The Digital Skeptic: NFL Referees Prove Better Pay Is Better for Investors

NEW YORK ( TheStreet) -- I know, I know. We are supposed to root for management here in the investor luxury box. The grunts and smacks of capitalism's controlled mayhem are what create the improved productivity and jobs that put the wealth-creation points on the investor scoreboard.

And if a company fumbles and pays its workers more? Oh heavens ... that's 15 yards, a first down -- and a stiff fine from the investing league office.

But in these everything-we-know-is-wrong digital days, this grim rulebook no longer applies.

Last week, the National Football League ended its lockout of the NFL Referees Association by doing something not many other multibillion-dollar enterprises do: It coughed up major concessions to lowly part-time employees -- its refs.

Read it and weep, you people with jobs. The zebras stiff-armed some of our economy's most savage management linebackers, including New England Patriots owner Robert Kraft and Dallas' Jerry Jones. The refs gained an unprecedented 18% jump in pay, a throwback defined-benefit pension plan and -- it's almost impossible to believe in this slash-and-burn era -- real, full-time jobs for some refs.

And you know what? Not only was there no investor torrent of booing, but the National Football League has probably never been worth more -- making the business of football the poster child for valuing big enterprises in the information age.

Here's why:

The information slopping around inside big companies is just as meaningless as the information slopping around outside big companies.

Get over it, quants, not only is the information investors use to make investment decisions a commodity, but the information company managers use to manage their operations is a commodity. The mistake managers made is simple: Somewhere in the New York-based NFL league offices, information on a computer screen led managers to think that nothing would be simpler than swapping one employee for another. After all, thousands of top-quality officials manage thousands of top-quality games each year. The rules they enforce all flow openly across limitless digital devices. And really, how hard can it be to blow a whistle and yell "First down"?

But out here in reality, things turned out to be far more, well, real.  

No model could account for the utter contempt players showed for the new zebras or the nuances old refs such as Ed Hochuli had for keeping the game interesting for television. It took three weeks -- and the so-called Worst Call Ever on last Monday's Packers-Seahawks debacle -- for the league's owners to realize how wrong their models were.

But realize it they did. And the owners had no choice but to take a couple for the company.

A company that pays employees more is -- guess what? -- worth more.

Now here is the interesting part: Imagine for a second if the NFL were a publicly traded stock. What would have happened to this poor ticker when the blown endzone call ended Packers/Seahawks on Monday Night Football? At least a 99-yard loss, as investors cared not that the league watched its bottom line. The league's biggest properties, including the Super Bowl, would be worth super little with these cheapie refs. And later in the week, when an agreement was finally reached -- and costs went up -- investors would have sent the stock on a victory run.

In other words, NFL stock would have behaved the exact opposite to most stocks: Enterprise value would have risen as costs rose.

Better-paid employees make for better investors
This all means investors are now taking the snap in a new valuation offense. Considering the skills needed to make modern companies worth something in the modern age, more money spent on more skilled employees is what makes enterprises more valuable.

And markets more valuable.

Think about it: By pumping real cash into refs' pockets, the NFL has created a nice piece of business for financial services pros looking for that next client. What would happen if investors rewarded every other Fortune 1,000 manager with an NFL-like stock run when skilled labor got paid more? That's a lot of pieces of business looking for a lot of return -- and the beginning of a long Dow offensive our economy so desperately needs.

Only our love for an outdated investor ground game, focused merely on short-term net earnings, keeps us from connecting on this valuation touchdown pass.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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