Sunday, September 22, 2013

Using a Bunch of Business Terms to Judge Dayton Moore

The Royals have saved Dayton Moore’s job this year. Or maybe it’s Dayton Moore that saved the Royals this year? Depending on whom you ask, Dayton Moore should or shouldn’t be fired. And while the thought process is a difficult one, there is probably no one clear answer at this time. And while I would love for you to make up your own mind with your own opinions on the future of Dayton Moore, let me put some thoughts out there from a managerial standpoint.

When managing a company, there are many things that managers have to consider: operating leverage, return on investment, net operating income, sunk costs, etc. And while I’m not nearly educated enough to write a book about it, I am just educated enough to put some bullet points up here on the similarities between managing a company and being general manager of a baseball team. Intertwined in my descriptions will be my thoughts on Dayton Moore.
  •       Let’s start with a growth-share matrix. A growth-share matrix is a portfolio-planning method that evaluates a company’s strategic business units (SBU’s) in terms of market growth rate and relative market share. This definition is usually followed with a chart you might have seen in a high school or college business class.

  • While any analogy will have holes in it, stick with me on this one while I switch some terminology around to compare it to baseball. Using this matrix, I think it’s fair to say that Dayton Moore traded a star for a cash cow – that, of course, meaning Wil Myers for James Shields.
  • Cash cows are log-growth, high-share businesses or products, and thus they produce a lot of the cash that the company uses to pay its bills and support other SBU’s that need investment. This is what James Shields has brought to the Royals. He stabilized the rotation, eats innings, and helped make the pitching staff as good as it is. He made the whole team better.
  • Unfortunately, cash cows don’t stay cash cows forever, and as good as James Shields has been this year, he only has one more year of team control left following this season. It’s examples like this that make finding stars which can eventually turn into cash cows so important for businesses and baseball teams alike. The Royals had that star, and his name was Wil.
  •  To play devil’s advocate, however, what if we shouldn’t consider Myers a star at the time he was traded? After all, he had yet to take a swing at the major league level. That would make him a question mark, according to the matrix. Question marks require a lot of cash to hold their share, but can turn into stars if the right course of actions are taken. Well, Myers had been and dominated the minor league levels for some time, and was about as close to a star before entering the Majors as one could be, but let’s forget that right now. A critical part of a manager’s job is to correctly identify stars from the question marks. If Dayton Moore didn’t think of Myers as a potential star, and that’s why he felt good about the Shields trade, then he made a critical error in his judgment. If Moore thought Myers would be a potential star, but still thought a cash cow in the present was the best course of action, then I believe he still made a critical error in judgment.
  • Enough with the weird names and references to matrices, let’s go to operating leverage! This is a measure of how sensitive net operating income (NOI) is to a given percentage change in dollar sales. This is going to be a big stretch, but just go with me on this one.
  • Increased variable or fixed expenses affect the amount of operating leverage that a company has. Higher variable costs with lower fixed costs make for a lower operating leverage. Lower variable costs with higher fixed costs make for higher operating leverage. To summarize, companies with higher operating leverage have a higher ceiling but a lower floor than companies with low operating leverage.
  • When it comes to baseball, a young player with many years of inexpensive baseball ahead of him is about as close to a fixed expense as you can get. A guy with only a couple of years of team control, at a high variance position such as pitcher, would be what I consider a variable expense. Teams like the Royals can’t afford to trade fixed expenses for variable expenses. They need a high operating leverage, because in such an unfair game as baseball is on the salary cap side, the higher the leverage, the better the chance that when the Royals are ready, they are REALLY good.
  • While James Shields made the team better this season, the ceiling is no longer as high as it would have been with Wil Myers.

I hope what I stated above makes sense. There are some flaws to using the above to judge Dayton Moore; first off, I’m really only looking at the decision to trade Myers. I don’t talk about other moves he’s made, such as Guthrie for Sanchez or Santana for someone I’m not even taking the time to look up, but these are important to the evaluation process. The Myers trade, however, sticks out more than anything else, and is what I would consider almost unforgivable. But going forward, as any good manager would tell you, the Myers trade is a sunk cost, and should be considered irrelevant when deciding on Moore’s future. And when looking at it this way, and hoping the Royals are now ready to really go for it next year, I think Moore has earned another year in Kansas City.

But this year will be remembered for one of two reasons for Royals fans going forward: 2013 was either the year the Royals turned the corner or the year the Royals traded a cornerstone. 

All definitions I used are credited to:

Garrison, Ray H; Noreen, Eric W; Brewer, Peter C. Managerial Accounting. McGraw-Hill Irwin. New             York. 2012.

Kotler, Philip; Armstrong, Gary. Principles of Marketing. Pearson. New York. 2013. 

Bateman, Thomas S; Snell, Scott A. Management: Leading & Collaborating in a Competitive World.              McGraw-Hill Irwin. New York. 2013.

Friday, September 20, 2013

Texas Beats Tampa - Is that Good?

Last night started off excellent for the Royals with Boston knocking off Baltimore 3-1 and Toronto beating New York 6-2. If the Astros could have taken advantage of a bases loaded 1 out situation in the 9th against Cleveland, I would have went to bed an extremely happy man. Instead, Chris Perez continued to be blessed by a four leaf marijuana bud and escaped the jam. Here is how the wild card standings look heading into the weekend:

  1. Tampa Bay     83-69     --
  2. Texas     83-69     --
  3. Cleveland     83-70     0.5 GB
  4. Baltimore     81-71     2.0 GB
  5. Kansas City     80-72     3.0 GB
  6. New York     80-73     3.5 GB
As you can see, the Royals are 3 back with 10 to play. The odds are steep (4% according to Baseball Prospectus/ 9.9% according to Cool Standings).  Here are a few takeaways that I have after playing with some different scenarios.

Based off of my toying with the remaining schedule, the Royals need to win 8 of their final 10 games. There are ways to get the Royals into a tie breaker game with a 7-3 finish, but they aren't as reasonable as the aforementioned 8 win scenarios.

As we all know Cleveland's schedule is cake the rest of the way (3 vs Houston, 3 vs Chicago, 3 at Minnesota), which is why last night's win over the Astros was so frustrating. Due to Cleveland's schedule the rest of the way, there's a decent shot that Kansas City simply won't be able to make up 2 games against the Racists.

If Cleveland does get hot and beats the teams that they should beat over the final 10 games, Kansas City will be forced to pass or get even with each of Baltimore, Texas and Tampa Bay (already in front of New York). For this reason, it probably isn't a bad thing that Texas defeated Tampa Bay last night. Bare with me as I attempt to explain why...

First, Kansas City has three against Texas. If Texas would have lost, Kansas City would enter the weekend just 2 games behind them. What this means, is that in order for the Royals to pull even or pass Texas, Kansas City would have to sweep. If the Royals only take 2 of 3, Texas still leaves town with a 1 game cushion over the Boys in Blue. 

All the while, Kansas City would enter the weekend 4 behind Tampa, meaning over the final 10, the Royals would need Tampa to go 4-6 to pull even with the Rays.

With the way that it wound up unfolding (Texas defeating Tampa Bay last night), the Royals still enter the weekend needing a sweep to pull even with the Rangers. It is true that Kansas City can't pass Texas by Monday. However, regardless of whether Texas won or lost last night the Royals controlled their own destiny against the Rangers. Since Texas won, the Royals only have to play 3 games better than the Rays the rest of the way to pull even with them.

Fortunately, when discussing the Rays it should be noted that they don't have the cake walk schedule that the Indians have. The Rays play 4 against Baltimore, 3 at New York, and close with 3 at Toronto. A 5-5 finish isn't inconceivable by any stretch.

The Royals already control their own fate against New York, which leaves Baltimore. Baltimore plays 4 at Tampa, 3 vs Toronto, and 3 vs Boston. the Royals are only one behind the Orioles and it is hard to imagine Baltimore winning 8 or 9 of their final 10 games with that schedule. If they do, you better hope that Cleveland falters.

Basically, what this boils down to is that with a sweep this weekend and then a 5-2 final week, I feel pretty confident, but not certain, that the Royals would sneak into at least a tie breaker game. Even if the Royals only take 2 of 3 this weekend, their hopes aren't dashed as long as they can somehow get 6 wins in their final 7 games.

Also, just because a team is playing a sub par opponent in the final series of the season, doesn't mean strange things can't happen. This is baseball, and because we are watching baseball, a team within 3 games will always have a chance going into the final weekend.

First and foremost, the Royals need to sweep the Rangers this weekend, but if they only take 2 of 3, don't give up hope just yet.

Bonus Thought: Two teams that will play a huge role in this race are Houston and Toronto. Kansas City doesn't play either so if the Astros and/or the Blue Jays can get hot it would be huge boon for the Royals. 

Welcome Back

First, I apologize for not writing hardly any over the last month. I have explained this before, but this blog started as an outlet for me to discuss baseball when the Royals weren't in the hunt or in the offseason. As a result, my posts (don't worry, I won't self righteously refer to them as articles) are tend to be less frequent during times that the Royals are keeping things interesting. I hope to find time to change this approach.

Of course, as we all know the Royals have in fact kept things pretty interesting. For me, this is the most exciting season that I have ever experienced. You can be dismissive about the importance of a springboard season, but just because there are teams that win 90 after winning 65, it doesn't mean that a record of 85-77 in the middle can't have value. I hope to approach this topic in more detail later.

For now, I want to revisit something that I wrote just before the trade deadline.

"We all are fully aware of the faint possibility. We also tend to scoff at those who value things like a "winning season" or "meaningful games in September". If you believe the Royals have to make the playoffs for 2013 to be a success that's fine. I would never argue with that. But who are you to dictate what other fans should consider a success?" - You can read the full article here.
What is unfortunate for the current group of players is that many fans will not grant this season a success unless the Royals accomplish the improbable and grab a playoff berth. They will cite the Wil Myers trade and how the Royals gave up 6+ seasons of a star for what now looks like the possibility of one playoff run.

The problem with this response is that there is no distinction being made between "Was 2013 a success?" and "Was the Wil Myers trade a success?" I realize that many would argue the two cannot be mutually exclusive. I personally would disagree. However, I don't want to rehash the debate here.

Ultimately, the Royals have kept a fan base engaged in baseball throughout an entire season. This is a feat that the organization has accomplished once since 1994. I believe that this will have very positive residual value to the Royals. It is difficult to truly draw in a fan without some form of excitement, hopefully the fun of this season has gotten many hooked on Royals baseball for years to come. Try to tell those individuals that this season wasn't a success.

The point that I am trying to make is that ultimately, can we say unequivocally how successful 2013 was without gazing into a crystal ball? No. Even if we didn't need to see the future, this question wouldn't be black and white.

All I would suggest is to think about this summer. Think about all the jubilation and all of the heartbreak that this team caused you. Then try to decide whether or not 2013 was a success? As a fan, I want to be entertained. I want to dream. I want to feel the emotion and excitement of playoff chase. For the first time in 10 years I felt this again. I'm not going to dismiss those feelings, because analytically I rejected to the Wil Myers trade.