San Diego Padres: Trading and Health Record Controversy (2016)

San Diego Padres: Trading and Health Record Controversy (2016)

Baseball has had a presence in the city of San Diego California since 1936 when 17 year old Ted Williams first took the field for the San Diego Padres of the Pacific Coast League. In 1969, the Padres became the last of four teams to be included in the Major League Baseball expansion to 24 franchises. Things haven't exactly panned out for the Padres since entering the league. In 1973 the team was sold to Joseph Danzansky and they were set to become the Washington Stars. Lawsuits complicated the sale and McDonald’s founder Ray Kroc bought the team. Despite remaining in southern California, the Padres lack any real success with a lackluster record of 3540-4110, and 5 playoff appearances and the constant threat of relocation looming over the franchise.

In recent years these struggles have continued as the team tries to put out a roster capable of competing for a chance at the playoffs. With the signing of former Texas Ranger Assistant General Manager A.J. Preller in 2015 it had looked like the Padres fortunes were about to finally change. During the 2014-2015 offseason the Padres made several blockbuster trades and signings to bring in All-Star and future talents among the likes of Matt Kemp, Derek Norris, Melvin & Justin Upton, Wil Myers, Will Middlebrooks, Craig Kimbrel, and James Shields. 2015 was the year the Padres were poised to win the hotly contested NL West division and compete for a deep playoff run. 2015 was an utter disaster with the Padres placing 4th in the division at 74-88

Beginning in the 2015-2016 offseason, Preller and the Padres began a massive fire sale to sell off all valuable talent in hopes to stockpile young prospects for the future. Since the beginning of this rebuild, Preller has either traded away or allowed all players acquired during the 2014-2015 to leave the team with the exception of Wil Myers. As the fire sale continued into the 2016 regular season, Preller began instructing Padres medical personnel to keep separate medical records for team purposes and for the league’s database. By altering medical records for the league database, the Padres were able to trade players with existing injuries to other teams without sacrificing what the Padres received in return.

During the summer of 2016 the Padres were able to complete several trades involving previously injured players in exchange for highly sought prospects. On July 29th the Padres traded starting pitcher Andrew Cashner, and relief pitchers Tayron Guerrero and Colin Rea to the Miami Marlins for Jarred Cosart, Josh Naylor, Luis Castillo and Carter Capps. The following day Colin Rea was pulled during the 4th inning of his Marlin’s debut due to an elbow issue that was revealed to have been a pre-existing injury. August 1st Rea was sent back to the Padres for the recently acquired Luis Castillo and placed on the 15-day disabled list. After visiting with elbow specialist Dr. James Andrews, it was revealed Rea had torn his Ulnar Collateral Ligament and would be out for the rest of the 2016 season as well as the 2017 season.

The more controversial trade however occurred two weeks prior to the trade on the 29th when the Padres sent 2016 All-Star starting pitcher Drew Pomeranz to the Boston Red Sox in exchange for top pitching prospect Anderson Espinosa. Soon after arriving in Boston it was discovered Pomeranz had signs of inflammation in his forearm which drastically diminished his performance after the trade-deadline. Once Major League Baseball caught wind of what was going on, an investigation was launched which found that Preller and the Padres guilty of forging medical documents for the league database. On November 15, 2016 Major League Baseball suspended A.J. Preller for 30 days without pay for tampering with medical files specifically related to the Drew Pomeranz trade.

Baseball teams like the Padres have fewer stakeholders than a clothing company for example, however, their stakeholders have a much more direct impact on the teams and how well they perform as a business. Within the league itself, the stakeholders would typically include the Padres, the teams that traded with the Padre’s, the respective management and owners, as well as the player involved. However, given the circumstances and how often all 30 Major League Baseball teams interact with one another, this controversy may have an impact on all future interactions with the Padres organization. Outside of the league there are several key stakeholders that are affected by the Padres actions. Obviously the fans of all teams involved in these transactions are effected by the Padre’s actions, however, team sponsors, local broadcasting networks, and local radio stations all have stakes within a team and can serve to gain or lose based on a scandal like this.

Individualism is an ethical theory that places the businesses best interests first regardless of other stakeholders. Under this perspective a business should aim to maximize profits for the owners of the business within lawful restrictions. Coming in to the 2016 regular season, the Padres had a payroll of $99,284,500 according to Business Insider (The Gap Between the Haves and the Have-Nots in MLB is as Big as Ever).  As of March 13th 2017, CBS Sports reports that the Padres have a payroll of around $75,000,000 due to several transactions made during the 2016 season (Padres are Spending More than Half Their Payroll on Players that No Longer Play For Them. The trades criticized by the league in this controversy were responsible for clearing about $10,000,000 of the $25,000,000 cut  by the Padres in the last year. As a result of the Padres' numerous transactions in order to sell off as many valuable players as possible, the team's success on the field suffered significantly. However, despite a poor 68-94 last place finish, the team ranked 15th in attendance according to ESPN (2016 MLB Attendance). With a total attendance of 2,351,426, the Padre's only saw a decrease of about 100,000 despite having a much weaker team. For the time being, the Padres did increase the team's income during the 2016 season despite the transactions making their actions ethical under an individualist perspective.

James Shield walks off field after 2 innings during
his White Sox debut

According to Utilitarianism, an action must prioritize the happiness of all conscious beings in order for said action to be deemed ethical. Under this perspective, the Padre's transactions during the 2016 season would only be recognized as ethical if all teams, fans, players, television stations and all other stakeholders involved gained some sort of happiness or satisfaction as a result. Due to the Padres' actions this just isn't the case as many stakeholder's suffered as a result of the trades most especially the teams that were wronged. In a joint statement issued by the Red Sox, Marlins, White Sox who had traded with the Padres earlier in the season for Padres starting pitcher James Shields, and an anonymous fourth team “(we are) enraged by what (we) perceived to be strategic deception: veiling medical information that could have been pivotal in trade discussions” (Fox Sports). As a direct result of their actions the Padres' performance suffered as a result of the trades and further upset fans as well as the Padres broadcasting network due to low ratings. In a September report by Forbes, Fox Sports San Diego, the Padres' broadcasting network, saw a 36% drop in rating from 4.13 to 2.65 during the 2016 season (Here Are the 2016 MLB Prime Time Television Ratings For Each Team). Clearly the Padres' did little to prioritize the happiness of stakeholders outside of their organization during the 2016 season and as a result their actions cannot be deemed ethical under a utilitarian perspective.

Established on the ideas and values of German philosopher Immanuel Kant, Kantianism requires that actions to be based on rationality, honesty and respect for the individual. Kant believed that all decisions should be made based on these values or that decision cannot be ethical. Kantianism strongly emphasizes the importance of not treating people or businesses as just a means to an end. In this circumstance, this is exactly what the Padres did throughout the course of the 2016 season. Because of the disaster which was the 2015 season, the Padres had to rebuild their team by trading away players with large contracts or allowing star players to leave in free agency. Rebuilds are a common occurrence in Major League Baseball, however it is the way in which they conducted their rebuild which violates the beliefs under the Kantian perspective. By doctoring the teams medical records, the team shows a blatant lack of honesty and respect towards stakeholders. The Padres took advantage of other teams by keeping private records to convince teams to trade away valuable prospects in return for injured players. By treating not only other teams, but players as well as a means to an end, the Padres violated the key tenants of Kantianism during their scandal.

Virtue Theory is an ethical perspective that is based on the essential virtues that Greek philosopher Aristotle felt people should embody. Aristotle believed that these virtues; honesty, compassion, justice and prudence to name a few, were key in benefitting societal wellbeing and that anything contrary to that was unethical. Only one of these virtues were displayed by either AJ Preller or his medical staff in the case of the transactions made by the San Diego Padres during the 2016 season. In order for the Padres to comply with the basic characteristics of Virtue Theory, they would have to exhibit these virtues in some way shape or form. By being truthful in their conducting of medical records and having transparency with their trade partners about the health of their players the Padres would be displaying honesty. Instead the Padres were dishonest by doctoring their player medical files for the leagues purposes and took advantage of other teams. The Padres could've shown some compassion to their injured players by taking the necessary precautions to maintain their long term health with rehabilitation. Instead, Preller and the Padres decided to trade these players quite literally across the country and have their new teams worry about their health. Rather than being prudent with their injured players, the Padres were negligent. Preller and the Padres allowed Drew Pomeranz to play in the 2016 MLB All Star Game with elbow inflammation in order to drive up his asking price just two days before trading him to Boston. The one virtue that the Padres did display during the 2016 season was justice. When Colin Rea was removed from his Marlins debut with elbow discomfort, the Padres reversed the trade that sent him to the Marlins and returned the prospect received in compensation. When Drew Pomeranz was diagnosed with elbow inflammation by Red Sox medical staff, the Padres offered the Red Sox the opportunity to return Pomeranz to San Diego, to which the Red Sox declined.

Under every perspective with the exception of individualism, the San Diego Padres failed to act in a way that can be deemed ethical. Their complete and utter disregard for the players, the teams, the fans, the owners, and all other stakeholders involved in this controversy is what make this situation unethical.

Works Cited

Bahr, Chris. "Padres GM Suspended 30 Days by MLB in Medical Scandal." FOX Sports. N.p., 15 Nov. 2016. Web. 03 Apr. 2017. <http://www.foxsports.com/mlb/story/the-padres-are-reportedly-facing-mlb-discipline-in-medical-scandal-091516>.

Brown, Maury. "Here Are The 2016 MLB Prime Time Television Ratings For Each Team." Forbes. Forbes Magazine, 18 Oct. 2016. Web. 03 Apr. 2017. <https://www.forbes.com/sites/maurybrown/2016/09/28/here-are-the-2016-mlb-prime-time-television-ratings-for-each-team/#3edf5a484ce9>.

Cassavell, AJ. "Injured Pitcher Colin Rea Returns to Padres." Major League Baseball. N.p., 01 Aug. 2016. Web. 03 Apr. 2017. <http://m.mlb.com/news/article/193008810/injured-pitcher-colin-rea-returns-to-padres/>.

ESPN. "2016 MLB Attendance." ESPN. N.p., n.d. Web. 3 Apr. 17.

Frisaro, Joe. "Marlins Trade for Andrew Cashner, Colin Rea." Major League Baseball. N.p., 29 July 2016. Web. 03 Apr. 2017. <http://m.mlb.com/news/article/192405904/marlins-trade-for-andrew-cashner-colin-rea/>.

Gaines, Cork. "The Gap between the Haves and the Have-nots in MLB Is as Big as Ever." Business Insider. Business Insider, 04 Apr. 2016. Web. 03 Apr. 2017. <http://www.businessinsider.com/major-league-baseball-opening-day-payrolls-2016-4>.

Perry @daynperry, Dayn. "Padres Are Spending More than Half Their Payroll on Players Who Don't Play for Them." CBSSports.com. N.p., 14 Mar. 2017. Web. 03 Apr. 2017. <http://www.cbssports.com/mlb/news/padres-are-spending-more-than-half-their-payroll-on-players-who-dont-play-for-them/>.

Russell, Jake. "San Diego Padres Were Once so Close to Moving to D.C. They Had Uniforms and Everything." The Washington Post. WP Company, 16 June 2016. Web. 03 Apr. 2017. <https://www.washingtonpost.com/news/dc-sports-bog/wp/2016/06/16/the-time-the-san-diego-padres-were-this-close-to-moving-to-d-c/?utm_term=.6a277fb243c0>.

"San Diego Padres Team History & Encyclopedia." Baseball-Reference.com. N.p., n.d. Web. 03 Apr. 2017. <http://www.baseball-reference.com/teams/SDP/>.

Smith, Christopher. "Boston Red Sox Trade with Padres for Drew Pomeranz: San Diego 'hid Players' Medical Information' (report)." Masslive.com. N.p., 15 Sept. 2016. Web. 03 Apr. 2017. <http://www.masslive.com/redsox/index.ssf/2016/09/boston_red_sox_drew_pomeranz_t.html>.

General Motors: Subpoenaed for Subprime Auto Loan Contracts (2014)

General Motors was the leader in global vehicle sales for 70 years (1931-2007). Some of their well known brands in the United States include Buick, Cadillac, Chevrolet, and GMC. After the Financial Crisis of 2008, they were forced to file for Chapter 11 Reorganization. In 2009, for the first time in history, Toyota surpassed them as the world's largest automaker. Despite the low points, they were able to emerge successfully with their 2010 Initial Public Offering (IPO) being the highest to date. They sold 478 million common shares at $33 each, raising $15.77 billion dollars. However, in the last year General Motors has been under fire. They have been forced to recall 28 million cars worldwide, which resulted in 13 deaths. But now they are under the microscope from the United States Department of Justice for their use of subprime auto loan contracts. As of November 2014, they have received two subpoenas from the Department of Justice. The first in August 2014, and the second in October 2014.

What exactly is this type of loan? It is used for individuals who have trouble maintaining a repayment schedule. These borrowers normally have a sizable amount of debt and don't have a decent FICO score. These loans have higher interest rates as well as poor quality collateral. In 2008, these loans were packaged into mortgage-backed securities. Not only were they defaulted, but they contributed to the 2008 Financial Crisis. GM does specialize in providing loans to those with poor credit. In a filing with the SEC, they stated that they are required to "produce certain documents...of subprime automobile loan contracts since 2007." The Department of Justice is questioning the connection between subprime auto loans being sold in the form of asset-backed securities. 

The Stakeholders in this case range from the board of directors, chief executives, employees, consumers, investors, and manufacturers. In this case, investors may be the most affected. While executives may be affected, it's their attorneys who are going to have to deal with the Department of Justice directly. The investors are going to be the most affected because of the negative press that General Motors is currently facing. When an event like this occurs within a business, investors may look at it and decide that they don't want their money invested in the company. This could lead them to look at other options, sell their stocks, and ultimately make the stock price of GM fall. After all, Friedman's theory of Individualism is about maximizing the profit for the owner or stakeholder. And with this current scrutiny that General Motors is facing, it's unlikely that their maximizing their profits in an ethical way.

Individualism states that "the direct goal of profiting may need to be met by indirect goals not aimed at profiting." Basically, maximizing profits is most important so long as no laws are being broken. Although General Motors may have been maximizing profits by providing loans to those who have high debt and low FICO scores, they certainly were unethical if the Department of Justice became involved. If GM is in fact found guilty of these proceedings, they would be in violation of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 which is an act "...to enhance the regulatory and enforcement powers of Federal financial institutions regulatory agencies, and for other purposes." Because it's believed that GM is attempting to boost their sales from the subprime-lending boom, they are certainly attempting to boost their profits but not doing so in an ethical manner. 

 Happiness is the basis behind Utilitarianism. There is no difference, morally, between how everyone chooses to be happy. While General Motors definitely experienced happiness after their IPO in 2010, they must not be with the millions of recalls on their hands as well as being subpoenaed by the Department of Justice. Before all this scrutiny occurred, they probably experienced happiness by providing loans to consumers who may not have been able to get one otherwise. This especially meant being able to sell their vehicles to maximize profits. Although they were not doing anything vicious or harmful, they were in fact being unethical. GM Financial should have understood the risks that these loans faced and that there was a high chance that some of these borrowers would not pay their loan on time, or at all. Because these occurred around 2007, they very well contributed to the Financial Crisis of 2008 or even to General Motors being required to file for Chapter 11 in 2009.

 Kantianism is to not only act rationally but to treat people, whether it be oneself or another, respectfully as opposed to using them to get what you want. If General Motors had applied this theory before issuing subprime auto loan contracts, they could in fact be in a different situation. They should have once again understood the risks of supplying these loans and the consequences that they could face. They were most likely taking advantage of those with bad credit and repayment history to manipulate them into thinking they were approved for a great loan when in fact the interest rates are higher on subprime loans than the average, equivalent loan. They knew that by issuing these loans, they would be making profits. Because these loans were unable to be paid back, they defaulted. While there were other factors that played into the 2008 crisis, this was a main one. General Motors did not act rationally and used certain consumers to get their profits.

Virtue Theory consists of four virtues in business: courage, honesty, temperance, and justice. General Motors may have been courageous to cooperate with the Department of Justice and reveal their files dating back seven years but they did not appear to act with honesty. While it's unsure to say if they were honest with their customers about these loans, they should be more honest with the public. Mainly their investors, consumers, and employees. They should also avoid hiding any information because it will eventually be found and would not work in their favor. General Motors has displayed temperance or self-control by cooperating with the current allegations they face, especially when they are under fire as it is for recalling millions of cars. If General Motors is cleared by the DoJ for these accusations, they will have to make some changes in the way they go about providing loans. Although everyone is approved for different rates depending on credit scores for example, they should be fair with their consumers and not give out loans to those who have tendencies to make late payments or not paying them back at all.    

What's next for General Motors? It's tough to say. While they are experiencing many lows right now within their company, they have emerged successful before and can do so again. By acting ethically and morally with all the current scrutiny and allegations they face, they can find a way to be successful again. After all, they were number one for seventy years and may be able to do so again. 

 References:

Clare Baldwin, Soyoung Kim. GM IPO raises $20.1 billion. November 17, 2010. http://www.reuters.com/article/2010/11/17/us-gm-ipo-idUSTRE6AB43H20101117 

CNBC staff. "GM Financial Subpoenaed over Subprime Automobile Loans." CNBC. August 4, 2014. http://www.nbcnews.com/business/autos/gm-financial-subpoenaed-over-subprime-automobile-loans-n172161 

Henry, Jim. GM Financial faces government, state probes over subprime loans, securities. October 23, 2014. http://www.autonews.com/article/20141023/OEM11/141029899/gm-financial-faces-government-state-probes-over-subprime-loans 

Sarah Mulholland, Matt Robinson. Subprime Auto Loan Probe Widens as GM Discloses Subpoenas.October 24, 2014. http://www.bloomberg.com/news/2014-10-24/subprime-auto-loan-probe-widens-as-gm-discloses-subpoenas.html

https://www.fdic.gov/regulations/laws/rules/8000-3100.html