The LA Dodgers: Baseball's Best Investment Firm
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Money does not win championships. Smart money does.
There is no doubt the LA Dodgers have a financial advantage over the majority of Major League Baseball.
However, what the Dodgers did in 2020- and more impressively have done for most of the last decade- is unmatched in baseball. Eight straight division titles, five trips to the NLCS, three NL championships…all capped off with a World Series in October.
So how did they do it? With a singular focus and a flexible strategy.
Flexibility
The singular focus is obvious- win.
However, the flexibility is what is important, as there is no one way to win. And sports are too complicated to boil winning down to something so easy to copy.
The Patriots did not have one strategy over the last twenty years- they 1) amassed draft capital 2) valued great positional coaches like Dante Scarnecchia 3) pursued mid level veterans and more.
The Spurs 1) recruited internationally (before everyone else) 2) valued ball movement (before everyone else) and 3) emphasized high point per possession plays (again, before everyone else).
Likewise, the Dodgers do a bunch of things very well. The entire organization knows the goal and is free to do the best thing to support that goal.
Below, I will break down how the Dodgers behave like top level accelerators, VCs, and Family Offices.
The Dodgers Are YCombinator
YCombinator is widely known as the world’s best startup accelerator. Entrepreneurs looking to build the next billion dollar company kill for a spot in their next cohort. Why? Because they know how to pick ‘em and they know how to help ‘em.
YCombinator is specific about what they look for. They want a great founding team. They want a large addressable market. They want bias towards action
And they know what they care less about- specific traction, a great pitch deck, a clear path to profitability.
The partners at YCombinator do not think the second list is less important…just less important right now. YCombinator has the team to help find product market fit, introduce the company to future investors, iterate on the idea and more. They do not have the ability to change the makeup of the founders or the problem they are attacking.
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The Dodgers are similar. Check out what Kyle Glaser wrote about them in April:
The Dodgers know what to look for. They know the things that are difficult to teach: athleticism, strong plate discipline, etc.
And they know what they can develop…because they know the past investments they’ve made. The combination of scouts, coaches, nutritionists, player development personnel and more- at both the Major and Minor league levels- trumps the rest of the baseball.
Both YCombinator and the Dodgers employ a wholistic strategy. They both built an internal team that is great at development, then 1) search for talent good at the things they cannot teach and 2) view deficiencies in the things they can teach as opportunities for win-wins.
The Dodgers are also a Venture Capital Firm
The next two parts of the story are less fun. The Dodgers- and a few other organizations that top the payroll list annually- are playing a different game than twenty or so other organizations.
One thing this enables them to do is ride their winners- something most VC firms know well.
Follow on investments are a common VC strategy. If a VC invested in a startup early and have worked with them, they have seen behind the curtains and helped shape the company’s future. If the startup is doing well and raising more capital, the VC may see an additional investment- albeit at a higher valuation- a smart use of capital.
The Dodgers do this as well.
In 2006, the Dodgers found a unicorn when they drafted Clayton Kershaw with the 7th overall pick.
When (and probably before) the Dodgers signed Kershaw to a 7 year $215 million contract extension in 2013- one year before he hit free agency- they knew this was the right person to invest heavily in.
And I can confidently assume they will soon make similar moves with many of their current arbitration eligible players.
Finally, the Dodgers are a Family Office
Sometimes, talent acquisition is simply about having the money.
Family offices are created because a person (or a family) runs a great business. The core business allows them the ability to pounce on great opportunities- related or unrelated to the main business- when they arise.
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And the Dodgers run a great business.
On the revenue side- they are always near the top in fan attendance and rake in over $300 million per year from a local television deal.
As for their expenses: while the Dodgers are not afraid to spend money, they have a large portion of their roster filled with stars either in their arb or pre-arb years.
This creates a rare ability to attack opportunities when they arise.
So what was the opportunity for the Dodgers? Acquiring Mookie Betts.
The Dodgers did not trade for Betts because they put a higher value on him than other MLB teams. They did so because they had the financial ability. The combination of 1) a well run business that maximizes revenue (in a great market) and 2) incredible talent acquisition and development that fills a team with stars grown through the organization made them the lone team that could trade for a past- and likely future- MVP.
This single acquisition was the result of years of smaller organizational wins compounding…and may have been the final piece the Dodgers needed in 2020.
The Takeaways
While all of this is great, what can we takeaway from the Dodgers:
Drafting and developing talent is the #1 key to success. Especially given the current rules around contracts and arbitration, drafting and developing stars gave the Dodgers 1) incredible talent and 2) financial flexibility to acquire other stars.
Scouting and development is one cohesive goal. Scouts need to know the strengths and weaknesses of the rest of the organization and target prospects accordingly. And coaches, trainers, data scientists and more need to work with scouts to explain what they will do with players once they are in the building.
Investing in off field talent is just as important as on field talent- and can provide great ROI.
And for non MLB teams looking for an overall takeaway: remember the goal, be flexible in how you achieve it, and always invest in talented people.