Sapient Global Markets brings risk management to big leagues
The Boston-based firm can build models that help teams understand which players best fit their system.
Dave Donovan figures what’s good for banking and the financial industry is good for baseball and sports in general. So the managing general partner of Sapient Global Markets in Boston is bringing risk management to major sports.
Donovan, a Marblehead native and Natick resident, is talking to teams about building financial risk management models to help make better financial decisions and protect their assets — essentially their players.
“Because there’s such an emphasis by teams on acquiring the right players, especially now where you have financial constraints with luxury taxes, etc., we’re looking at it the same way as we do with banks,” Donovan said. “Banks want to make as much money as they possibly can. Their constraint is regulation. They have stress tests they have to do for the government after banks almost took down the world because they weren’t financially compliant. We’ve been working with these banks to measure their risks and you can apply the same concepts in sports.
“Banks have portfolios of securities and they need to have those securities managed in a way that they can understand their risks at all points, 24/7. They measure it against a number of outstanding events that could happen that could potentially affect that portfolio, whether it be oil rising to $100 a barrel or unemployment going up to 10 percent or a nuclear war and a number of other things. We model against that. In baseball, you can do a similar exercise and get a good read on your portfolio.
“Your roster is no different than a portfolio of securities. Those are your assets. That’s what you’ve put your investment in, so it only makes sense that you should monitor your assets.”
Sapient Global Markets can build models for any situation, including individual players, by using formulas and calculations based on the data that is important to each team.
Models can be built for decisions in free agency, determining players’ strengths and weaknesses, finding the right position for a player, which ballpark best suits a player, putting pitchers in their best roles — everything can be measured.
When the Red Sox recently traded Wade Miley to the Mariners, they dealt one of their “low volatility” players — defined as someone who was durable and performed fairly well — instead of one of their “high volatility” players in Clay Buchholz, who is often injured.
In the deal, the Sox acquired Carson Smith, a reliever with a short but impressive track record. Relievers are considered more volatile than starters because their performances are more varied from year to year and they have a shorter shelf life.
Donovan also talks about “artificial intelligence,” which he defines as “basically machines taking data sets and then predicting the future. Banks will look at a person’s credit card history and they’ll use artificial intelligence to understand that person and then market specific things to that person.”
Artificial intelligence can take data — such as comparing the statistics of David Price with Zack Greinke — and make an objective analysis. There is no subjectivity of a scout.
Donovan isn’t saying this type of risk management is an exact science, but it’s another way for teams to analyze assets — at the very least, a guide. For the 1 percent of payroll a team would pay for these services, Donovan feels it’s a worthwhile investment.
It’s easier to build models when an organization has a defined philosophy and sticks to it. Dave Depew, the vice president of analytics for Sapient Global Markets, cited the Cardinals as a good example. The Red Sox have been inconsistent with their organizational philosophy in recent seasons and have had three last-place finishes in the last four years.
Was signing Price to a $217 million deal over seven years (with an opt-out clause after three years) a prudent decision?
The businessman, the hedge fund operator in John Henry, who just a year ago agreed with a study that handing out big contracts to pitchers 30 and older isn’t wise business, probably thinks not. But he assumed more risk on the lengthy contract because for the short term, the team needed an ace pitcher.
Donovan feels the models can help teams define and read their markets better. How did the Red Sox not know the pitching market would explode after Homer Bailey’s six-year, $105 million deal with the Reds last March? Not reading that properly cost them the chance to re-sign Jon Lester. One offseason later, the Red Sox spent about $82 million more on Price than they offered Lester.
And did the Red Sox misread the market once again when they gave Rick Porcello a four-year, $82.5 million deal before he ever threw a pitch for them, rewarding him for a body of work built when he was no better than the No. 3 starter for the Tigers? Also, the Red Sox signed two players with high volatility last offseason in Hanley Ramirez (injury prone and bad for team chemistry) and Pablo Sandoval (weight issues).
Donovan feels his company’s risk models will help teams not only make better decisions, but also optimize their profits in a climate where TV rights deals may have peaked and where luxury tax concerns (the Red Sox will pay $1.8 million this year) are real and influence how big market-teams make decisions.
PROFESSING TO TEACH
Maddux can offer valuable advice
Greg Maddux is expected to join a West Coast team — likely the Dodgers — as a part-time special assistant. Maddux said he doesn’t want a full-time coaching career. His son, Chase, is a freshman pitcher at UNLV and Maddux wants to spend time watching his games. He also enjoys traveling with his family.
Maddux said broadcasting is out. “That’s not my thing,” he said from his Las Vegas home.
Maddux spent a few years with the Rangers when his brother, Mike, was the pitching coach. Mike has since moved on to the Nationals.
“I enjoy working with pitchers,” Greg Maddux said. “If there’s something I can do to help a young guy think about the game more and what he’s throwing and why he’s throwing it, I can help like that.”
Maddux and former teammate Tom Glavine are two rare pitchers who made it to the Hall of Fame while barely breaking 90 miles per hour. The secret to their success was not pitching at max effort. In other words, they didn’t try to throw every pitch as hard as they could and therefore put stress on their shoulder and elbow. It’s how they went so long in their careers without serious injury.
So what can Maddux, the ultimate pitchers’ pitcher, teach a young stud throwing 100 m.p.h.?
“Well, if you combine that velocity with the knowledge of how to pitch hitters, you come up with Roger Clemens and Pedro Martinez,” Maddux said. “So I think I can help a young pitcher.”
He was surprised to hear that Zack Greinke is thought to be the active pitcher most similar to Maddux in terms of knowing how to pitch and set up hitters and his pitch location.
“I hadn’t heard that before,” Maddux said. “Maybe I should be compared to Zack. He’s definitely a guy who’s fun to watch the way he goes about pitching. He’s one of the best.”
Apropos of nothing
1. It goes to show you how medical information can be interpreted in different ways. At the trade deadline, the Mets withdrew an offer to Milwaukee when they saw something in Carlos Gomez’s medicals they didn’t like. The Mets traded for Yoenis Cespedes instead. And this past week, the Dodgers rescinded a three-year, $45 million deal with free agent righty Hisashi Iwakuma when they spotted a red flag in his physical results. Iwakuma then re-signed with Seattle, which knows the player and is comfortable with whatever medical issues exist. Iwakuma’s deal has two vesting options.
2. Kudos to Brewers owner Mark Attanasio, who in an open letter to fans asked for patience as the team rebuilds. The Brewers have traded away most of their veteran stars, with Ryan Braun and Jonathan Lucroy remaining. Attanasio hired the analytics-minded David Stearns as general manager, who in turn hired an analytics staff. The Brewers are transitioning from old school to new school and rebuilding with younger players. “To move toward accomplishing this lofty goal [winning a championship], I believe we need to take a step back and build more intensively from within,” Attanasio wrote.
3. The baseball world is split over the issue of opt-out clauses. Zack Greinke opted out of his deal with the Dodgers and received $206 million over six years from Arizona. The Red Sox gave David Price an opt-out after three years. The Giants gave Johnny Cueto an opt-out after two years. The Cubs also gave Jason Heyward an opt-out after three years. “It’s complete leverage for the player,” said Orioles GM Dan Duquette. “It’s not something our organization would be interested in. In some cases, teams feel they’re deal-breakers. If you’re going to agree to something like that, there should be a parachute where if the player has a bad two or three years, the team can opt out as well.”
4. You have to admire Michael Cuddyer for leaving $12.5 million on the table with the Mets and retiring because he just didn’t feel he could perform at a high level anymore.
5. I think Dustin Pedroia absolutely hates that his metrics indicate he’s declining defensively, and I bet he’ll reverse those numbers in 2016. “I don’t have a chip on my shoulder. I have one on both,” Pedroia wrote in a text. “Defending my defense is insane. I have the highest fielding percentage in the history of the position and the most Gold Gloves for the best franchise ever. But I enjoy motivation from all angles.”
Updates on nine
1. Shane Victorino, OF, free agent — Victorino’s agent, John Boggs, said a couple of teams have shown interest but nothing is imminent. There are a lot of outfielders on the market, but Boggs is banking on the fact that “there’s a need for a switch-hitting outfielder, who is now completely healthy and is eager to show he can play. He’s motivated and any team could benefit from his passion and leadership.” Boggs said Victorino is looking for a one-year deal so he can reestablish his value.
|Career 162-game avg.||162||577||91||159||13||61||.275|
2. Kyle Kendrick, RHP, free agent — Kendrick owns an 81-81 career record and is coming off a season in which he went 7-13 with a 6.32 ERA with Colorado. He’s made 30 or more starts four times in his career and will likely become some team’s fifth or depth starter when the dust clears in free agency. Kendrick has pitched in two tough home parks for pitchers — Citizens Bank Park in Philadelphia and Coors Field.
3. Ron Gardenhire, manager, free agent — After the disappointment of thinking he had a great shot at the San Diego job and losing it to Andy Green, Gardenhire is back to the drawing board. The feeling is he could always go back to the Twins organization and work in some capacity. But Gardenhire would prefer to manage in the big leagues again.
4. Brandon Phillips, 2B, Reds — A deal between the Reds and Nationals appeared imminent but has quieted some. Phillips would solve the Nationals’ second base issue and the Reds would be rid of a sizable contract and receive a package of young players in return. Phillips is owed $27 million over the next two years, and while his numbers have declined offensively and defensively, the Nationals think he would benefit from their lineup and rebound to close to where he used to be, even at age 34. Phillips has 10/5 rights so he could block any deal. Phillips could be looking to add to his existing contract.
5. Trevor Cahill, RHP, Cubs — Cahill had a chance to sign with the Pirates or Orioles as a starter or reliever, but opted to stay in Chicago, where he’ll be strictly a reliever. Cahill loves being with the Cubs and didn’t want to leave after he reinvented himself following a bad stint with the Braves.
6. Jake Odorizzi, RHP, Rays — The Rays are willing to deal pitching depth if they receive young, controllable players in return. The Dodgers are very interested in Odorizzi, who was acquired by Tampa Bay when the Dodgers’ current president of baseball operations, Andrew Friedman, ran the Rays. The Dodgers definitely have the prospects to give back.
7. Chris Davis, 1B, free agent — The Orioles aren’t closing the door on Davis, but they’re not going to hang around forever. The Orioles have pretty much proposed their best offer — $150 million. As Scott Boras sells Davis to other teams, Baltimore GM Dan Duquette has traded for slugger Mark Trumbo and signed Korean star Hyun-soo Kim, a lefthanded-hitting left fielder who hit 28 homers last season in the KBO, to a two-year deal for $7 million. Kim is the anti-Davis in that he struck out only 63 times last season (while walking 101 times). Duquette could allocate some of Davis’s money toward a starting pitcher. He’s still in pursuit of a lefthanded bat, which could be someone like free agent Pedro Alvarez or even Nick Markakis in a deal with Atlanta.
8. Corey Kluber, RHP, Indians — There have been several inquiries made to the Indians regarding their interest in dealing Kluber, but GM Chris Antonetti has resisted. And you can see why. Kluber is a workhorse and it’s tough to give up that type of pitcher. His durability is seen in this stat: In 2015, Dallas Keuchel faced 66 batters after his pitch count went above 101, Jake Arrieta and Jose Quintana each faced 63, and Kluber was next at 62.
9. Scott Kazmir, LHP, free agent — Being a lefty, even after a subpar stint in Houston (2-6, 4.17 ERA), Kazmir has options. The Orioles, Pirates, Dodgers, Astros, Royals, and Rangers have all expressed interest.
From the Bill Chuck files — “Bryce Harper led the majors hitting .451 last season the third time he faced a starter in a game; Dustin Pedroia led the AL hitting .415.”, Also, “No batter with at least 50 plate appearances in innings 1-3 last season had as high a batting average as Ryan Hanigan, who hit .396; Miguel Cabrera was next at .390.” . . . Wish a happy birthday to Freddy Sanchez (38), Dustin Hermanson (43), Jim Wright (65), and Pete Charton (73) on Monday.
Contract out of left field
Jason Heyward agreed to an eight-year, $184 million contract with the Cubs, the second-biggest contract ever given to an outfielder. This for a player who’s topped 20 homers once in six major league seasons and has never cracked 100 RBIs. Only 26, Heyward has room to grow, but can he grow into a $23 million-a-year player?
Biggest contracts for outfielders
|Giancarlo Stanton||MIA||$325M||13 years|
|Jason Heyward||CHC||$184M||8 years|
|Manny Ramirez||BOS||$160M||8 years|
|Matt Kemp||LAD||$160M||8 years|
|Jacoby Ellsbury||NYY||$153M||7 years|