Business Blog: Hoover’s Business Insight Zone

Throughout the 1980s, the permanent financial advantages of the New York Yankees couldn’t buy the team out of the holes that team owner George Steinbrenner kept digging for them. By the mid-1990s, Steinbrenner stopped relying on his own counsel for the club’s baseball decisions, turning instead to a bevy of smart baseball lifers who knew how to build a team. The Yankees assembled a club that combined outstanding home-grown talent like Bernie Williams and Derek Jeter with outstanding free agents like David Cone — hired guns, but worth the price. The result was a dynasty that won World Series in 1996, 1998, 1999, and 2000 and contended for years beyond that.

For all of that time — and decades before — the Boston Red Sox toiled under the not-very-enlightened ownership of the Yawkey family and then the Yawkey Trust. The Sox always had a famously devoted fan base, but they had an even more famous problem winning championships; anyone even slightly acquainted with baseball knows about the 86-year drought between their 1918 championship (when Babe Ruth was still a pitcher for them) and their storied 2004 title (which included the most epic playoff comeback in baseball history — against the Yankees, no less). It’s not an accident that the 2004 title, along with their new championship secured last night against the Colorado Rockies, came under the ownership of John Henry, a billionaire investment manager with a math professor’s head for numbers and a hearty appetite for winning.

Considered as businesses rather than sports franchises, the Yankees of the late 1990s and the Red Sox of today share key traits with other market-dominating firms like Goldman Sachs and Wal-Mart: when you’re trying to compete with these giants, you quickly figure out that they can both out-spend you and out-think you.

ESPN uber-columnist — and lifelong Sox fan — Bill Simmons offered this perceptive comment in his column today:

Not only are the people running professional sports teams getting smarter and smarter, but some franchises with deep pockets have figured out it’s better to funnel that money into development and scouting instead of just overpaying veterans for splashy, “quick-fix” signings. . . . it’s one thing to have a significant financial advantage; it’s another thing to know what you’re doing with that significant financial advantage.

Emphasis his. That last bit could just as easily describe Toyota or Cisco Systems as the Red Sox or the other superior franchises in professional sports. These outfits aren’t content to have lots of money and coast — they use that money to win.

The sad thing is that so many sports fans, along with shareholders of companies in the non-sports world, have to put up with so much mediocrity: the also-ran franchises who either have money and waste it, or who lack money and don’t get smarter to help compensate. Outside of sports, there are always market laggards who never take the step up to excellence. It’s much easier to respect the Cleveland Indians, who pushed the Red Sox to the brink of elimination on half the payroll, or Target, which has taken on the much larger Wal-Mart and held its own.

We can’t all be rich, and that goes for companies as much as for individuals.  But anybody — anybody — can get tired of losing and let that drive them to do their business smarter.  When a rich business gets tired of losing, picks itself up off the mat, and starts to get smart — watch out.  Just ask all the teams that have been losing to the Red Sox.