Moneyball is a gaming strategy for an underperforming sports team to scout and analyze players using an objective, data-driven approach and raise the performance to a new level. Recently, sports teams, such as the New York Yankees, New York Mets, Boston Red Sox, Seattle Mariners, Los Angeles Angels of Anaheim, with at least one MVP player have chosen, after weighing options, to negotiate long-term lucrative deals with prominent sports networks (via ownership stake). For brevity, this is labeled the moneyball strategy of a sports business.
The logic of value creation of the Moneyball strategic alliance of a sports business is to focus on brand building that cements the emotional connections between the players and the fans into a sustainable relationship that contributes economic returns. The deal structure enables the realization of the following benefits:
- Increasing sports network’s rating for their advertisers
- Increasing spectator’s purchasing and viewing decisions to watch the game live
- Increasing franchise value, sports content rights fee and subscribers’ license fees
- Increasing value of players and value of sports content and talent retention with sports team and amplifying sports brand
Strategic Elements of Sports as a Business
- Create a cadre of miracle winners (not Average Joes)
- Includes players, coach and management
- Risk sharing with cable companies to deliver sports programming and sports team valuation
- Budgetary process
- Organizational structure
- Review process
- Personal rewards
- Sponsorship levels
- Halo effects of the brand
- How they play
- Focus on players
- Talent retention
Hedge Fund Activism
The creative conversation to revive bankrupt sports teams or relocate a sports team to a different metropolitan area gets more interesting, and sometimes rather controversial, when hedge fund investors, who have a passion for sports, get engaged. In my view, a subset of the hedge fund investors have an activist mindset along multiple dimensions as illustrated below.
Hedge fund activism eschews conventional wisdom of passive stock picking. It unlocks shareholder value and outperforms passive investing while even adjusting for undervaluation and underperformance. Research data from at least 78 activist investments has revealed that hedge fund-led activist investments have outperformed passive investments by earning 20% over two months, 3.8% greater returns and, over two years, they earn 18.4% greater returns.
Board Room Activism
Business Strategy Activism
Capital Structure Activism
Corporate Governance Activism
Everybody likes having FUN. We can learn a lot from sports teams who always have a bias for Thinking Bravely with a world class, face-to-face mindset. While there is no silver bullet, integrating the twin perspectives of hedge fund activism and the Moneyball mindset can be a really cool and powerful throughput operating strategy for both business as a sport and sports as a business.
Similar to the Great Depression, paving the path to renewal in this economic crisis requires resilience and perspiration (not just inspiration).