Friday, October 23, 2009

Theo Epstein and J.D. Drew

Yesterday morning, on Boston sports radio station WEEI, Boston Red Sox general manager Theo Epstein offered an ardent defense of his outfielder, J.D. Drew - a player he signed to a 5 year, $70 million contract several years ago. Drew tends to be viewed by most fans as "not worth the money." Epstein argued that he has indeed been worth the money, and that fans must look past the common statistics reported in the newspapers. His more sophisticated statistics tell a different story. I found several parts of his comments troubling, and perhaps of interest to leaders in other industries.

What are the lessons from this interesting debate about Drew? First, clearly, young baseball general managers, as Michael Lewis explained in his great book Moneyball, have used sophisticated statistical techniques to get a better understanding of player performance. As a result, these general managers have taken advantage of inefficiencies in the market for players - inefficiencies resulting from the fact that commonly used statistics of the past often don't tell an accurate or complete story. Epstein has done this well with two World Series championships during his tenure. As a business leader, do you have such discrepancies in your industry? Can you take advantage of them?

Second, in baseball, nearly all fans know about the advances in statistics, even if we don't know all the nuances. Epstein's argument was incredibly condescending, suggesting that we all didn't know much about what really matters. Imagine telling that to your customers in your business. You never want to suggest to your customers that they are ignorant, which essentially is what Epstein did. Many companies actually do think they are smarter than their customers at times, ignoring key warning signs about their business as a result.

Third, note that Epstein defended Drew's performance "on a rate basis" - i.e. he's very good in terms of output per game played. The problem is that Drew doesn't always play; he can't stay on the field. As a business leader, you might have an incredibly talented employee, but if he or she doesn't come to work every day, then you certainly wouldn't retain the worker. You can't be good half the time. Epstein's defense of Drew's performance "on a rate basis" seems puzzling.


Brian said...

As always, right on point Prof. Roberto. You could also add customers to your last point about employees. Customers with a "high potential" are always aluring and exciting, but "potential" comes with two caveats.

First, the "potential" must be realized. Upside doesn't put profits on the bottom line. Particularly in negotiations, promises around "potential" shift risk 100% to the buyer. (Think of the "potential" priced into deals before the economy tanked and borrowing conditions changed!)

Also, the "potential" needs to be realized at a reasonable cost. Tantalizing potential creates negotiating leverage, and shifts risk. In this case, J.D. Drew extracted a huge premium and shifted the risk 100% to the Red Sox! Basically, the Red Sox agreed to pay him at a rate consistent with his optimum performance potential. But consistently reaching highest expectations is difficult in any job, but particularly so in professional baseball (and particularly UNLIKELY for someone with no proven track record of acheivement). The lesson for businesses is never to underestimate the value YOU add. Price your products and negotiate your deals where BOTH risk and return are properly priced and reasonably estimated.

Despite Drew's history of injuries, Mr. Epstein ignored this important metric. As a result, the Red Sox are paying for an entire season of performance and only getting 50%-75% of a season. So even if we buy the (questionable) logic of using a "rate" the Red Sox are still overpaying.

Speaking of that "rate" assumption, every agent should project their client's best splits over a full season and give Mr. Epstein a call!

Keith B Murray said...

I didn't hear this until I saw your post--and this is interesting from a management POV: What this underscores is the "flat-worldness" of management decisions. By this I mean that everyone now "knows" what the evaluative, or hiring, criteria--or thinks they know...and, thus, becomes [certainly in the short-term] arm-chair managers. With access to the performance information, in this case of J.D. Drew, the knowledge of the "formulas" or criteria for "success," it becomes easy for fans to reasonably think they can make intelligent judgments--maybe better put as second-guesses--as to not how good Mr. Drew is...BUT how good Mr. Epstein and team are in THEIR decision making performance!

What this points to is the need for two things: first, Mr. Epstein--and management generally--to not permit side-walk critiques to get by with the idea that they've figured out all the criteria necessary to trigger or justify a decision. Failing that, he also ought to have been less defensive and alluded to a more long-term perspective--players are, from time to time allowed "slumps" to occur, right?

Now if Mr. Drew ends up being in a permanent slump--that might be a more difficult conversation, or justification, to manage. But this all goes to show that the world of management truly is by this incident, certainly, getting to be a pretty flat one! In other words, the art and science of being an open, public-oriented manager has grown more challenging!

Great post, Mike. Thanks, Keith

Rick Smith said...


I was equally puzzled by Theo's comments. I certainly respect him as a GM and what he has accomplished for the Red Sox. He seems though to have blinders on when it comes to his decision to sign JD Drew to a long-term contract.

While peformance and contributions to a team's success is provided in a different manner by each employee, Theo in his defense of JD (and himself) neglected to indicate in what ways JD helped the Sox this year.

Additionally, as in business, how do other employees feel about "under performers" being recognized and perhaps at their expense?

Thanks Mike for sharing the parallels of this sports dilemma with other businesses.