In the introduction to her first major novel, The Fountainhead, she says she “is concerned not with things as they are, but as they might be and ought to be…This is the motive and purpose of my writing; the projection of an ideal man…. Since my purpose is the presentation of an ideal man, I had to define and present conditions which make him possible and which his existence requires.” She sees her work as embodying the spirit of youth: “a sense of enormous expectation, the sense that one’s life is important, that great achievements are within one’s capacity, and that great things are ahead.” To represent the emotional qualities of her work, she quotes the philosopher Friedrich Nietzsche: “it is some fundamental certainty which a noble soul has about itself, something which is not be to sought, is not be to be found, and, perhaps also, is not be to lost – The noble soul has reverence for itself.”

Despite the philosophically challenging nature of her books, despite the fact that her two major novels are very long, despite the fact that she wrote in English, her second language, Rand, was, commercially, a great success. The Fountainhead has remained in print since it was first published in 1943, and both it and her later magnum opus, Atlas Shrugged have, sold millions of copies (and continue to sell today). Her books influenced millions of people, including, perhaps most famously, former Federal Reserve Chairman Alan Greenspan. But despite all this, Rand lived modestly in a small New York apartment, and never accumulated even a tiny portion of the kind of fortune earned by shock jock Howard Stern. Yet, contrary to the tenets of free market economics, Rand has created far, far more value than Stern.

The one thing that Rand and Stern would agree on is that, in a free society, sane, adult individuals should be allowed to make their own value judgments. If the market is allowed to function unhindered by regulation or taxation, the market will perfectly reflect the value judgments of consumers. The free market will provide what consumers prefer, completely without regard to whether those preferences are good or bad. If consumers prefer mindless entertainment, cheap thrills, and easy satisfaction, that is exactly what they will get. Maximizing market based profits – giving average what they want – is one sort of game; far and away the most popular sort of game among businesspeople.

The market game is quite different from the Ultimate Game, which utilizes the market, but does not stop with the market. In the Ultimate Game, market success is not sufficient. The Ultimate Game is based not on the value preferences of everyone, but on value preferences of those with high moral, esthetic, and intellectual aspirations. The same amount of money paid to listen to Howard Stern is not the same as money paid to read a Rand novel, for the simple reason that a great novel is something which elevates the reader, while Stern’s brand of amusement degrades the listener. Because the potential market for great novels is, regrettably, much smaller than the potential market for sleazy humor, success in the former field is a much more challenging game than success in the latter. And, importantly, unlike the market, the Ultimate game makes allowances for how much more difficult it is to make money with an uplifting product than with one that caters to the lowest common denominator.

As money is a very crude barometer of success in media, and business in general, the same is true in sports. Unfortunately, money has become the measure of sporting success. Making a huge fortune might make Tiger Woods a great businessman, and he is certainly a great golfer. But, as an athlete – judged by strength, speed, endurance or any standard of physical fitness – he is not even fit to stand on the same podium as many athletes that have neither fame nor fortune. Michael Jordan is a great entrepreneur and was a great athlete, but business success, in his case or any other, has little to do with athletic ability. Like Howard Stern, Jordan and Woods are paid for their ability to mindlessly entertain the masses. They are also paid huge amounts of money to endorse products that have absolutely nothing to do with their sport. Rich old white men like to watch golf on TV, and that makes Woods a perfect spokesman to endorse Buicks, luxury watches and a host of other products, although there is absolutely no relationship between Woods skill as a golfer and the products he endorses. Jordan has made a huge fortune through his endorsement of the Air Jordan brand of sneakers for Nike; he also has a host of other businesses, some related to basketball, some, such as his restaurants, related only to his celebrity. It is hard to see how Jordan serving as a spokesman for McDonalds – was it the Big Mac that lifted him so high off the court? – Or for Hanes underwear has much to do with his expertise as a basketball great. The fact that both Jordan and Woods are good looking, charismatic, and popular has everything to do with their endorsement appeal, and absolutely nothing to do with their ability as athletes.

If Woods and Jordan are not the greatest athletes in the world, at least it is true that they have dominated their respective sports. On the other hand, Anna Kournikova is a world famous tennis player, and, according to Forbes magazine, the most highly paid female athlete in the world when she was 19 years old, despite having never won a major singles tournament. ESPN ranked her number 18 on the 25 biggest sports flops during the last 25 years, comparing her publicity to her actual accomplishments. She is a beautiful young woman, and, as her entry in online encyclopedia Wikipedia says, “Most of Kournikova’s fame has come from the publicity surrounding her personal life as well as numerous modeling shoots.” She was voted one of People magazine’s 50 Most Beautiful People for a number of years, and was featured in photo spreads in Sports Illustrated’s swimsuit issue, as well as men’s magazines FHM and Maxim.

  • Charles Schwab

Though not even close to being the best tennis player of her time, Kournikova became a highly sought after endorser, making millions from a whole range of products. Some, like the Multiway sports bra, Adidas tennis shoes, Yonex tennis rackets, and Microsoft’s XSN Sports, were at least somewhat related to her sport. Others, such as Charles Schwab brokerage, Omega watches, and Pegasus cell phones, seem to have little to do with anything other than the fact that, rightly or wrongly, she is famous, in the same way that Paris Hilton is famous. Did anyone really believe that Charles Schwab was going to make them a better investor because a beautiful but not terribly successful tennis player endorsed the brokerage? Her endorsement of the Lycos search engine made some sense, if only because, for a brief period of time (June 1999 – June 2000) more people searched for information about her on Lycos.com than for Tiger Woods and Michael Jordan combined.

Who really are the best athletes? In June of 2003 Men’s Journal magazine searched the world, and came up with some obvious, and some not so obvious selections. Except during the Olympics, you won’t often see gymnasts on TV, or endorsing a product, but they are some of the world’s most amazing athletes, and Russian gymnast Alexei Nemov was number 5 in the world on the Men’s Journal list. He has won 12 Olympic medals, and was the most decorated athlete at the Atlanta and Sydney Olympic games. He has “mastered the whole menu of athletic virtues: foot speed (the vault), agility (the parallel bars, floor exercises) and hand-eye coordination (the pommel horse).” The combination of coordination, upper body strength and precision during routines is amazing; a mistake of a quarter inch rarely has impact in football or basketball, but in gymnastics it can mean the difference between a brilliant routine and terrible injury.

  • Tony Azevedo

Men’s Journal rated Tony Azevedo the 7th best athlete in the world. You can be forgiven if you haven’t heard of him – he was a water polo player at Stanford University, and they’re not a lot of advertisements, or prime time TV, featuring water polo. He’s been known to carry 3 opponents on his back and still score with his free hand – his coach described his upper body strength as “super human.” Water polo players must swim all out for about 3 miles, without touching the bottom or sides of the pool, during the 28-minute game. As for hand-eye coordination, they catch, cradle, and throw a wet ball at a small goal, all the while avoiding defenders – try to imagine Michael Jordan doing his thing underwater and you have some idea of Azevedo’s skills.

In terms of overall athletic skill and fitness, decathletes are probably the best overall athletes in the world. In the course of two days, they compete in ten different events: the first day includes the 100-meter run, long jump, shot put, high jump, and 400 meters. Day 2 consists of the 110-meter hurdles, discus, pole vault, javelin, and 1500 meters. “You almost can’t imagine what it takes to get that good at that many sports at one time” sports psychologist Jim Wharton told Men’s Journal. “Big upper body strength is required to throw a javelin, but then (champion Roman Sebrle’s) time in the 100 meter dash is only about a second off the world record.” Men’s Journal thought that Sebrle, of the Czech Republic, was the 8th best athlete in the world at the time, but many might consider the reigning champion in the decathlon at any given time the world’s best athlete.

The list of amazing athletes is almost endless, as is the variety of challenging sports. Big wave surfers like Laird Hamilton show amazing courage and skill as they ride huge waves that could easily kill them. Leading marathon winners do the incomprehensible – run average mile times of well under 5 minutes a mile over the course of over 26 miles – could any of the well known athletes you see on TV do that? Of course, 26 miles would not be very far for ultra marathoner Dean Karnazes, who once ran 262 miles without stopping; another time he ran 135 miles through the heat of Death Valley. And then there are the acrobatic ski jumpers who perform quadruple back flips with four or five twists 40-50 feet high in the air, before landing, hopefully, on the snow and ice.

  • Randolph Twisleton

How about Randolph Twisleton-Wykeham-Fiennes as a candidate for world’s greatest athlete? While completing the longest unsupported crossing of the Antarctic continent in 1993, he pulled a 485 pound sledge behind him for 95 days, losing a quarter of his body weight in the process. In the fall of 2003, four months after suffering a massive heart attack and undergoing double bypass surgery, he ran seven full marathons on six continents in seven consecutive days. Or perhaps it’s Jim Shekhdar, a Briton who at age 54 set the record for the fastest time rowing across the Atlantic Ocean, alone and unassisted. Starting in Peru and ending in Australia, he covered the 8,000 miles at a rate of about 20 miles a day, surviving sharks who tried to ram his small boat, and almost getting run over by a tanker.

Jockeys riding a charging horse, ice skaters dancing across a rink, rock climbers scaling the impossible cliffs – all of these people and many more do amazing things; some make almost no money at all, some make a decent living, and a very few, like Woods, Jordan, and Kournikova, get rich. The point is simple; levels of compensation and fame, in both business and sport, have far more to do with excelling within a profitable industry, or a popular game, than to any talent, broadly defined. No matter how brilliant or successful, a writer of challenging philosophy books will never become as famous, or make as much money, as someone who is good at appealing to the basest natures of people. Fame and fortune within the sporting world does not go to the fastest or the strongest, or even the best within their sport, but whoever excels at games which appeal to favored advertising demographics.

Bo Burlingham wrote an excellent book, Small Giants, about companies that took the very unusual path of choosing to remain small when they could have become much larger. The founders and owners of these companies “understand that you can’t measure the value of what a company does by looking at how big it is or how much profit it generates. A company’s record of growth and the consistency of it’s financial returns may tell you something about the skill of the management team, but they say little about whether or not the business is contributing anything great or unique to the world.” And this is just as true with athletes; how much money they make may tell you about their entertainment value, or their endorsement value, or how good looking or charismatic they are, but it tells you nothing at all about their value as athletes. As Burlingham says in Small Giants: “The financial indicators are, after all, the most convenient, and objective, measures of success available.” But convenient and objective is not the same as accurate and useful; we hope to supply measures of success that measure not just financial returns, but many other things as well.

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