Is Deshaun Watson a Value stock?

There are 32 teams in the National Football League.  If your favorite team wants to get to a Super Bowl, we’ve proven the case here that having a top tier quarterback is a virtual necessity.

The NFL’s annual draft is coming in less than three weeks.  As usual, a growing list of quarterbacks is being floated for first round picks for the league’s perpetual bottom feeders. 

It’s easy to see why.  Having a new young fresh face to lead and help to turn your city’s professional football team helps raise hopes and, of course, sells tickets and merchandise.  I cannot remember a football team selling thousands of jerseys after the first round selection of their new offensive tackle pick.  Though your first-round offensive tackle might become an NFL Hall-of-Fame player in twenty years, the local fan base will boo your draft pick if a more celebrated quarterback was available to select.

After reviewing the likely quarterbacks expected to be selected in the upcoming NFL draft at the end of April, these young men are likely to hear their names called in Round 1:

  1. Trevor Lawrence – Clemson – Best known for his 6’6’ frame, gorgeous throws downfield, his flowing locks and friendly smile, Lawrence has been considered to be the consensus best quarterback talent for all three years of his college career.  Will this translate into wins immediately for the NFL team which picks him?
  2. Zach Wilson – Brigham Young University – He’s tough, smart, a great leader, a pinpoint passer, and runs with authority.  What’s not to like about this 6’2” quarterback?  But is he really worth a top two or three pick this year?
  3. Trey Lance – North Dakota State – Yes, this is the same FCS school that wins the championship nearly every year and made Carson Wentz a first round choice by Philadelphia a few years ago.  Lance is 6’4”, throws well enough, runs even better, and appears (by some) to have a lot of NFL upside.  Maybe.
  4. Justin Fields – Ohio State – The talented Fields has the required first round pedigree (6’3”, 227 pounds, great arm, quickness in the pocket, etc.).  On the other hand, he left Georgia after failing to beat Jake Fromm out of the starting job.  Questions about his work ethic and commitment to the team are swirling.  But someone WILL take him early.
  5. Mac Jones – Alabama – Talk about a one-hit wonder!  Jones patiently waited his turn at Bama and made the most of his only full year as the starting quarterback by winning a national championship.  A great leader with an accurate arm, the 6’3” Jones isn’t known for his fleet feet.  Regardless, expect to hear his name called in the first round, too.
  6. Kyle Trask – Florida – Much like Mac Jones, Trask’s final season at Florida was his only full-year in leading the Gators.  He became a surprising Heisman contender by throwing 43 touchdowns in just ten games last season.   At 6’5”, he is extremely accurate and benefitted from having some talented receivers on his team, too.  He may or may not hear his name called late in the first round.

Statistically speaking, I think it is quite likely that perhaps two of these six quarterbacks will develop into a productive NFL starting quarterback and remain a hot commodity at the end of their first four years in the NFL. 

The point is that selecting a quarterback in the first round of the draft can work out great (see Justin Herbert – #16 overall pick last year for the Chargers) or not so great (Dwayne Haskins – #15 pick for Washington just two years ago and has already been released). 

Now, let’s consider a unique alternative to using the proverbial shotgun in hopes of bagging a long-time starter for your NFL team.

There is a young talented established quarterback in Houston named Deshaun Watson who could become available if you can tolerate the risk and the price is right.

Before you say, “Why would you bother making a deal for that guy with all of those 22 (and counting) lawsuits filed against him for sexual issues with message therapists?”   That’s a valid question.

Though this article is certainly not intended to defend Watson from any of those allegations (the truth will be revealed at some point – maybe), it is simply to say that the former first round quarterback from Clemson has succeeded on the field during his four NFL seasons with the Houston Texans.   The NFL’s own website ranks him as one of the top five quarterbacks (statistically speaking) in the league.

Deshaun Watson signed a $160 million/4-year contract which still has another three years to go. Before his legal issues surfaced this past month, Deshaun Watson was asking the Texans for a trade to get out of Houston.  Before his legal issues surfaced, Houston’s management emphatically refused to trade him.

Given this past month of embarrassing negative headlines, you would think Houston is now quite willing to reconsider their position. However, any deal to take Watson off the Texans’ hands soon will now likely be priced at a huge discount (fewer or less valuable draft picks or players involved in the deal).

In the financial community, so-called “value” investing is certainly a great way to buy stocks. You simply identify a few of quality “best-in-breed” company stocks which have slipped in price to below average levels and then attempt to purchase that particular company’s stock price when it is near the bottom.  If the company’s underlying fundamentals are still sound, you may eventually be able to ride the stock price back up once again.  It sounds simple, but it takes research, discipline, and guts, too. 

“The Oracle of Omaha” Warren Buffett and his Berkshire Hathaway holdings were constructed using those same principles of value investing.   He has made billions of dollars for himself and other investors by purchasing undervalued (but financially sound) stocks and, in some cases, entire companies for about 70 years. 

About one year ago, you could have made a few bucks if you had purchased any number of out-of-favor oil and natural gas stocks using this same value concept. The energy sector had a number of attractive value stocks which have seen their price bounce back nicely since last spring.  

In today’s National Football League, are there any teams which come to mind who might let the market discount the value of a player before they swoop down and pick him up at a value price?

Take the New England Patriots, for example.  Their football dynasty wasn’t built on #1 draft picks.  Tom Brady was a lowly 6th round pick coming out of Michigan.  For years, the Patriots traded away their first round picks and opted to bottom fish in the NFL draft’s lower rounds.  They preferred quantity of picks instead of relying on the boom/bust nature of first round selections.  The cost of rookie contracts for lower round draft picks is significantly cheaper, too.

With six Super Bowls in the past twenty years, New England’s “value” drafting philosophy has worked extremely well for them. 

In the past two years, the Miami Dolphins have been doing much the same thing.  Recently, the Fins made a deal to trade out of the #3 position in the first round of this year’s NFL draft (sending the pick to San Francisco) and then making another deal with Philadelphia to jump back into the #6 position in Round 1.  Miami now has two first round picks this year (#6 and #18) and two second round picks, too.  With their wheeling and dealing, Miami has several additional draft picks for the next few years as well.

Would New England (with the #15 overall pick in the first round) or Miami be willing to take on Deshaun Watson’s $40 million contract and a likely NFL suspension (let’s say one year) in order to take him off Houston’s hands right now?

Think of golf’s Tiger Woods.  Despite all of his personal issues, he went into sex addiction therapy and was granted a “mulligan” by the professional golf world the past several years.      

Why couldn’t Deshaun Watson do the same thing?  Sure, things look bleak for him right now.  His trade value has probably been cut in half after these allegations hit the internet.

Regardless, I see a “deal” coming soon to ship Watson out of Houston.  The timing, though, may be uncertain due to the status of clearing his legal matters.  I do not expect to see him in a Texans’ uniform ever again. 

Who is going to have the guts to try this NFL-version of a true “value” investing deal?  As Deshaun Watson’s market value drops, watch closely to see which of the NFL teams will “come on down” to Houston and snag this quarterback at the bottom of the value chain.