George Fant and Growth Investing

People who invest in businesses have different philosophical strategies.

Growth investors tend to focus on investing in companies they believe will grow rapidly (hence the name). For example, back in 2005 a venture capital firm called Accel Partners invested $12.7 million in Facebook. Their investment valued Facebook at around $100 million. Was Facebook actually worth $100 million back in 2005? That is very debatable. There were no real revenue streams yet for the company, and you had to be a college student to join. The investment really wasn’t about the company’s value at the time. It was about the potential for great growth. Today Facebook is worth around $650 billion. Accel made tens of billions off its $12.7 million investment.

You also have value investors who see companies that the market is valuing for less than they should be worth. The fundamentals of these companies are stronger than most people realize, and they are undervalued as a result. Value investors buy a stake in these companies when their price is low. They then get rewarded when the rest of the market catches up, and the company’s value rises.

Not everybody is successful. Good investors utilize these methods effectively. Bad investors don’t. Performances vary wildly.

I was thinking recently about how NFL general managers building teams aren’t that different from business investors. They aren’t buying businesses. Instead they are making investments in future player production. Some are very good at it. Most are not.

The 2003 book Moneyball has gradually changed the way teams across sports think about player valuation. The ultimate goal is to figure out how much the production of each player is worth. If a player is giving you $5 million worth of production, and you have him for $3 million it is a good deal. If you are paying that same player $7 million, it is a bad deal.

Assigning a dollar amount to the production of each player isn’t easy. It is especially difficult in a sport like football where it is difficult to isolate what each individual player is contributing. Was Le’Veon Bell’s lack of production in 2019 due to him, bad blocking, or both. And if it was both, what percentage of it was because of Bell, and what percentage was because of the blocking? How much is all of this worth?

While finding the answers to these questions aren’t easy, general managers are paid big money to figure them out.

Ultimately the best teams are able to make accurate projections about how much value each player will produce and allocate resources accordingly.

Most of the growth investing in the NFL is done through the Draft. The players aren’t finished products at the point they are selected. Teams expect them to improve through the years. When you develop a homegrown star and have him on a rookie contract, it makes a big difference. You are getting top level production at a low price. That’s why analysts focus on the value of good quarterbacks on their rookie deal. Those players are providing services that cost around $30 million per year to obtain on the open market for less than $10 million.

The teams that do free agency well tend to be more focused on value investing. They find players who the rest of the league undervalues. Perhaps these players did not produce that well in the past because they didn’t have the proper coaching. Perhaps they will do better in a system that fits them better. Perhaps they are coming off an injury.

To be honest most teams don’t really show this much thought when building their rosters. Only a handful of good teams show the type of vision that leads to good value and/or growth. It isn’t that different from the world of investment. There are only a handful of well-run NFL teams just like there are only a handful of investors who do extraordinarily well.

This brings me to the signing of George Fant. This move interests me because it seems like the rare case of a growth investment in free agency. Players in the NFL only hit free agency after they have been in the league four years. There typically isn’t much growth after this point. Players usually are who they are after four seasons.

There are always exceptions, though. There are some reasons to believe Fant might be among them given his athletic tools and his late start playing football.

I don’t think there’s any way you can argue George Fant is worth $9 million a year right now. This clearly wasn’t a case of signing a player for a price below the value of his current production.

That isn’t necessarily the relevant question, though. The question is whether the Jets coaches can develop those tools and help Fant become a quality starting tackle in the NFL. If they can Fant’s deal will become a bargain. A good starter at tackle is worth more than $9 million in today’s NFL.

One of the reasons I’m so focused on Fant is because Joe Douglas is a new general manager. We don’t really know how good he is at his job. The majority of the fanbase is optimistic and fairly so given Douglas’ excellent reputation in league circles. Ultimately, though, it will come down to job performance. Will he make the right decisions?

I think Fant’s progress will be an early clue as to whether Douglas has the vision to find smart investments. This is not a low risk move. $9 million is serious money (not to mention a starting tackle spot in a critical developmental year for the young franchise quarterback). With the risk comes a considerable degree of upside, though.

A lot of my faith in general managers or lack thereof is based on whether not I trust them to properly read the market and make good bets. A lot of recent Jets general managers came off like the types of decision-makers who would have bought stock in Blockbuster Video in 2002. I tended to not give them the benefit of the doubt as a result.

If Fant works out, it will be a sign to trust in Douglas. It will suggest he knows where to look to accurately find growth potential. A version of George Fant who locks down one of the starting tackle spots makes Douglas look like a guy who understands how to analyze future value and can be trusted to make smart decisions. I wouldn’t say Fant failing to grow would end all of my faith in Douglas, but it would be perhaps the first step to make me question whether he has the necessary vision for finding value. It doesn’t take $9 million to find somebody who can replicate Fant’s current production.