Assessing Value is TWICE as hard in the AFL!
AFL Clubs are responsible for assessing the same asset twice, doubling their chances of error.
All successful investors aim to do one thing, buy assets that are selling for less than they are worth. They do their homework on an investment, work out what they believe the intrinsic value is, then compare it to what it is selling for and allocate capital accordingly. If the analysis suggests a particular company is worth $2 a share and its share price is trading well below that, a wise investment decision would be to allocate capital to that particular investment. If the share price is trading above $2, it makes no sense to engage. An investor only needs to make an assessment of value for a particular asset (such as shares or even a property investment) only once when deciding to execute on it. Spare a thought for those in AFL land. Club officials (list managers & recruiters) are responsible for not making just one assessment of value on the same asset (player), but two. Firstly, they have to establish, 'What are we going to give up (trade) to the opposition to get that player to our club?'. Secondly, 'What proportion of our salary cap are we going to pay the player we are bringing in and over how many years?'. As you can see, there are two assessments of value that need to be nailed correctly for a player to become a successful investment for an AFL team. Two assessments of value on one asset. Getting only one component right won't help the cause, in-fact it can hurt their football club for many years to come. Let's take free agency for example. Since free agency was introduced, how many times have we seen AFL clubs lure opposition players at no cost (sacrificing no asset of their own), only to overpay and allocate too much of their salary cap to that player? On the flip side, an AFL club will hurt their future if they give up high draft picks to get a player in the door if he or she is not worthy of it despite only paying that player a smaller salary once they are in the door. There is absolutely no upside to valuing the same asset twice! Only downside. Both assessments of value need to go through the big sticks, otherwise an asset in AFL land can quickly turn into a liability. It's double the potential trouble when compared to making an investment, so let's not be too hard on them when in-fact the odds are stacked against them.