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Cyclops: For financial strategy, check major league baseball
Apr 09, 2014 | 1668 views | 0 0 comments | 28 28 recommendations | email to a friend | print
Bryan Gray
Bryan Gray

The opinions stated in this article are solely those of the author and not of The Davis Clipper. 

I am sitting with a small business owner who prides himself on reading the latest financial strategy books and discussing the joys and pitfalls of decision-making in a free enterprise system.  He sees me reviewing the sports section of the daily newspaper and says, “I don’t have time to follow sports.”

“You should,” I tell him. “In fact, if you are really fascinated by financial strategy, you should be following major league baseball.”

He didn’t understand.  Neither was he aware that our conversation was occurring on Opening Day:  The Boys of Summer, rites of Spring, mustard dogs, and tossed peanut shells all wrapped into one.

I tell my friend that major league baseball is similar to small business in that, unlike pro football and basketball, the salary structure (the investment) varies widely.  A team owner can attempt to “buy” a championship since there is not cap on how much a team owner can pay.  And like any business, the investment can turn sour.

Take last year, for instance.  Of the nine teams paying the most for its players, six never even made it to the playoffs.  Conversely, three of the five teams with the lowest payrolls were still playing in October.  In fact, one of the lowest paid teams, the Oakland A’s, have the best overall record during the past three years.  

This year is no different.  The Los Angeles Dodgers, one of five teams worth at least $1 billion, has a payroll of $241 million.  At that rate, the Dodgers could pay the entire rosters of four teams combined Р the Houston Astros, Florida Marlins, Oakland A’s, and Chicago Cubs Р and still have a few million dollars left over.  (The Astros have only one player making over $10 million this season; the Dodgers have 11 and the New York Yankees have nine.)

“How do these low-paying teams compete?” asks my friend.  “That’s like having a Whole Foods store beat out a Walmart for earnings!”

And that is what makes major league baseball intriguing.  Signing talent at an affordable price...hiring a manager who inspires players to succeed...scouring the high schools, colleges, and minor leagues for promising prospects...creating a winning clubhouse environment...

Add these up and you get the low-salaried Tampa Bay Rays playing for the championship while the Yankees stay home despite paying three times as much on salaries. Seven teams this year will pay their top two players more than the Florida Marlins pay their entire team.  Yet many of these seven teams will end the year sorely disappointed.

“So you see,” I tell my friend, “major league baseball is not just about hits and runs, splitters and fast balls, or the stolen base that leads the way for the winning run. It is also about businessmen making decisions, some to gamble a wad of money while others minimize the risk Р and they won’t know how it pans out until after 162 games.

Play ball!  

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