Ponson Trade A Risky Investment With Little Potential Upside
by Asher B. Chancey, Baseball Evolution
December 22, 2005
In early 2002, after the Enron scandal happened and the Enron stock was trading at somewhere around 20 cents per share, I told my then girlfriend, now wife, Kelly that we should buy buy buy! She thought I was crazy – Enron was a corrupt, bankrupt, scandal swamped corporation which was sure to never recover to its previous status as a blue chip stock. As a seasoned financial advisor, she was of course correct.
I have long maintained that, despite the fact that Enron never recovered, the risk was worth it. Kelly maintained the entire time that my plan simply involved throwing all of my money away. But I maintained the entire time that, given Enron's ties to the President, its previous status as a blue-chipper, and the number of people who were potentially out of a job or out of their retirement funds, it was possible that Enron would be bailed out and/or propped up by the Federal government. But more importantly, even if my plan totally failed, the loss would be minimal because the stock was trading at 20 cents per share!! Even if I bought 100 shares, I would have only lost 20 bucks.
I was reminded of my little investment scheme last night as I read that the St. Louis Cardinals had signed Sidney Ponson. The signing of Ponson is similar to my plan to buy Enron stock because, like Enron, Ponson value on the free agent market is at absolutely rock bottom, as he has been plagued by poor recent performance and scandals which have made him a most unattractive investment. My analogy is flawed, however, because Enron was at one time a hot stock to own, and Ponson has never actually been very good.
Ponson's value peaked after 2/3 of the 2003 season, the point at which the San Francisco Giants traded for Ponson to prepare for a playoff run. At that point in the season, Ponson was 14-6 with a 3.77 ERA and a 100/43 K/BB ratio. Ponson was enjoying his best season yet in terms of both ERA and K/BB ratio. However, after he joined the Giants, he went 3-6 the rest of the way and has not been very good since.
In truth, that first 2/3 of the 2003 season represents the only successful part of Ponson's career. Before 2003, Ponson enjoyed 4 losing seasons in his five years in the league, and only twice did he manage an ERA better than league average.
After the 2003 season, Ponson's value tanked. If he was mediocre before 2003, he has been downright terrible since 2003. In 2004 he went 11-15 with a 5.30 ERA, and last season his ERA ballooned up to 6.21 while his won-loss record fell to 7-11 before his contract was voided and he was released by the Orioles. In addition to his on the field woes, Ponson also faced a variety of legal troubles resulting from separate incidents in which he punched a judge on a beach in Aruba and he was arrested for driving under the influence here in the U.S. In the last three months, he has spent five days in jail, under gone alcohol rehab, and visited a psychiatrist on a weekly basis.
So, the Cardinals have bought Ponson cheap, hoping that he will rebound and their investment will pay off. But the question that they should be asking is – what if he does rebound? My plan to buy Enron stock turned exclusively on the fact that the stock had at one point been incredibly valuable, and if things returned to normal, I would be rich. But Ponson was never valuable. Even if he does return to normal, and at this point even that is a big "if," the Cardinals will have a pitcher who is barely worth the value they are paying anyway. Which part of Ponson's game are the Cardinals hoping to take advantage of, his career below average ERA, his career below .500 winning percentage, his career K/BB ratio of less than 2 to 1, or his 4 seasons out of eight with less than 200 innings pitched?
As a disclaimer, obviously picking up a starter with the potential to pitch 200 innings for $1 million is somewhat of a deal. But this deal is going to be applauded as a cheap investment with the potential for a big payoff, and it is simply not that. The potential return on this investment is not great, even if Ponson is a changed man and is ready to rebound from his problems. In the end, the Cardinals will be left with what I would have been left with what I would have been left with had I bought that Enron stock – less money and a worthless asset.
Ponson Prediction – 9-14, 5.13 ERA, 70 BB 120 K