Assessing Running Backs & Stocks

This preseason in football, there’s a brewing controversy on the field that has captured our attention. While we eagerly prepare to cheer on our beloved NFL teams, some are grappling with the fallout of failed contract negotiations with their star running backs.

(Stay with me here- I promise this will tie back into stock investing.)

Among the affected players are Saquon Barkley of the Giants, Josh Jacobs of the Raiders, and Tony Pollard of the Cowboys. Instead of securing new contracts, they were franchise tagged, each earning just over $10 million. It’s worth noting that all three of them rushed for over 1,000 yards last season, with Jacobs and Barkley ranking among the top five running backs in the league.

These athletes, however, feel undervalued, especially in comparison to top veteran starting quarterbacks who rake in an average of $46 million per year and top veteran wide receivers who earn an average of $25 million per year. Looking at league statistics, a $10 million payday might seem substantial, considering that the running back position typically accounts for an average of 4.25% of a team’s total spending cap. Therefore, if a team has three running backs, they collectively earn around $9.8 million on average. This means that Barkley, Jacobs, and Pollard individually make more than what an entire team pays its running backs on average.

These players argue that various other factors should be considered beyond just cap spending, such as the percentage of overall offense they contribute. They emphasize that running backs endure physical punishment almost every time they touch the ball, resulting in a short career span, so they need to maximize their earnings.

Now, let’s return to the main question at hand: are these running backs genuinely undervalued? The answer varies depending on who you ask and how you define value. The concept of value is complex, and its definition can be subjective.

To shed light on this issue, we can draw parallels to the world of investing. In both football and investing, each player on a team or each stock in a portfolio should ideally contribute meaningfully to the collective success. A comprehensive valuation process doesn’t guarantee individual success but helps determine whether their skills or assets are worth adding to a diverse blend of talent or holdings.

To gain a little more insight into this, we use a stock analysis approach to assess the fair value of an NFL running back:

When evaluating a company for potential investment, I consider factors like management quality, corporate culture, incentives, business economics, competitive advantages, and future trajectory. Similarly, when assessing running backs for fair value, I would examine their character and fit with the team, their primary skills or functions, what sets them apart from other running backs and offensive positions, and whether the team improves after their signing.

In investment valuation, it’s not always possible to assign a precise monetary value to each category, but there are quantifiable elements that contribute to the final assessment. For instance, while I can’t put a monetary value on a company’s management team, my confidence in their ability to execute their strategy influences my financial projections and, subsequently, the cash flows that support my fair value estimate.

In the case of valuing an NFL running back, I would need to assign scores to each of these four categories, determine if the total score surpasses a minimum investment threshold, and then model the added value they bring to the team. Once I have my best estimate of the incremental benefit the running back will generate for my franchise, I can discount it back to the present day to estimate the fair value of their contract.

Much like in financial markets, assessing the value of running backs may evolve over time. It’s possible that their worth to a team could be seen as a ‘Value’ stock if it proves to be a lucrative investment or a ‘Value Trap’ if their projected benefits decline from prior benchmarks. As the football season progresses, we can expect attitudes and valuations to fluctuate.

We can’t predict the future of Barkley, Jacobs, and Pollard’s contracts, but their respective teams may benefit from thorough research and qualitative analysis. Similarly, when managing a clients’ portfolios, it’s a valuable reminder to let quality and patience guide our investment decisions.

As we get ready to cheer on our favorite teams this fall, let’s also hope for strong performances from our favorite stocks in the world of investing!




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Securities offered through Parkland Securities, LLC, member FINRA/SIPC.