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Rays' business lessons: Finding an edge to better the odds

If you're a smaller player competing against giants like McDonald's and Taco Bell or Honda and Ford, you try to be smarter, more creative and cost efficient. So it is with the small-market Tampa Bay Rays and their business strategies when taking on the Goliath New York Yankees and Boston Red Sox.

As baseball's opening day approaches, a new book is out that explores how Rays owner and New York investment banking veteran Stu Sternberg recruited young, deal-savvy Wall Streeters Matt Silverman and Andrew Friedman to run the franchise. They in turn hired out-of-the-box thinker Joe Maddon to manage the team, then quietly began building a backroom bevy of database-driven, analytical sharpies. They're the guys whose names rarely make local sports reports but who help make the Rays more competitive against the bigger, richer baseball franchises.

The book is called The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First. The title refers to the Rays' dramatic 2008 season when a team on a shoestring budget rose from nowhere to win the American League championship (leaving the Yankees and Red Sox in the dust) before losing to the Philadelphia Phillies in the World Series.

The Rays, officially born 16 years ago last week, have won the American League's East Division twice in the past three years. Can the team repeat or at least grab a wild card spot for the fall playoffs?

While the Rays trimmed payroll this winter, the Yanks and BoSox each spent big bucks to add star players. Many experts call the Red Sox the division team to beat and suggest the Yankees may be improved, but still vulnerable.

Anyone who follows the Rays knows all that. What's less visible are the business techniques and strategies the Rays' management team bring to bear on making the team better on a tight budget.

Book author Jonah Keri, who writes for Investor's Business Daily and the Wall Street Journal as well as for ESPN, says the title's Extra 2% refers to the small advantages the Rays look for in everything they do. Such opportunities can appear in leveraging player deals and trades to structuring contracts and emphasizing overlooked (and undervalued) defensive and base running skills. It extends to fan marketing and Rays branding. It's using Wall Street-inspired analysis skills to grab any edge.

One unusual edge emerged in finding and hiring Josh Kalk, a physicist/math professor from Bluefield State College in West Virginia. He knows how to analyze pitchers' location, pitch speed, arm angle and pitch type. That helps, Keri writes, when scouting the opposition, looking for vulnerabilities. And it can benefit the Rays' own pitching staff, watching for bad form.

Given the prevalence of pitcher injuries and surgeries, Keri writes, "Kalk's ability to break down the intricacies of a pitcher's delivery stood to save the Rays millions of dollars — maybe even tens of millions. All for the price of a Bluefield State professor."

Another business edge was the Rays arriving at an early and long-term contract with young superstar third baseman and 2008 Rookie of the Year Evan Longoria.

The deal has already paid back the Rays $85 million through 2010, says Keri, citing calculations of value per team win from the baseball website FanGraphs. That's more than the entire contract, with options.

"We've worked hard to get that extra 2 percent — that 52-48 edge," Sternberg says in the book. "We don't want to do anything to screw that up."

My conversation with author Keri, 36, focused on the business lessons found in the Rays management's methods. The book is well worth a read to Rays fans, though Keri spends too much time pointing out Rays original managing partner Vince Naimoli's blunders on and off the field before getting to the good stuff.

The Rays offered no public comment on the book. St. Petersburg Times veteran baseball writer Marc Topkin, who is quoted several times throughout The Extra 2%, wrote last week that the Rays gave Keri little face time with the higher ups in the organization.

Keri agrees. The Rays did not welcome him with open arms. He acknowledges the Rays have plenty more strategies that did not make the book. But like any reporter worth his weight, Keri says that lack of access did not prevent his delivering plenty of details. He says he interviewed 175 people.

No one, including the Rays, disputes the overall book is flattering to the team's current management team. Owner Sternberg, who got rich selling his Wall Street business to Goldman Sachs, grew up a baseball lover in New York and put together his dream team to run the Rays franchise. Team president and ex-Goldman Sachs banker Silverman is the hands-on business side guy. Dealmaker Andrew Friedman, a onetime Bear Stearns analyst and Tulane University outfielder, became executive vice president of baseball operations.

Of course, running the Rays is not just about beating the Yankees and Red Sox. As Tampa Bay readers know, game attendance still lags league averages even as the Rays play superior baseball. Tropicana Field is a pariah in Major League Baseball circles. Keri calls the stadium "one of the oldest nonlandmark ballparks in the game, meaning it benefited neither from the nostalgic draw of the Wrigley Field or Fenway Park nor the novelty of new stadiums."

The Trop, writes Keri, suffers in one important way more than any other MLB stadium. "Only 19 percent of Tampa Bay residents live within a 30-minute drive of the stadium."

On the other hand, Keri notes, the Rays enjoyed the fifth-highest TV ratings in baseball last year. Game attendance, he suggests, is overrated as an indicator of fan support.

A Canadian who grew up watching Felipe Alou manage the underdog Montreal Expos, Keri jumped at the offer to write a book about the Rays after the team's sensational 2008 season.

What if the Rays had remained in the hands of Naimoli, and not been revitalized by Sternberg and his whiz kids? It's scary to imagine.

But no franchise owner is infallible. Keri points out how in 2009 the Rays committed $16 million in a 2-year deal to bring in Phillies home run slugger Pat Burrell, who was a bust. That $16 million price tag will continue to limit the Rays' financial options in building a better team, Keri argues.

The Yankees or Red Sox, he notes, also have the luxury of risking big bucks on players and eating those losses, if necessary, far more easily than the tight-budgeted Rays.

What's more, whatever proprietary databases, clever metrics, superior scouting and trading skills the Rays may posses will try to be copied by other teams eager to gain their own "extra 2%" beyond the baseball diamond.

Writes Keri: "The idea behind the extra 2 percent — finding ways to gain that little, but essential, edge on the competition — will always exist, in baseball as in business. It just won't always belong to the Tampa Bay Rays."

Not if the guys in charge of the Rays have anything to say about it.

Robert Trigaux can be reached at [email protected]

Rays' business lessons: Finding an edge to better the odds 03/12/11 [Last modified: Sunday, March 13, 2011 1:22pm]
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