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Billy Beane and Baseball’s Big Spenders

For me, the surest sign that spring has arrived is the beginning of the baseball season. And although the season officially kicked off with a series of games between the Oakland Athletics and Seattle Mariners last week in Japan, it really began in earnest last night when the defending World Series champion St. Louis Cardinals beat the new-look Miami Marlins on Opening Night.

In the spirit of the new baseball season, I recently had the chance to speak to Billy Beane, the general manager of the aforementioned Oakland A’s and the subject of the book and movie Moneyball, for the latest issue of Risk Management. Beane will also be delivering a keynote address at the upcoming RIMS 2012 Annual Conference & Exhibition in Philadelphia. In our interview, Beane discussed how he uses data to run a competitive baseball team and addressed some of the risk management and insurance concerns that a general manager of a baseball team has to face.

One comment I found particularly interesting was the following:

About 10 years ago, we’d insure player contracts. What’s interesting is that, for years, say you signed a player to a five- or six-year contract, you could get that entire contract insured. And I remember one time [our insurer] came to us and said they’re no longer going to insure contracts for longer than three years. After three years, they need to be underwritten again. And my assistant and I said, “that’s an insurance company telling us that it’s not a good idea for us to sign players beyond three years.”… So that was basically them telling us these aren’t good bets.

What makes this comment so interesting is that it doesn’t seem like this philosophy is shared around the league. For instance, this past offseason the Los Angeles Angles of Anaheim signed first baseman Albert Pujols to a 10-year, $240 million contract while the Detroit Tigers gave first baseman Prince Fielder $214 million over 9 years. Not to be outdone for the privilege of paying players $20 million a year, just last week the Cincinnati Reds gave their star first baseman Joey Votto a 10-year, $225 million contract extension, while the San Francisco Giants extended pitcher Matt Cain’s contract by 5 years for $112.5 million.

Regardless of the value of these contracts, they all go against Beane’s (and his insurer’s) no-more-than-three-years rule and it’s hard to see how these players will deliver full value on their deals. Granted they are some of the best players in the game right now but injury and age could take their toll on performance at any time. Pujols, in particular, may be one of the greatest baseball players of all time, but he is 32. Not many players, no matter how good, are still productive (or even able to play) in their 40s. These signings seem to illustrate the difference between baseball’s big markets haves and it’s small market have-nots like the Oakland A’s. The richer clubs are simply able to take on risks that Beane cannot.

Or maybe there’s a more insidious method to their madness, as Jonah Keri writes on ESPN’s Grantland:

Sweating potential value, opportunity cost, and other related principles might be focusing on the wrong details. The recent $2 billion Dodgers sale points to a baseball landscape that has changed dramatically. Current and prospective owners see an industry that grew revenue through a tough recession and now stands poised to rake in far more money, with media deals rising, the economy improving, and the game in the midst of its longest period of uninterrupted labor peace since the advent of free agency.

According to Keri, these owners are making what they think are smart choices given the current market. But these choices may be based on the assumption that that the value of their clubs can only go up into the rarefied billion-dollar air.  So what’s a few hundred million here and there? A baseball team is basically a license to print money. Obviously, nothing can ever go wrong with that strategy. Right, housing market?

One President, One Rapper, One Reporter and One “Jackass” Show the Need for Social Media Policies

In what has proven to be a rather timely development given our ongoing discussion of how risk management may intersect with social media, yesterday an ABC employee “tweeted” (i.e., sent a message on Twitter) indicating that President Obama called hip hop producer and rapper Kanye West a “jackass” while the Commander in Chief was having a casual, off-the-record conversation about the for the stunt Kanye pulled (reportedly while drunk) at the MTV Video Music Award show on Sunday.

For the uninitiated, known-eccentric Kanye West jumped up on stage after country recording artist Taylor Swift won the award for Best Female Video and took the microphone away from her so he could voice his opinion that his friend Beyoncé should have won since she had “created one of the best videos of all time.”

By all accounts — even one from Mr. West himself last night on the premiere of the new Jay Leno show — Kanye acted like a jackass. So the fact that Obama said so is not the issue that’s relevant here (or, anywhere, in my opinion).

The issue relevant to social media is that the ABC employee tweeted an off-the-record comment, which led to it later having to be deleted and ABC having to issue a formal apology. Still, the whole incident surrounded a highly innocuous comment about a silly pop culture event so, ultimately, all of this comes down to is “no harm, no foul.” In and of itself, this particular event is not significant.

But it does show how one momentary lapse in judgement can lead to something that could be a potentially large issue. What if a reporter erroneously quotes someone in social media? What if they write something too quickly that turns out not to be just “off the record” but actually incorrect? Sports Illustrated did just that before sending out this erroneous announcement that Roger Federer won the US Open. Again, this wasn’t a particularly serious issue, so it’s not a big deal — only slightly embarrassing for SI.

But what if the comment is libelous? What if someone announced something that they overheard at a dinner party about a much more contentious issue like, say, the Valerie Plame fiasco? As a rule, a journalist needs at least two sources confirming something as fact before they publish, but even a generally professional journalist could slip up and “publish” something erroneously on Twitter. That could very likely lead to a lawsuit.

Much like the ESPN post from the other day, this post again deals with the media’s use of social media. Indeed, a lot of the discussion of Web 2.0 issues surrounds the traditional media simply because sites like ABC and ESPN have embraced it earlier and more vigorously than the average Fortune 500 company. But, as our upcoming October feature on social media points out, whether or not a company itself has actually embraced social media matters little. Undoubtedly, some of its employees have.

So what happens when some “Senior Director of GE” is attending a corporate party and, after a few too many glasses of wine, says something on FaceBook or Twitter like “Looks like our CEO is drinking scotch and hitting on his assistant again”? Maybe nothing. But maybe someone influential sees this and passes it on to someone else and, before you know it, headlines like “Drunk Jeffrey Immelt Hits on Secretaries” pop up on various business blogs.

A lot of critics who think ESPN has overreacted with its social networking policy feel that the company’s parent, Disney (who just so happens to also own ABC), is trying to censor reporting. But a good social media policy isn’t about censorship. It’s simply a reminder to let employees know that what they say digitally is public and will not just be seen by their friends — it could potentially be seen by anybody. A lot of people still don’t understand that. So it’s really just a reminder and a way to educate your employees on common sense.

And this isn’t anything new.

Every year before the RIMS Conference, we have a pre-conference meeting where we go over all the many details of the event with a fine-tooth comb. Mainly, we go over things like who needs to be where when and which hotels everyone is staying at and who to contact if there is a problem with a presentation projector. Innocuous stuff. But there is also a reminder to all the staff that, for the duration of the conference, we are representing RIMS. If we happen to be invited to an Aon dinner event where wine and beer will be served, we are expected to continue being professional and not doing anything that would make RIMS look bad.

That message is really just common sense. It’s the same “Don’t do anything that you wouldn’t want to see on the cover of the Wall Street Journal” advice that people have been preaching for decades, with maybe the extra caveat of “and don’t write anything…” as well.

But a lot of people don’t think about this simple concept in the context of social media until it is actually told to them. That’s why social media policies can be valuable. Many people see social media sites like Twitter as the equivalent of an “after work party” where clearly restricted behaviors are allowed. In the article, I think I refer to it as “people treating it like the break room” or the water cooler. People do and say things in social media that they normally wouldn’t if they thought someone was watching or if they thought there was an expectation of professionalism.

A social media policy, no matter the details that each individual company writes down, is in essence no more than an official reminder that you need to be professional as an employee at all times, both in the office and when you’re talking about anything work-related on the internet. It’s all about education.

Moving on…

In related news, I recently learned about a free 3D Virtual Event on Social Media 101 presented by Digitell Inc. I’ve never attended anything they have put on before and am not sure what the 3D part means so I can’t vouche for its overall quality, but it’s only an hour long and should help anyone unfamiliar with the core social media concepts get up to speed. Plus, the guy giving the class has one of the more intriguing bios I’ve read recently.

Growing up in New Zealand surrounded by 60 million sheep Mike learned a thing or two about standing out in a crowd (human or on four legs!). He also learned that by simply following the flock you end up getting eaten! In his later travels to (live and work in) Australia he learned that a dead kangaroo on the side of the road will attract a lot of flies, but doesn’t get to benefit from all that attention … With his experience working on three continents and a wealth of knowledge in mass communications, social media, marketing, new product development and customer service Mike loves to use his knowledge to help others. His only requirement is that everyone have funalong the way – because life is just too short to do otherwise.

Those of you without a full hour to kill may want to just read this article called “Understanding the Users of Social Media” from the Harvard Business School instead. (Or, if you don’t even have time for a full article, just check here for the main findings of Harvard professor Mikolaj Jan Piskorski’s research.)

Here’s the main point of the article.

If the ongoing social networking revolution has you scratching your head and asking, “Why do people spend time on this?” and “How can my company benefit from the social network revolution?” you’ve got a lot in common with Harvard Business School professor Mikolaj Jan Piskorski.

Only difference: Piskorski has spent years studying users of online social networks (SN) and has developed surprising findings about the needs that they fulfill, how men and women use these services differently, and how Twitter—the newest kid on the block—is sharply different from forerunners such as Facebook and MySpace. He has also applied many of the insights to help companies develop strategies for leveraging these various online entities for profit.

Lastly, I had this chart emailed to me recently, which shows that even many media companies have still not begun embracing social media. Whether this is due to fear, unfamiliarity or disinterest, I’m not sure. (It’s probably a combo of the three with the last two being much more significant.) But it is yet another interesting graph I’ve received in my inbox from Silicon Alley Insider’s “Chart of the Day” mailing list.

If you’re interested in random visual factoids, it may be worth signing up for.

rowing up in New Zealand surrounded by 60 million sheep Mike learned a thing or two about standing out in a crowd (human or on four legs!). He also learned that by simply following the flock you end up getting eaten!
In his later travels to (live and work in) Australia he learned that a dead kangaroo on the side of the road will attract a lot of flies, but doesn’t get to benefit from all that attention.
While working and traveling in Europe Mike saw how determined people would eventually break down a symbolic wall holding back ideas.
And since arriving in the United States Mike has learned that talking funny and thinking differently can be both a blessing and a curse…so he works hard at making it a blessing!
His broad general knowledge means no one ever wants to play Trivial Pursuit with him, but it also means he enjoys connecting random thoughts to solve problems…big and small.
With his experience working on three continents and a wealth of knowledge in mass communications, social media, marketing, new product development and customer service Mike loves to use his knowledge to help others. His only requirement is that everyone have funalong the way – because life is just too short to do otherwise

Managing the Risks and Rewards of Social Media, as Illustrated by ESPN’s New Social Networking Policy

We just wrapped our October issue of Risk Management magazine today, and the cover story discusses the opportunities and risks for companies who use social media like blogs, Twitter and YouTube to enhance their brands and sell products. Nowadays, most companies are involved in such “Web 2.0” activities to at least some degree, but many still seem to lack a proper understanding of the potential exposures.

As always, that’s where risk managers come in. So we hope that the article, which was written by yours truly, will help put the issue on the risk management radar.

The piece focuses mainly on the reputation and possible legal risks involved, but there is a lot more to this issue, much of which unfortunately couldn’t be fit into a six-page magazine article. Thus, I thought I would share one of the things I came across that didn’t make the final cut.

ESPN, which was one of the first traditional media companies to really embrace social media, recently issued an official policy for social networking that limited what the company’s “forward-facing talent” (i.e., anyone in the public eye, such as anchors, analysts, reporters, columnists, etc.) is allowed to discuss on their personal blogs and Twitter accounts. The details of the policy, which have been called “short-sighted” and “draconian” by sports bloggers, are a good specific example of the things that our story discusses in more general terms.

Essentially, the key takeaway in the policy is the line “Assume at all times you are representing ESPN” and, according to ESPN.com’s head honcho Rob King, at least some of the reasoning behind instituting the policy was to protect ESPN from potential legal action.

SBD: Let me ask that another way. What’s out there [on Twitter] that made you raise an eyebrow?

King: I can think of cases in which folks have re-tweeted breaking news that turned out not to be true. Some day somebody’s going to get sued somewhere for re-tweeting something that is false. That’s part of a great IQ test that represents the introduction to social media. That’s just from a journalistic perspective, one that has to be taught and managed very carefully. I don’t know which media company is going to run into it. But some day, somebody’s probably going to find themselves in a court of law. That was in no way a line of thought that drove this conversation. But if you’re asking me, personally, sometimes I see folks re-tweeting stuff that is essentially breaking news without really a sense of the sourcing. It runs counter to the journalistic training that folks ingrained in me.

King explains the policy further.

SBD: Explain ESPN’s ban on personal Web sites. Does that mean that someone like Jeremy Schapp can’t operate a Web site?

King: I hate the word ‘ban.’ The guideline on the personal Web site is that they should not be representing sports content at all. If Jeremy Schapp wants to have a Web site that has no sports content on it whatsoever, I think that’s fine. We felt like our forward-facing talent’s relationship with the audience happens through ESPN media. We wanted to reiterate that’s the relationship we expect as long as people are part of the company.

This is the type of stuff you can expect to see in our October cover story, which we hope will help break down some of the Web 2.0 basics for the many risk managers out there who still don’t know the difference between a tweet and a YouTube.

And the ESPN news all goes to show that media companies are indeed beginning to institute official policies on social media, and I think we will see this as a (slowly) developing trend for even non-media companies, particularly as more legal clarity begins to develop surrounding all these concepts. Things like this case involving a landlord suing a tenant for libel based on a tweet she made will help define how social media grievances are handled in a court of law.

Such clarity is a still a ways off, however. We all know how quickly the courts move.

But in the meantime, watch the extremely cool video below. It really helps illustrate how large this phenomenon is.