The Extra 2%

Jonah Keri was nice enough to send me an advance copy of his new book, The Extra 2%.  His book details how a Wall Street management group took over the Tampa Bay Devil Rays from Vince Naimoli and put together a team that could compete with the Yankees and Red Sox at a fraction of their massive payrolls.  We learn a lot about Naimoli's reign of error (terror?), but that's not the real story.

The book is subtitled 'How Wall Street Strategies Took a Major League Baseball Team from Worst to First' though I'm not sure that's the entirety of what Tampa is up to.  For example:

- We find out the thinking behind Tampa's acquisition of Rafael Soriano from Atlanta; they were willing to pay market rate for a top reliever, but they didn't want to give up a draft pick for signing a 'Type A' free agent

- They signed Evan Longoria to a massive long-term contract before he had established himself as a major-league player; they could call him up earlier and still avoid 'Super Two' arbitration, and of course they took a big risk to get a massive discount on a player

- We learn about the role of marketing and promotions in increasing Tampa's profitability

These aren't Wall Street strategies per se: the first two are valuation questions, but they really involve understanding the intricacies of MLB rules as opposed to having a better valuation system than other teams; the third is more like standard MBA strategy. 

The Wall Street strategy is the 'Extra 2%' - team management isn't under the mistaken impression that there's a massive inefficiency in the market for MLB players like there was when Billy Beane started trolling the minor leagues for undervalued players.  Instead, Tampa is constantly looking for small edges, anything that will give them a 52-48 advantage over their opponents.  They went out and bought defense, which they thought was undervalued; they worked to improve their baserunning; they have an evidence-based approach to defensive shifts; and they have no problem letting Carlos Pena bunt for a single against the shift.  These are all small edges, worth $500k here, $1M there, but they still return 20 or 30 times the R&D investment they put in to figure them out. 

And therein lies the brilliance of their strategy: they operate from an ROI perspective - as they should - as opposed to having a vague notion that hiring a couple of analysts will bring them a $50M return; and they let their analysis drive their decision-making, as opposed to using analysis to back up things they already believe (and discarding it when it doesn't fit their pre-conceived notions of what they should be doing.)

This is a book about how things work inside baseball, so expect a lot of 'inside baseball' - but you'll also see how Tampa used to business, and how they do business today.

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