Using Wall Street strategies in baseball
Steve Chiotakis: At baseball stadiums across the country today, we’ll hear the sounds of cracking bats and songs about Cracker Jack and root-root-rooting for the home team. In Tampa Bay, Florida, that team is the Rays — for years, losers of games and money. But a new book chronicles how the team’s owners — former big bankers — turned it all around.
Jonah Keri wrote “The Extra 2 Percent, How Wall Street Strategies Took a Major League Baseball Team from Worst to First.” Welcome to the program!
Jonah Keri: Thanks for having me.
Chiotakis: You write about the Tampa Bay Rays and how they gave teams with big payrolls a run for their money. This sounds a lot like “Moneyball,” right — the book where the Oakland A’s figured out some of the stats that were undervalued and then exploited that? How are the Rays different?
Keri: I think it’s a little bit more nuanced. It’s being 2 percent better than the competition in everything that they do. That’s what the owner Stuart Sternberg, who comes from Goldman Sachs, that’s his belief. So we’re talking about everything from signing players to contracts below market value, hiring a better manager, to marketing. And how are their ushers, and should they have more post-game concerts than the next guy? They’re really thinking about things from that perspective. It’s a more holistic approach, I would say, and again, a more subtle approach.
Chiotakis: How did the owners of the Rays come to financial and on the field success?
Keri: They came in and said, ‘Hey, we come from the world of Wall Street. There are things that are applicable that can work out.’ So one of the lessons that they took to heart was something they call “arbitrage.” On Wall Street, it’s taking two similar assets — you’re buying one, you’re selling the other, and you’re benefiting. You’re getting a little bit of a profit. And so in baseball terms, the general principle is the same: you’re making this small little deal for a utility infielder, or a B-level prospect or a relief pitcher. These pieces that don’t seem all that huge, but collectively they add up to a whole lot.
Chiotakis: I want to talk about the institution of baseball, and how it became this game of teams that are winners because they have money, and teams that are losers because they don’t. The first thing that comes to mind for me are the Yankees, right?
Keri: It’s always been that way; it’s just that as more revenue has come into the game, the gulf has widened. That’s why it’s so compelling. In 2008, the Tampa Bay Rays had a $43 million payroll. Red Sox were about $140 million, and the Yankees were about $210 million — five times more than the Rays. Rays knocked them off anyway. That is a compelling underdog story. You are beating the biggest, baddest teams in the sport. And then they did it twice in three years; they came back and did it again in 2010.
Chiotakis: Jonah Keri, author of “The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First.” It was fun, thank you Jonah.
Keri: Thank you.
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