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Books | Sports

May 2, 2011

Wall Street on the Diamond

Jonah Keri looks at the Rays' remarkable run and the financial minds who made it happen.

Michael Gluckstadt

Baseball front offices and Wall Street have been making eyes at each other for some time. But the latest round of flirting and will-they-or-won't-they might be traced back to finance writer Michael Lewis's look at the Oakland A's, Moneyball, which got passed around among scouts and day traders alike. The two crazy kids finally hooked up when former Goldman Sachs colleagues Stuart Sternberg and Matthew Silverman assumed control of the Tampa Bay Devil Rays in 2005, and later installed Bear Stearns alum Andrew Freidman as general manager. Two years of risk assessment, value acquisition, and arbitrage-spotting later, and the happy couple were on full display in baseball's chapel, the World Series.

Jonah Keri
"It's not like you could break into the Rays offices and learn their secrets. They're very smart about people and processes."

Jonah Keri

If there is anyone who should tell the story of this successful pairing, it's Jonah Keri, a writer who covers both the stock market and the sports page. In his book, The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First, Keri examines how Sternberg, Silverman, and Friedman's analytical thinking and ways of doing business brought the Rays success that appeared to arrive overnight, but was actually the product of deep thought, long hours, and a fair amount of hard-earned luck.


Listen to Jonah Keri's talk at Varsity Letters on May 5, 2011

In the following interview, which has been edited for length and clarity, Keri (whom Gelf interviewed back in 2007) tells Gelf how he'd plan the MLB playoff schedule, what he thinks of Sam Fuld, and how the Rays are able to maintain their edge while playing in a stacked AL East division.

Gelf Magazine: How big is your man-crush on Rays breakout outfielder Sam Fuld?

Jonah Keri: He and I have this weird kismet thing. First of all, he's Jewish [as is Keri]. He's diabetic, which is interesting and a challenge for him, injecting himself with insulin twice a day. He's an econ major from Stanford who interned at Stats Inc. after college. His skills are generally undervalued: defense, on-base percentage, and things like that. He plays for the team I just wrote about. He's the second cousin of the former CEO of Lehman Brothers, so there's the Wall Street connection. And the kicker, he's from Durham, New Hampshire, which is where I'm sitting right now. And to top it all off, I had him on my podcast, and he seems like a very nice guy.

Gelf Magazine: Your book follows the team in 2008, when the Rays were pioneering or at least way ahead of the curve in much of their strategy for building a team. Has the rest of baseball caught up since then?

Jonah Keri: The most tangible difference between the 2007 and the 2008 Rays team on the field, aside from Evan Longoria, is that they played much better defense. But just like the A's were focused on a lot more than on-base percentage when Moneyball came out, there's a lot more to the Rays than just defense. For example, they're good at preventing their starting pitchers from getting injured. That's something much harder for other teams to catch on to. They also have Joe Maddon, the best manager in baseball, and he's not cloning himself anytime soon. It's not like you could break into the Rays offices and learn their secrets. They're very smart about people and processes. It starts at the top with Stuart Sternberg, Matthew Silverman, and Andrew Friedman, and it goes all the way down to scouts and number crunchers. Everyone in the organization is very capable and competent. They'll always have some advantage.

Gelf Magazine: What does baseball's extended playoff format mean for the Rays? Will it change their approach?

Jonah Keri: I don't think it'll change their approach too much, but they might be able to pull off the throttle just the smallest bit. Other teams don't like admitting this, but if you're the Cleveland Indians, it's just a lot easier to get into the playoffs without having to go against AL East competition. So if it means that you don't have to finish ahead of the Yankees and the Red Sox to get into the postseason, then yes, maybe you settle to aim for 91 wins instead of 93, and use that extra money towards the future. But then again, the Rays are so contrarian, maybe they'll go out and make a "win now" acquisition instead. They have to take so many factors into consideration.

Gelf Magazine: Were it up to you, how would you design the baseball playoff and schedule system?

Jonah Keri: Abolish divisions completely. If I have to keep one league with 14 teams and the other with 16, then that's OK, since 15 teams in each presents all sorts of other problems. No interleague play. Totally balanced schedule within each league, or at least as close to it as mathematically possible. Top four teams in each league get into the playoffs. You run into some logistical problems, though. Seattle's really isolated; it's tough for Oakland to go to Florida. But you can work around that—shorten the season, play some more doubleheaders, even give those teams some more off-days.

Gelf Magazine: The heroes in your book, if you can call them that, are Wall Street people with Wall Street ways of thinking. Do you think that's at odds with the general sentiment towards finance people these days?

Jonah Keri: The book certainly gets into the Wall Street way of thinking without really getting too into issues such as the financial crisis, but that's just because they use the best practices. If they were zoologists, I'd write about how zoological thinking took a team from worst to first. Sure there are scum-suckers on Wall Street, but there are also guys who are just quants and just want to find little advantages wherever they can. Though it's funny, the person who probably comes off the best in the book is the small-town guy, Joe Maddon.

Gelf Magazine: Is a team-friendly contract, like Evan Longoria's $44 million one over nine years (with two team options), just a way of saying a player-unfriendly one?

Jonah Keri: The players are all represented by agents who have spent years in the business. Everyone is on the same page. It's not like they're ripping off poor players from the Dominican. If it seems like the Rays are taking advantage of players, it's only because they keep doing well with them. When they sign an unproven player to a long contract like Longoria's and it blows up in their faces, no one will think they're taking advantage.

Gelf Magazine: Will agents be less likely to deal with the Rays because of deals like Longoria's?

Jonah Keri: Longoria wasn't the first time they'd done something like this. They signed Carl Crawford and James Shields to similar deals. They even made an offer to B.J. Upton, who turned it down. I'm sure the Rays would love to get David Price to sign a similar deal. Agents might be cautious about it, but ultimately they're going to do what's in their client's best interest. Sometimes that will mean taking more guaranteed money, especially for a pitcher, who is at a higher risk of getting injured.

Gelf Magazine: Do the peculiarities of baseball's revenue-sharing model and compensatory draft picks make it easier to go from worst to first than say, third or fourth to first?

Jonah Keri: I'm not so sure about that. The success rate of top draft picks isn't that high. It's not college basketball. And even if they do succeed, it might not be in the year following their draft. The Rays benefited from a few years of high draft picks and low payroll, but only because their scouting and player development are so strong that they can convert the first-round picks, and even 17th-round picks, into something useful. The Rays might be unique in that position. You can make a case for the Royals being in a good spot—they have the best farm system in baseball—but they just don't have the personnel making those decisions.

Gelf Magazine: The book alludes to the point that the imbalance in the league stems from the fact that teams do not represent proportional markets. If there were five teams in the New York area, for example, they'd each have roughly the market of the Rays. Can you elaborate on why that is?

Jonah Keri: The territorial rights have already been established. If Sternberg wanted to move the Rays to Connecticut, he'd get opposition from the Yankee, Mets, and Red Sox, who can sway enough owners to their side to prevent that from happening. There will always be weaker markets. Unless Major League Baseball owners decide they want to put five teams in New York or three in Chicago, we just have to recognize that there will be some imbalances in revenue and attendance and not throw a fit when Cincinnati doesn't draw all that well.

Gelf Magazine: Does the MLB deserve its antitrust exemption? Can you imagine baseball without it?

Jonah Keri: It's a legal ruling that creates all kinds of problems. It's what kept Tampa Bay from getting a team earlier on, and then the threat of Vincent Naimoli going after it is what got them the team in the end. In terms of free commerce, it's not the fairest. But if you were to abolish it, there would be some unintended consequences. Maybe teams would be moving a lot more. I come from Montreal, and when your team moves, it sucks. Not everything has to be a perfectly balanced economic model consisting of optimal markets. We don't need to put a team in Hampton Roads because modeling suggests that would be an ideal place. It's an unfair business practice, but the results are not all that terrible.

Gelf Magazine: As discussed in a recent article in Tablet, what do you think it is that draws Jews to study sports statistics?

Jonah Keri: Those who can't do, teach or write about it, or whatever horribly stereotypical thing you want to say about Jews and sports. I wouldn't say it's genetics, but it might come down to environment. It's not something that's necessarily encouraged in Jewish homes. My family made it clear what they wanted from me, and it wasn't "go be an athlete." But I guess I don't really have an answer to why Jews love sports stats.

Gelf Magazine: You've written a lot in the past, but this is the first book you've written on your own. How was that different for you?

Jonah Keri: It was a lot of work. I started in 2008 and the last fact in the book is the Matt Garza trade in January. At that point I thought the book was done, but it's not. Maybe because book publishing isn't what it used to be and because of social media, you have to go out there and do it yourself. I did some marketing for the last book I worked on, Baseball Between the Numbers, but it was more of a group project. This was my baby, for better or for worse. It's also a very lonely experience. I was glad to have Rob Neyer as my first-draft editor and sounding board. But overall, the writing of it is hard. You can't do anything you want to, your diet sucks, you can't go see your kids, there's a lot of pressure. It's great at the end going on shows and telling everyone how much they'll love the book, but the first 98% of writing it is hell. The extra 2% is the fun part.

Front-page image of Evan Longoria courtesy of Keith Allison's flickr via Creative Commons.

Michael Gluckstadt

Michael Gluckstadt is an editor at Gelf and host of the Varsity Letters speaking series.







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Article by Michael Gluckstadt

Michael Gluckstadt is an editor at Gelf and host of the Varsity Letters speaking series.

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