Weekly Thoughts

Here are three sports related things that caught our eye this week:

Jordan Spieth

As three of the 17 million viewers of last week’s Masters golf tournament, we were reminded of the fact that at least when we fail, we have the luxury of failing in private. The same cannot be said for returning champion Jordan Spieth, who, after surging to the lead on the first day, and holding a five shot lead with nine holes left to play, bogeyed the 10th and 11th holes and quadruple-bogeyed the 12th hole (by hitting two balls into the water), leading him to place second behind England’s Danny Willett.

The event attracted widespread media coverage with ESPN calling his performance the “most shocking collapse in golf history.” Spieth himself told reporters that “big picture, this one will hurt” and that “it will take a while” to get over. To add insult to injury, shares in Under Armour — Spieth’s apparel sponsor — dropped 5.2% the following day, which analysts attributed to a “major sporting loss by a prominent athlete the company sponsors and a downbeat note from Morgan Stanley forecasting a quarterly sales miss.” Even Donald Trump joined in on the action, noting on the campaign trail that Spieth “choked” like Mitt Romney during the 2012 Presidential campaign.

However, a bigger picture perspective would suggest that Spieth is not a loser, but actually a winner. At the age of 22, he has finished second, first, and second in his three Masters appearances, a tremendous feat. So why all the negativity? We posit that the fascination with Spieth’s loss lies in the psychological fact that regardless of field, losing just hurts more than winning feels good. On top of that, losing by a little bit seems to hurt more than losing by a lot. As Seth Godin opined in a recent post, “losing the election by ten votes or by a million—which is worse? ‘Missed it by that much,’ is a way to amplify how we feel when we don’t succeed.”

In the moment, there is not much one can do about the inevitable psychological impact associated with failure. The question, then, is how does one psychologically rebound from a failure, public or otherwise? Sam Weinman, author of the forthcoming book, Win at Losing: Harnessing the Power of Setbacks to Succeed in Work and Life, notes that a key part of overcoming failure is how one frames their situation. To explain this concept, Weinmann uses the example of how prominent sports psychologist Jim Loehr worked with speed skater Dan Jansen to overcome adversity, helping him win a Gold medal in the 1994 Olympic Games. Weinmann explains:

“With Jansen, Loehr set out to show the skater that every event in our lives is subject to an interpretation we control, and in his case there was a way to look at his Olympic spills as a springboard to something greater. That’s not to say Jansen had license to distort the truth. But Loehr pushed the skater to embrace a narrative that was both palatable and useful. ‘More important than what happens is the story and mindset you create around what happens.’ Loehr said. ‘We spend a lot of time helping people recraft stories that are grounded in truth, but that still give them a sense of optimism and takes them where they want to go.’”

It seems that Spieth is already attuned to that kind of framing as is his caddy, Michael Greller, who wrote via a Facebook post, “there are far greater struggles that exist in the world than not winning the Masters. We are beyond blessed to do what we do…. It is a challenge we relish.” Greller elaborated by writing that, “We won’t get stuck in this moment, nor should you. We will work harder, fight harder and be better for it. We will bounce back as we have done many times.”

From a business standpoint, the Spieth situation reminds of us a favorite, albeit long, quote from Teddy Roosevelt which we have shared in full below. Needless to say, we look forward to watching Spieth’s career, as we have an inkling that last Sunday’s result may serve as fuel for prominent victories in the years to come.

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

ESPN, ESPN 2, CBS Sports, MarketWatch, Golf Digest, Win at Losing, Sport Fitness Advisor

Golden State Warriors

Until recently, a psychologist would likely have started taking notes if their patient saw strong word associations between the terms “Curry,” “N.B.A. Champion,” and “Venture Capital.” However, in a relatively short period of time, the relationship between these words has become part of professional sports history and a fascinating business case study.

In 2010, the Golden State Warriors, based in Oakland, California, were an unremarkable NBA team whose last championship title was in 1975. However, over the past couple of seasons, the team, led by superstar Stephen Curry, has taken the N.B.A. by storm, winning the N.B.A. Championship in 2015, and just this week, breaking the league record of 72 wins in a season. Sports aside, the Warriors are a tremendous business success: Purchased for $450 million in 2010 by a group of venture capitalists, the team currently has an estimated value of almost $2 billion.

Led by Joe Lacob of prominent venture firm Kleiner Perkins Caufield & Byers, the team has been run like any other portfolio investment, as an underperforming operation that could be turned around with the “right management strategies.” The New York Times Magazine expands:

“Lacob was not the first venture capitalist to buy a franchise, but he is the first to operate one according to what might be called Silicon Valley precepts: nimble management, open communication, integrating the wisdom of outside advisers and continuous re-evaluation of what companies do and how they do it. None of that typically happens in professional sports.”

Instead of being a passive investor, Lacob brought in strategic partners — both investors and employees — to reinvigorate the franchise. While he sought out expertise by bringing in industry veterans (i.e., N.B.A. Hall of Famer Jerry West), he also created an environment where debate is rampant, and ideas are won based on merit, not position. For instance, it has been reported that despite the fact that Lacob and West frequently have strong differences of opinion on personnel moves, Lacob typically defers to West for the final decision. Furthermore, Lacob promotes unconventional talent based on skill, not pedigree, and is not afraid of making management changes when warranted.

From an operational standpoint, Lacob embraced data, looking for ways to improve efficiencies both on and off the court, the most prominent example of which is the Warriors unusual preference for 3-point shots. The Wall Street Journal explains:

“The data dive yielded many insights, but the Warriors eventually zeroed in on the 3-point line. NBA players made roughly the same percentage of shots from 23 feet as they did from 24. But because the 3-point line ran between them, the values of those two shots were radically different. Shot attempts from 23 feet had an average value of 0.76 points, while 24-footers were worth 1.09. This, the Warriors concluded, was an opportunity. By moving back just a few inches before shooting, a basketball player could improve his rate of return by 43%.”

As a result, the Warriors designed a team architecture to exploit this inefficiency, essentially creating a support system around Curry’s exceptional accuracy with 3-point shots. While this resulted in some highly contentious personal decisions, and did not yield immediate results, as the plan came into place, the Warriors’ sunk the most 3-pointers in NBA history, driving their on-court success.

When commenting on the Warriors development, Lacob credits his “master plan”, noting “the great, great venture capitalists who built company after company, that’s not an accident… and none of this is an accident, either.” Of course, Stephen Curry was on the team when Lacob purchased it in 2010, so there is an element of good fortune in the Warriors emergence. However, Lacob’s commitment to building a team around Curry, and emphasizing his unique skill-set is a classic case study in finding value in unique places and committing additional resources once early traction is established. We congratulate the Warriors on their 73 win season and hope to borrow from Lacob’s playbook when entering new industries ourselves.

Wall Street Journal, Inc Magazine, New York Times

Sam Hinkie

It is ironic that some of the principles that built the Warriors historic season followed closely the general blueprint for success espoused by Sam Hinkie, the former General Manager of the Philadelphia 76er’s, whose departure earlier this month created quite a media stir once his resignation letter was leaked to the media.

Borrowing heavily from giants of finance and business, Hinkie’s letter laid out his philosophy for building long-term basketball excellence using draft pick and salary cap management strategies rooted in delayed gratification and player development techniques based on comprehensive data collection. A regular at the MIT Sloan sports analytics conference, Hinkie’s approach was summed up in a 2015 ESPN article:

“Hinkie, as part of his drive to measure everything, tracks each shot his players take, not just in games but also shootarounds and practices. ‘You can’t hide,’ Richardson says. Some of the tallying is by hand; some of it is noted off video. Brown uses the data to see which players ‘are investing time into development,’ he says, and doles out playing time and in-game privileges accordingly. ‘It’s crazy,’ Noel says. ‘They’ll tell me what my free throw percentage is in practice. And I’m like, ‘What?!'”

On the team building side, by trading established players for draft picks and shedding salary cap-clogging contracts, Philadelphia is now in an extremely favorable forward looking position. In this offseason’s NBA draft, for instance, the Sixers stand a decent chance of securing not one, but two top-5 picks. They also have a solid pipeline of talent developing in international leagues and significant financial flexibility. Unfortunately, Hinkie’s relentless focus on the future has yielded some extremely disappointing short-term results, and the team has been the laughing stock of the NBA for several years. Again from a 2015 ESPN article:

“More than any other franchise in memory, these 76ers have been derided for being not just uncompetitive but singularly anti-competitive. In a sport where the worst teams secure the best odds at the best draft picks, Philadelphia tied the NBA record for consecutive losses (26, an alphabet’s worth of L’s) last season. This season, the Sixers started 0-17, triggering a formal league vote on whether the draft lottery should be reformed altogether.”

This poor near term performance ultimately cost Hinkie his job, introducing the possibility that the great payoff for his efforts (the conversion of draft pick capital into productive NBA stars) could occur without Hinkie being around to witness it. We think this experience reinforces the tremendously important lesson for all industries that execution matters. Hinkie’s letter struck a cord with us because we happen to share a lot of the same influences and philosophical leanings. We too believe in building value for the long term, in finding opportunities where others aren’t focused, and in constantly gathering data for the purpose of incremental improvement. However, we also know from our time on a trading desk that a good investment is a function of thoughtful analysis and good timing. A loss is still a loss no matter how well-researched the thesis or how bright the outlook. Hinkie’s dismissal is a reminder that as we progress with our own efforts to produce metrics-driven transformational change, we need to do so with an understanding that we must accumulate our share of smaller victories along the way.

ESPN, Hinkie Letter, Deadspin, HP Basketball

Have a great week,

Your Chenmark Capital Team

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