Wednesday, October 31, 2018

Moneyball: How the Red Sox Win Championships

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The Boston Red Sox won their fourth World Series title of the 21st century this week.

Having won their first Series in 86 years back in 2004, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it?

Quick background: in late 2002, team owner and hedge fund manager,
John W. Henry (with his partners) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $695 million.

Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship.


This brings us to one of my favorite scenes from the 2011 film, Moneyball, in which John W. Henry (played by Arliss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pitt) over to Boston with an excellent job offer

 
 

What I love about this scene is that it packs so much value and insight (that goes far beyond the sport of baseball) into a short, two minute dialogue.

As Henry tells Beane (Pitt) in this scene, "For $41 million, you built a playoff team... You won as many games as the Yankees won, but they spent $1.4 million per win and you paid $260,000."

"I know you're taking it in the teeth now, but the first guy through the wall always gets bloodied. Always."

"This is threatening not just their way of doing business, but threatening the game. But really it's threatening their livelihood, their jobs... Every time that happens, whether it's a government or a way of doing business, the people who are holding the reigns go batshit crazy."

"Anybody who is not tearing their team down right now and rebuilding it using your model is a dinosaur. They'll be sitting on their ass in October, watching the Boston Red Sox win the World Series."


John Henry's shrewd eye for value and statistical analysis, which played a major role in his trading career, was a decisive factor in turning the Boston Red Sox into one of baseball's most successful franchises.

As it happens, Billy Beane didn't end up taking the job with Red Sox, who instead hired Bill James acolyte, Theo Epstein as their GM. Soon after, Boston was able to break "The Curse of the Bambino" by winning their first World Series since 1918.

After winning two World Series championships with Boston, Epstein went on to help turn around my home team, joining the beleaguered Chicago Cubs in 2011. The Cubs won their first World Series in over 100 years in 2016.

The championships are wonderful, but for me the real point of this story is that these teams made a break with tradition, while disregarding their critics, in order to create a winning system and a whole new style of play.

As Billy Beane told ESPN, "It’s all about evaluating skills and putting a price tag on them."

"...Thirty years ago, stockbrokers used to buy stock strictly by feel.  Anyone in the game with a 401(k) has a choice.  They can choose a fund manager who manages their retirement by gut instinct, or one who chooses by research and analysis.  I know which I’d choose."


By viewing the field differently, and creating their own unique approach to the game of baseball (heavily influenced by Bill James' statistical insights), all of these teams - the A's, the Red Sox, the Cubs - were able to shake off years of underperformance and low expectations. They became winners, champions.

While it's true that, as John Henry's film counterpart pointed out, the pioneers often get bloodied, it's also true that the early adopters who follow closely on their heels often reap the richest rewards.  

Related posts and newsletters:

1. On Being Wrong... and Profiting Anway

2. Maximize Your Trading Gains, Not Wins: William Eckhardt Interview

3. Relentless (Interview): Michael Jordan's Trainer on Champion Performance and Mindset


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