April 26, 2014

IF YOU CAN WIN WITH THE SOX AND LIVERPOOL, YOU'RE THE GREATEST OWNER EVER:

John Henry and the Making of a Red Sox Baseball Dynasty (Joshua Green,  April 24, 2014, Business Week)

As sports saviors go, Henry cuts an unusual figure. He has a thatch of gray hair, parchment skin, and black-framed glasses. When he arrived in sparkling Fort Myers, Fla., for spring training, he floated through the Red Sox's new $78 million facility in his customary dark jeans and blazer, beneath a giant black umbrella he carried to ward off the sun. With everyone else in golf wear, he looked like the Angel of Death. "A strange and wonderful man," says Hall of Fame baseball writer Peter Gammons. "He don't talk much," says star slugger David Ortiz. "But we appreciate what he's done for the team."

For so prominent a figure, Henry is a bit of a mystery. He limits contact with the press and, when he does communicate, prefers e-mail. In person, he's so reserved that it often appears as if he's working out a difficult algebraic formula in his head. Which is what he may, in fact, be doing. "He's the most mathematically talented person I've ever met," says Lucchino, the team's co-owner and chief executive officer. "I think that element of the game very much appeals to him. And he's a competitive guy. He wants to win. He wants to measure his success. When you put it all together, he's got more dimensions than most baseball owners."

As different as he may seem, Henry captures baseball's current era. A mathematical whiz who made a fortune as a pioneering trader of commodities futures, he's part of a wave of owners from the financial world that's sweeping professional sports. In baseball, this includes Tampa Bay Rays owner Stuart Sternberg, a former Goldman Sachs (GS) partner, and Milwaukee Brewers owner Mark Attanasio, founder of the investment firm Crescent Capital Group. All are keenly attuned to the statistical revolution that has upended the game and compete as vigorously against each other as anyone on Wall Street. Last year, Henry shut down his commodities trading firm to concentrate on his many other endeavors. In addition to the Globe (where I'm a contributor), he and his partners own the English Premier League soccer team Liverpool and a stake in Nascar's Roush Fenway Racing team. But just as his trading algorithms did, baseball has furnished him with the most spectacular payoffs. [...]

As 2013 began, expectations were modest. Ben Cherington, the new general manager, says internal team projections had the Red Sox winning 85 to 90 games, rarely enough to earn a playoff spot in the American League. Many outside forecasts were worse. "People thought we'd taken a stupid pill," says co-owner Werner. Instead, the team won 97 games and added to its trophy collection.

This owed a lot to a philosophical overhaul that Cherington says took place after the Dodgers trade and produced what were initially greeted as a series of odd decisions. Before the season, the Red Sox appeared to overpay a group of solid but unspectacular veterans who were signed to short-term deals--players such as Mike Napoli, Shane Victorino, and Stephen Drew. Sports radio callers suspected the front office of writing off the season as it waited for its younger talent to develop, an inexpiable sin in sports-crazed Boston. What was really happening, Cherington says, was a recommitment to a long-term strategy built on data, performance analysis, and finding hidden value. "In my conversations with John," he says, "he has always stressed that it's really hard to predict the future. He sees the game objectively. He was able to really look down deep into the engine and be impervious to all the pressure coming from outside."

Henry thought they had let emotion cloud their judgment. "We'd gotten into this cycle," says Cherington, "of retaining high-profile veteran players and trying to extend our success that way." It hadn't worked. Says Henry: "We went back to what had made us great for a very long time."

A Bloomberg Sports analysis of the Red Sox's 2013 season conducted for Bloomberg Businessweek sheds light on what lay behind the team's worst-to-first turnaround. In a nutshell: The Red Sox got on base more often than any other team in baseball, saw a ton of pitches, rarely swung, and crushed the balls they did swing at, especially fastballs. Napoli was all these tendencies rolled into one. The team's defensive efficiency also improved, thanks particularly to Victorino and Drew. All of this came together in the World Series, when the Red Sox wore down St. Louis Cardinals pitchers, led by Ortiz, who hit .688 and won Most Valuable Player honors. "David kept saying, 'They're throwing us fastballs. What do they expect to happen?'‚ÄČ" Lucchino recalls with a laugh. "He couldn't understand it. But it's a function of plate discipline. You force guys to throw curveballs, you take a lot of pitches, they fall behind in the count, then they have to throw you fastballs." [...]

One of the papers presented at the Sloan conference attempts to quantify how all this is affecting the game. In "Can't Buy Much Love: Why Money Is Not Baseball's Most Valuable Currency," Martin Kleinbard arrives at a conclusion that mirrors Henry's own thoughts about where the true value lies in baseball today. Kleinbard finds a weak correlation between payroll disparity and winning, arguing instead that "youth dominance"--a team's reliance on younger, cheaper players not yet eligible for free agency--has become a much stronger predictor of success. "To me, the most important thing this study shows is that virtually all of the underpaid players are under 30 and virtually all the overpaid players are over 30," says Henry. "Yet teams continue to extravagantly overpay for players above the age of 30."

In other words, it's not expensive players, but inexpensive ones, who are becoming baseball's prized commodity. Henry's Red Sox have been shedding the former while betting heavily on the latter.

What's even more interesting is that his Liverpool team is about to win the British soccer title in exactly the same way--unable to bid as much on players as teams with larger stadiums and more profligate owners, they've gone young.  Of course, the players who cost the most are "established" stars, who, it turns out, simply can't keep up with young guys on the field.   
 



Posted by at April 26, 2014 7:08 AM
  

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