I love baseball. When I was a kid I remember sitting on my couch watching Game 1 of the 1988 World Series. The Dodgers were never going to win that game. Our star pitcher, Orel Hershiser, wasn’t available because he had pitched Game 7 of the previous series. Kirk Gibson was hobbled by old age, though the official injury read “knee”. The A’s were stacked. It was just a terrible match-up, until it wasn’t. Kirk Gibson limped up to home plate, smacked a game winning home run, and the rest is history.
The game itself went down as one of the great games ever played. But outside of the unlikely outcome and otherworldly heroics, it also personified an age-old axiom in baseball; one player, one moment, can be the difference between legend and goat. It helps to shed light on why General Managers in baseball practice a model of business that hinges on two simple principles, snap shot measurement and the practice of “going for it”.
It’s a model that may rear its head in your business, and you should be afraid.
Baseball GM’s annually go through a ritual of All Start break calibration, taking a snap shot measurement of where their team is relative to the standings. The purpose of this annual measurement is to asses if they fall into one of two categories, “buyers” or “sellers”. If a team is in a position that gives them a realistic chance of making the playoffs, they will begin the process of surveying the league for potential players they can trade for. Meanwhile, the opposite calibration is happening for teams less fortunate. If they do not have a realistic chance of winning, they will begin looking to dump high priced players in favor of younger, cheaper “prospects”. This dynamic drives the annual trade market every July in Baseball.
The teams with winning prospects will automatically assume the role of “going for it”, trading away prospects for players that can help them win now. Sometimes it works. Last year the Cubs gave up a haul of young prospects in exchange for hard throwing closer Aroldis Chapman. They won the World Series. In 2015 the Royals acquired Johnny Cueto for prospects and won the Series. These moves indelibly notched the names of their GM’s, Managers and players in the history books. But sometimes, history can have a cautionary tale.
Baseball, and sports in general, is a talent based exercise. The best talent does not always win, but they almost always are part of the final group. The “going for it” mentality by its nature loads a disproportionate amount of talent into a small window of time. While it maximizes the probability of winning within the given window, it creates a vacuum for future years. When a team depletes its farm system, or talent pool, in exchange for right now talent, it creates a void. As the current players on a team begin to age, the organization is unable to replace them with up and coming young players because they traded them away.
Imagine you had a business that consistently generates $15,000 in net revenue. Out of nowhere, you suddenly get a surge of demand for your product. To handle that surge you order new equipment, new storage space, and additional headcount, you go for it! You fulfill the orders, and your quarterly net revenue surges to $40,000. You win big, right? Yes, for the moment. But what happens if the orders slow down or revert to their natural pattern? Your stuck with debt, finance charges, and HR issues that could quickly erode whatever additional cash you earned and nosedive you into the red.
In that light, you can understand the insanity of the baseball culture when it is bounced against good business practice. The 2009 Yankees were a great baseball team. But years of trading away talent and absorbing astronomical baseball salaries depleted the team of future talent. The result? A historically great franchise hasn’t played in a World Series since. Despite having one of the largest payrolls in sports, they have had four consecutive years of near .500 baseball with fan attendance falling in each of the last three years.
Then there are the Dodgers. Andrew Friedman, the LA General Manager, has done something very un-baseball like over the last four years. Despite winning the division in each of his three full years with the Dodgers, and having a realistic shot at winning a championship in each, he hasn’t traded his prospects for win-now talent. Each year he has held his cards at the trade deadline, despite big name players being dangled in front of him for his prized young prospects.
The result? A team littered with home grown talent, deep at every position, with a farm system stacked as high as a Doyle Brunson chip count. Friedman has eschewed the “win now” philosophy and seems to have adopted something the business world can learn from.
How the business system Andrew Friedman has adopted will ultimately play out will be seen. But for now, it appears someone in baseball has finally started doing something novel, running a team like you should run a business.