Business Blog: Hoover’s Business Insight Zone

The Brett Favre deal offers a lesson in innovative pricing.

Stick with me, because you don’t have to be a football fan to appreciate this one. The deal struck to move the future Hall of Famer from Green Bay to the Jets has lots of angles — bad blood between Favre and Packers management, on-the-field implications — that need not detain us here.

What is worth noting is a key provision of the deal, explained in this NFL.com story, that governs the compensation Green Bay will get for cutting Favre loose:

The [fourth-round] draft pick traded for Favre turns into a third-round selection if he plays in 50 percent of the plays this season, a second-rounder if he plays in 70 percent of the plays and the Jets qualify for the playoffs, and a first-round pick if he plays in 80 percent of the plays and Jets make it to the Super Bowl.

In other words, the closer Favre brings the Jets to the NFL’s promised land, the more the Packers get. There are even more complex provisions in the deal that would tend to interest only diehard football fans. My point is that both teams went out of their way to make sure that they won’t feel burned if Favre overperforms or underperforms expectations.

Sweeten the deal to prevent “transaction remorse.”

Such complicated give-and-take is appropriate in this case because it’s so hard to know what to expect from a 38-year-old quarterback — even one who holds most of the NFL’s passing records.

Something in this vein may be appropriate for your business if you offer a product or service whose value is unclear. You know the value of what you offer, but how can you reassure your customers and vendors that they’ll be getting good value?

It’s an old idea, one embedded in the 90-day warranty, the subscriber loyalty program, the money-back guarantee. But why stop there? Why not come up with your own version of the Favre deal that alleviates the risk of buyer’s remorse — or seller’s remorse?

What are your ideas for helping your customers or vendors avoid transaction remorse?

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(Packers and Jets logos via Wikipedia.)

Michael Lewis’s terrific book Moneyball is as much about management and innovation as it is about baseball. So whether you’re a baseball fan or not, please stick with me for a second as I talk about one of Moneyball’s lessons.

In the book, Lewis describes how Billy Beane, the general manager of the Oakland Athletics, identified on-base percentage (OBP) as the key underpriced asset for major-league hitters. If you wanted a hitter with a high batting average or lots of home runs or lots of runs batted in (RBIs), you paid a premium for that hitter. But you could get players who lacked those things — yet who had high OBPs — on the cheap.

(For the non-baseball fans in the crowd, the crudest definition of OBP is this: it’s the percentage of the time that a batter doesn’t make an out, regardless of whether he walks, gets hit by a pitch, drives a ball into the centerfield seats, or whatever.)

Why OBP?

What made OBP so special, back in the late 1990s when Beane isolated it as a key metric? Two things — one positive and one negative:

1. The positive: OBP is the hitting statistic that maps most linearly to runs scored. Higher OBPs translate directly to more runs scored — in all settings, and regardless of the types of hitters involved.
2. The negative: For a variety of reasons, OBP is hardly as glamorous as the “triple crown” statistics of batting average, home runs, and RBIs. Therefore it was routinely overlooked as a differentiating factor for hitters . . . even though the list of the top 50 all-time OBP leaders includes a high number of the top 50 all-time hitters.

A little more on that second point: The home-run binge that ran from the mid-1990s through the mid-2000s demonstrates the abiding fascination of baseball fans for the home-run hitter — a point made initially, and most forcefully, by one George Herman Ruth. And over the course of many years, MVP voters have disproportionately rewarded the hitters considered “run creators” for their high numbers of RBIs.

The old love affair with batting average.

Across the game’s history, compiling an average of .300 — that is, getting a hit in three of every 10 at-bats — has been seen as an unquestioned mark of a good hitter, regardless of whether the hits were singles or doubles or triples or homers. And in the early days of the game, that made sense: extra-base hits were hard to come by and walks were regarded as an aberration rather than a beneficial outcome in themselves, so batting average really did express a lot about a hitter’s worth.

In Honus Wagner’s heyday, runs were hard to come by,
and extra-base hits were much rarer than today.

Thing is, the math changed in the 1920s, when Babe Ruth and other power hitters started showing a more modern approach at the plate: more patience, more power. The thinking should have changed, too, so that the emphasis fell to OBP and slugging average (essentially, what fraction of a base a batter averaged per time at-bat). But the old triple-crown stats — batting average, homers, RBIs — were already firmly engrained, they were easy to grasp, they were easy to compute, and they seemed to capture enough information for evaluating a hitter.

What helps us WIN?

Fast-forward seven decades to Billy Beane. He and his mentor, Sandy Alderson, understood that they would never have the budget to hire proven home run champions, RBI champions, batting champions. Yet they could find out-of-the-way hitters who didn’t do anything flashy in the triple-crown categories, but who quietly racked up the OBP, and therefore quietly — and cheaply — helped a team win.

The formula worked. Although the Athletics never made it to the World Series in the 2000s, for several years running, they made the playoffs alongside teams with payrolls two and three and four times as large. They did this in large part because they abandoned the old, easy-to-measure, not-very-meaningful ways of evaluating hitters, and replaced them with smarter, more-meaningful, out-of-the-ordinary ways.

Now, here comes the business application: What do you measure in your organization? How do you evaluate your people, especially in roles outside of sales that often lack clear yardsticks?

Do your measures have real meaning?
Or are you just continuing to measure what you’ve always measured?

Many companies, in my experience, have their own version of “batting average” that they like to point to, even though there’s some more-meaningful “OBP” metric that they should be using.

What about you?

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(Moneyball cover via Wikipedia; Honus Wagner image via Wikimedia Commons.)

One of the side effects of spending so much time thinking about (a) the media and (b) business management is that I can’t even read the recap of a baseball game in peace. I come across something like this . . .

Tigers score most runs this season, hand Rangers sixth straight loss

DETROIT (AP) — The Detroit Tigers’ biggest inning in four years could mean a lot more to the foundering Texas Rangers. Manager Ron Washington’s job might be in jeopardy.

. . . and the rant just boils up inside me.

Please bear with me here, because this isn’t so much about baseball as it is about management decisions and how the media covers them.

There are several things wrong with those two opening sentences:

1. The Tigers didn’t need their biggest inning in four years to beat the Rangers. They were already beating them. Sure, the score would have been 7-6 instead of 19-6, but a loss is a loss — and the psychological weight is still heavy when it extends a losing streak. Sure, when a team puts up an 11-run inning, that ought to be in the story’s lead, but the way it’s used here is not apt.

2. Washington’s job might be in jeopardy? According to whom? The writer? “Anonymous sources close to the Rangers’ front office”? No sources besides Washington are cited. The manager, for his part, said the right things: “Any time a team is in a losing streak, the manager’s job is on the line . . . It falls on me when the team isn’t playing well. I’m the manager . . . that’s the way it goes.” But this is a still just a unsubstantiated notion on the beat writer’s part — and not a helpful one, since the lead conveys a hunch or rumor as though it’s an established fact.

3. From the perspective of how the Rangers club is managed, the real story is the mediocre-to-low quality of the pitchers that Washington has been given to work with. It’s bad enough that the Rangers were facing the Tigers, who have one of the most dangerous lineups in the Major Leagues. Fact is, though, that the Rangers have been getting shelled frequently throughout this season — because their pitching isn’t strong. And whose job is it to acquire good pitching for the team? (Hint: not Ron Washington’s.)

It’s that last point I want to harp on, because we see this all too often in the “real” business world, too: a middle manager is handcuffed in terms of resources, personnel, decision latitude, or whatever — and then blamed when things go wrong.

The real fault here lies with the Rangers front office for assembling a thin pitching staff. Knowledgeable analysts were saying before the season ever started that the Rangers weren’t very good. Now those predictions are coming true on the field.

Here’s the thing: part of the blame for the team’s poor showing could fall to Washington. But if it does, he should be fired because of his overall qualities as a manager — not because of what happens in one game . . . against a heavy-hitting opponent . . . on a day when Ranger pitchers melt down one after another.

And an AP beat writer should help readers to understand that, not confuse the issue.

Here endeth the rant . . . for now.

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(Photo by Dave Hogg.)

Which Super Bowl ads made the best impression? Which ads fared the worst? These are key business questions as the nation recovers from the televisual orgy known as Super Bowl XLII.

To the Super Bowl ads you missed, or to see them again, check out the video player on our dedicated page, Big Game Central. That page also collects analysis from our industry experts on various business angles of the Super Bowl.

Having read a lot of this morning’s news coverage on Super Bowl commercials, I like these takes best:

• Wall Street Journal: Coke, Clydesdales Score With Super Bowl Viewers
• Reuters: Supermodels, celebrities dominate Super Bowl ads
• AP: Ahead of the Bell: Superbowl Advertisers

At the party I attended, favorite ads inluded Will Ferrell’s goofy Bud Light spot, Audi’s Godfather-themed ad (everyone agreed the Audi R8 advertised is smokin’), and Bridgestone’s spot featuring a petrified squirrel who fears he’s about to be run over. My wife liked the Victoria’s Secret ad featuring Adriana Lima in sexy-but-tasteful black lingerie (thank you, Victoria’s Secret!), and I especially liked two very different football-themed spots: the NFL’s witty spot about oboe-playing lineman Chester Pitts, and Under Armour’s minute-long, semi-apocalyptic, 300-style ad for its shoes — which, by implication, pits Under Armour against the dominance of Nike in that market.

My friends were perplexed by Frito-Lay’s Doritos ad featuring unknown singer Kina Grannis. Nothing wrong with Grannis’s voice or the execution of the ad — we just didn’t grasp what Doritos had to do with promoting unknown musical acts. Many other ads registered no more than an “Ehh” with my crowd.

As for what I disliked, I agree wholeheartedly with Suzanne Vranica’s take from the Wall Street Journal story linked above:

The biggest fumble of the night with viewers was by Salesgenie.com, a company that provides databases to marketers. More than half-a-dozen ad executives found the company’s animation spots offensive. In one ad, a married panda-bear couple speaking with Asian accents worries that they may go out of business but are saved by a panda psychic who recommends Salesgenie; the other ad shows a white boss berating an Indian salesman, Ramesh, who has eight children.

“Its hard to imagine that a company would be that insensitive,” says Rita Rodriguez, chief executive of the Brand Union US, a branding firm owned by WPP Group PLC.

Later on I’ll have more to say about the game on the field and the management lessons we might extract from it.

The Super Bowl is as much a championship for advertising as it is for football. Big companies like Pepsi and FedEx spend millions to reinforce established brands, while upstarts like Salesgenie.com or GoDaddy try to gain brand recognition with controversial or aggressive Super Bowl ads. Whether large or small, companies hope that the high cost of entry — $2.7 million for a 30-second commercial — will make their Super Bowl advertising investment worthwhile.

Sometimes it works. Apple’s famous 1984 Super Bowl ad for the Macintosh brought huge recognition to Apple at a time when IBM PCs ruled the computing world. Today that spot is seen as one of the most famous Super Bowl ads ever — and indeed as one of the greatest television ads of all time.

Last year, GoDaddy’s steamy Super Bowl ad turned off plenty of watchers, but it also created a spike of awareness — and new business — for the domain-name registration company. Meanwhile, Salesgenie’s 2007 Super Bowl ad, which implied that using the company’s sales prospecting lists would put you in a hot car with a hot blonde on your arm, was voted one of the worst Super Bowl ads ever . . . yet that didn’t deter Salesgenie.com from ponying up for commercial spots again this year.

Why such devotion by advertisers to Super Bowl advertisements? It’s not only that the Super Bowl delivers hundreds of millions of viewers, but that these viewers are actually watching the ads as part of the show. This is especially true since the Super Bowl audience includes many millions of viewers who don’t normally watch football, and who may or may not care much about the Patriots and the Giants. But even these casual sports fans pay special attention when the commercials come on.

For football fans, the Super Bowl is about football. But for the culture at large, it’s about spectacle — and the commercials are a key part of the fun.

So, uh, any big games this weekend?

Probably there’s a recent transplant to the U.S. from Japan or Hungary for whom that’s a real question. For the rest of the country, sports fans or not, the answer is becoming increasingly obvious as Super Bowl hype builds to a fever pitch.

The Super Bowl commands so much attention for many reasons, and several of the most imporant ones have little to do with football per se. This is so because the culmination of the NFL championship hunt has become a cultural event and a business event as much as it is a sporting event.

As a cultural event, Super Bowl Sunday has become an informal national holiday, on par with Memorial Day or the Fourth of July. It’s a holiday when people get their friends together, fire up the grill, and drink too much beer as they celebrate . . . well, what exactly? I think most of us are celebrating friendship and a sort of imprecise Americanness — but one that’s open to anyone, male or female, American or otherwise, who’s willing to put up with a four-and-a-half-hour football game.

Meanwhile, canny marketers have turned the event into a major selling opportunity. Old-school advertising has had more and more trouble in recent years cutting through the clutter of marketing messages that bombards consumers daily; the Super Bowl provides one of the very few opportunities to reach hundreds of millions of consumers across all demographics. And since Super Bowl commercials have become a competitive genre in their own right, many of those consumers will purposefully pay special attention to the advertisements — something that they never do otherwise.

The Super Bowl’s success as a marketing venue is the apotheosis of the NFL’s triumphant quest to become the dominant league in an American sports landscape populated by giants. Baseball is still called the “national pastime,” but the gridiron long ago displaced the diamond in the hierarchy of American sport. And while the NBA has risen (in the 1980s and 1990s) and declined (in this decade), the NFL has sailed serenely on, gaining popularity by the year. So it’s no wonder that the grand finale of the pro football season attracts so much attention.

It helps when there’s a good game scheduled on the field, too — and Super Bowl XLII could be a doozy. League officials must have been salivating for many weeks now, since playoff matchups made it likely that either an undefeated New England Patriots team or their archnemesis, the defending-champion Indianapolis Colts, would face either the Dallas Cowboys or the Green Bay Packers — two of the most popular and storied franchises in American sports.

Given the likelihood of these matchups, the New York Giants could be viewed as an upstart team, except that they represent the largest city in the country and have their own long and proud history of championship football. They got to the Super Bowl by beating the Cowboys in Dallas, and then topping the Packers in a bitterly cold game in Lambeau Stadium. The Giants have also peaked at the right time: since the beginning of December, they’ve won six out of eight games.

One of those two losses came in the last week of the regular season, when the Giants lost at home to the Patriots in a 38-35 nail-biter. In facing the Giants again, the Patriots will be attempting to do the unthinkable by putting up a combined 19-0 record, a mark that no team has ever accomplished. Besides establishing a record that might stand for decades — as the 1972 Miami Dolphins’ perfect 17-0 season has until now — a Patriots win on Sunday would crown a great football dynasty, since New England also won championships in 2002, 2004, and 2005. (In their “off” years, the Pats went 9-7, 11-6, and 14-4.) It would also, after the champagne stopped flowing, raise the question of what the most successful NFL team of this decade could do to top itself.

The same spoiled-for-choice question already faces the NFL: how do you improve on the most successful annual sporting event in the world?

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Stay tuned to this blog and to Bizmology this week and next as we bring you more coverage of the Super Bowl and its business ramifications.

Sometimes I think I talk too much about sports on this blog, although I always try to make a strong connection from the business standpoint. This Silicon Alley Insider post from Michael Learmonth reminds me why sports is so very important to cover from a business perspective:

Why The Networks Pay Billions For Football

TV networks (along with DirectTV) are paying the NFL a collective $3.7 billion a year for the right to show their games. Are they getting their money’s worth?

Yes, says Campbell Mithun media buyer/columnist John Rash. In fact, it could be argued pro football is propping up the network TV business. Without the NFL, both CBS and NBC are down (11% and 22% respectively) in 18-49 y/y. . . .

Besides that “pure” business orientation, here are two more reasons why I cover sports so much:

1. The personal angle: I confess, my serious sports fan mother (and knowledgeable sports fan father) raised a serious sports fan. Even though I spend far less time than I used to watching sports — and refuse to subscribe to cable television for fear that I would spend every night of the baseball season watching a game — I’m still wired to absorb it relentlessly.
2. The business/cultural angle: It’s often been noted that sports can provide a lingua franca for people who otherwise have little in common to talk about. So there’s that. But there’s also the reality that sports — with its hard-edged standards of success and failure, excellence and inadequacy — can offer ripe pickings for management metaphors. Yes, this can be overdone, especially if the boss is, say, a rabid football fan and members of his team don’t share that love. But if there is a shared language there, sports can be very useful for boiling down concepts and showing them in more naked simplicity.

So, that’s my apologia for continuing to talk about sports. But I’ll understand if the non-sports-fans in the audience skip those posts.

Happy New Year! Here are some short items I’ve been thinking about as I ease back into the saddle of regular posting.

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Climate alarmism.

In the interests of fair (I don’t say “balanced) coverage, I offer this John Tierney column from the New York Times as a counterpoint to my own comments in two recent posts (here and here).

In 2008, a 100 Percent Chance of Alarm

If Tierney is a little backhanded with his treatment of climate alarmists in the media, they themselves are a little underhanded with their opportunistic reporting, which Tierney rightly derides.

Better than overwrought alarmism, or overwrought rejectionism, about climate change would be a more sober assessment of the whole issue. If the climate is, indeed, changing as a whole and over the long-term, then seemingly contrary data points (Antarctic cooling, the fact that it’s snowing outside my window, whatever) don’t change that. And if it is changing over time, the fact that you or I do or don’t “like” Al Gore doesn’t change anything, either.

The media critic in me isn’t too optimistic that we’ll see this balance anytime soon — and especially not in a presidential election year.

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Will Smith strikes again.

Last month we talked about Will Smith’s “sickening” work ethic — which is tied to serious insight into how the movie business works. After seeing the so-so I, Robot on cable over the holidays, I was newly impressed by Smith’s ability to carry a showy but insubstantial picture.

Like each of Smith’s last four pictures, his current release I Am Legend has grossed more than $300 million worldwide, this despite some pretty harsh pans. (My favorite comes from David Denby, whose snippet review opens like this: “In 1973, when ‘Day of the Dolphin’ opened, Pauline Kael wrote that it was ‘the most expensive Rin Tin Tin picture ever made.’ Alas, this is no longer true.”)

Smith has earned his fair share of good reviews over the years, especially for his work in Ali, but in general it seems he won’t go down as a great dramatic (or comedic) actor. But he surely will go down in movie history as a huge box-office success.

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Clutter isn’t a storage problem; it’s a thinking problem.

That’s the lesson — which ties in with what I said the other day about information overload — of this NYT piece:

A Clutter Too Deep for Mere Bins and Shelves

. . . But experts say the problem with all this [shopping for new organizing bins, shelving, etc.] is that many people are going about it in the wrong way. Too often they approach clutter and disorganization as a space problem that can be solved by acquiring bins and organizers.

Measures like these “are based on the concept that this is a house problem,” said David F. Tolin, director of the anxiety disorders center at the Institute of Living in Hartford and an adjunct associate professor of psychiatry at Yale.

“It isn’t a house problem,” he went on. “It’s a person problem. The person needs to fundamentally change their behavior.”

I’ve heard people say that the big problem with their e-mail overload is that they need more disk space — not that they need to recalibrate how they think about their stuff altogether. And there are plenty of businesses that look for technological solutions to problems that are really problems in their organizational culture or psychology.

The more I look, the more convinced I become that individual and institutional psychoses are often the same problems — not just similar, but exactly the same, merely expressed at different scales.

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The Hawaii Warriors get seats at the grown-ups’ table — where they are promptly served their own heads.

This follows up our earlier bowl-season commentary: I have friends in Hawaii who have rooted all year for the University of Hawaii football team to go undefeated. The Warriors carried that off until they ran aground of the University of Georgia in the Sugar Bowl last night. For “ran aground of,” you could substitute something like “got run over by” or “got beat up by.” The Bulldogs shut down the Warriors totally, winning 41-10.

Give credit to star Hawaii quarterback Colt Brennan, who admitted flat-out that Georgia “was the fastest team I’ve probably ever seen.”

Football fans can hope that someday there will be a true national playoff that will allow all the Hawaiis of the country to see how they stack up against the big programs of the SEC, the Big Ten, the Big XII, and the Pac-10 — whether that means beatings like these or the shocking upset victory that Hawaii’s conference-mate Boise State pulled off last year against Oklahoma.

But — since this is a business blog — I’ll advise you not to hold your breath for that. Because the powers-that-be who run, and profit from, the various bowls don’t want to upset the apple cart that now brings them so much money every year, even if doing so would satisfy fans across the country.

The other day I talked about the UT Longhorns’ football season, and previewed their appearance in the Holiday Bowl, in terms of the cost of high expectations. The most memorable (read: bizarre) play from the Holiday Bowl game came when a Longhorn staffer named Chris Jessie — he happens to be the stepson of head coach Mack Brown — appeared to touch a live ball as he was standing on the edge of the playing field. You can read all the details in this thorough article from the Dallas Morning News:

Texas coach’s stepson steps in way

Even if you’re not going to read the article, give that link a click so you can look at the accompanying photo, which shows not just Chris Jessie, but several other Longhorn players and coaches, standing on the field of play.

Inexcusable.

This isn’t about the Longhorns per se Read more

As we mentioned the other day, tonight the Longhorns of my beloved alma mater play against Arizona State in the Pacific Life Holiday Bowl. Texas is no stranger to the Holiday Bowl — this is their fourth trip there during the 2000s. If the Longhorns win, they’ll take their season record to 10-3 and their current bowl winning streak to four games.

The crazy thing is, a loss would make this season a profound disappointment for many Longhorns fans. The Horns have won ten games or more every year since 2001, a run of success that includes back-to-back Rose Bowl wins — the second of which earned them the national championship three years ago.

But this season, Texas lost to both Oklahoma and Texas A&M. A bowl loss would add insult to those injuries. Because of the high expectations put on the team and its head coach, Mack Brown, a 9-4 record counts as failure, plain and simple. This is true even though many coaches would gladly trade places — and won-loss records — with Brown.

This reminds me of the treatment that some companies get when they report increases in revenues and profits . . . but not increases as high as Wall Street was hoping. In cases like this, investors often drive down stock prices, which seems unwarranted in the face of record-high financial numbers, but which reflects the costs of high expectations.

Sky-high expectations mean that, win or lose tonight, the Longhorns and their fans are already thinking about next year.  It’s the price you pay when you keep raising the bar on yourself.