ABOUT THIS EPISODE

Michael Schwimer is the CEO of Big League Advance, a company that makes investments in Minor League baseball players in exchange for an agreed-upon percentage of their future earnings.  Before founding BLA, Michael was a professional baseball player, working his way through the minors and reaching the majors as a pitcher for the Philadelphia Phillies.  A shoulder injury left him pondering what to do next, which led to the creation of BLA. 

Our conversation discusses Michael’s career as a player, the difficult life of Minor Leaguers, and his mission to improve their fortunes.  We discuss his passion for statistics, application of Sabremetrics, and development of a team of All-Stars in the game of sports analytics.  We close with a look into the future of BLA and Michael’s prediction for this year’s World Series Champion.  Whether his bet proves right or wrong, Michael’s rationale exemplifies second order thinking through the lens of data analytics that is never far from his mind.

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English
United States

TRANSCRIPT

00:00:05hello I'm Ted societies and this is capital allocation show is an open exploration of the people and process behind capital allocation through conversations with the leaders in the money game we learn how these holders of the keys to the kingdom allocate their time and their capital you can
00:00:25keep up to date by visiting capital allocator this podcast dot com my guest on today's show is Michael Schwimmer the CEO of big league events a company that makes investments in minor league baseball players in exchange for an agreed upon percentage of their future earnings before founding be
00:00:47LA Michael was a professional baseball player working his way through the minors in reaching the majors as a pitcher for the Philadelphia Phillies a shoulder injury left him pondering what to do next which led to the creation of the LA our conversation discusses Michael's career as a player
00:01:06the difficult life of minor leaguers and his mission to improve their fortunes we discuss his passion for statistics application of sabermetrics in development of a team of all stars in the game of sports analytics we close with a look into the future of be LA and Michael's prediction
00:01:24for this year's World Series champions whether his bed proves right or wrong Michael's rationale exemplifies second order thinking through the lens of data analytics that's never far from his mind please enjoy my conversation with Michael Schwimmer Michael thanks for joining me things around me on to pleasure beer
00:01:48I always start with people stories and yours is definitely a little bit different from the other people I've interviewed someone you just dive right in short so I grew up in Alexandria Virginia I've always had to pretty deep passions now sports and and math ended up going to
00:02:01high school taking all the AP stat classes place at all that you VA did attend college at university Virginia on a three thousand dollar baseball scholarship and I understand you were a multi sport athlete back then yeah that was probably the toughest decision I've ever had in my
00:02:15life %HESITATION high school I was a much better basketball player for those people who are in it for you how tall are you six eight yes six eight in it at the time I was more of a shooting guard point guard type player which was very unique at
00:02:26that time now you see everybody is you know you get Kevin Durant's everybody can do anything but I was one of those players that could really score but really couldn't defend other teams guards so I was in high school able to guard the other team's big man so
00:02:40essentially I kind of figured for myself that I'm almost at my ceiling basketball and I was you know recruited by Duke Louisville really high caliber programs and I can get better surely but I couldn't really be great I thought because of my limitations physically my wing span for
00:02:56example is much shorter than my height you must never see that in the NBA and really quickness men guarding a guard I was gonna always struggle guard your card and that was always going to be a big problem for me and quickness and so some of those types
00:03:08of skills are much harder to gain than a jump shot saying baseball why wasn't that great at the time I was the perfect build for a pitcher is six eight and I could throw the ball in the upper eighties at the time and I thought that if I
00:03:26could ever figure out how to pitch than the sky's the limit for me and so I just sort of made of that that that's what I wanted to do and I also love baseball I figured my biggest asset in this I hope it doesn't sound can see this
00:03:40is just me thinking at the time was my brain and being able to figure out how to succeed using my brain in basketball it's a lot harder to do in baseball it's much easier to kind of figure out sequencing for how to get hitters out and so you
00:03:54know if I was ever stuck I could rely on that tool in order to help me succeed soft TV yeah yes off T. V. A. we went probably best for years my wife and there was a major learning experience on pitching and it was a really cool time
00:04:09dream was always to be a baseball player at that right when I made the decision to go to you via play baseball that was the goal but as a pitcher you never know when your arms getting a blow out so I always want to have a plan B.
00:04:18I actually internet a hedge fund up here in New York we touch on P. A. W. partners and so Peter right is the manager there and he took me under his wing really liked me and offered me a job as an analyst of baseball didn't work out so
00:04:32I had was doing market research on Nokia and others are kind of funny looking back so I ask you is what classes you want me to take you VS you give me some classes to take I took come and then play baseball and that that's what happened fortunately
00:04:46for me baseball did work out and I was drafted in two thousand eight by the Philadelphia Phillies in the fourteenth round there's forty rounds now the baseball draft and I was the fourteenth round pick my signing bonuses five thousand dollars so most people think of %HESITATION signing bonus
00:05:02you're making millions of dollars of my friends is a running joke I made thirty two hundred after taxes my friends back what did you lose your son of those we serve our say aside for three point two thousand but it was tough and and right after you get
00:05:14drafted the scout comes your house and signed yet and I'm all excited what's going to happen he says well your sellers gonna be fifty five hundred dollars for the year in the team's not gonna pick up housing or anything like that which was shocking to me even coming
00:05:26for program is is great as you VA doesn't really get talked about minor league life and so it was kind of surprising and it thought this one here I graduated I don't need my parents help anymore and then of course couple weeks later knock on door Hey can
00:05:39I can I have some health said that sounds like it's more of a typical minor league experience then yes so that is very typical there seven thousand minor leaguers and own less than ten percent will play one day in the major leagues and less than three percent will
00:05:55actually get to arbitration make make big money so yet all seven thousand think we're gonna be all famous writers you don't put yourself through it and and it's really really tough I mean this is going to be some bad radio here but we're in a room how many
00:06:08square feet you think this is eighty square feet or so we call this either a two or three back or we're two people would literally live here and sleep here mattresses on the floor in a fridge and that's what you did for the season walked in and really
00:06:19the off season you have to take jobs in order to support yourself I ref basketball games babysat the kids these days they have it easy this day they get to drive uber switch is much easier way to make money for the for the upcoming season but this idea
00:06:34that these players are trying to live their dream and they're not spending the off season doing everything they can to make it into work as hard as you can because if they can't they have to be able to support themselves was something that I always thought wasn't right
00:06:48and thought that there was ways that I could help fix the problem which fast forward in my career I get to the major leagues in two thousand eleven with the Philadelphia Phillies here I'm not the best team in baseball very veteran group right holiday Cole Hamels cliff Lee
00:07:03chase Utley Ryan how're Jimmy Rollins Brad Lidge silo obviously very veteran team with the Phillies and it's really cool now thinking seven years later that that Bradley age one of my favorite teammates saw what I was doing was really happy with what I was doing in in it
00:07:16obviously helping minor league players that he he reached out to me as soon as anything he could do to help and and now he's on our advisory board helping out so it's it's really cool that brought on board I mean I can go on and on and he's
00:07:26really good team and there were some some rookie hazing in there but at the end of the day I was really honored when at the end of the year they they nominated me to be a player rep in the union to represent their best interests which was really
00:07:39cool for me to access the question every every player I imagine growing up at some point time you dream about being on SportsCenter I can do better than that I think I have a major league record that I don't think we'll ever be broken Ted what's that I
00:07:53was on the E. S. P. N. not top ten plays twice and only thrown three pages my entire career so first of all the the part of the hazing was they made me wear and again I'm %HESITATION six eight two and fifty pounds at the time and they
00:08:06made me wear a pink hello Kitty backpack with pink bow was hanging off of it to the bull pen and it's a long walk from the dog out of the bullpen right before the game is ten minutes for the game starts all the fans are there and here
00:08:16I am running around with a with a one time that I had to do it until next Ricky came on and they had to do it so and then my first outing it it was in DC which is where I'm from everybody's in attendance something my first at
00:08:30bat I'm facing is Danny Espinosa who I absolutely own in the minor leagues I think looking back over twelve eight strikeouts against them miss is going to be great get called in the game of course the adrenaline going I can't feel below my knees at the time first
00:08:42two pitches not close to strikes third pitches groover right down the middle hits of all five hundred feet dead center field but the problem was this is that you've yeah I blame you VA for this not not not really but when a when a ball goes up in
00:08:56like a pop out to shortstop or second base the pitcher always points this guy and says %HESITATION shortstops ball and every time the balls in the air we're taught to point up and I've been doing this my whole career but no one cares just minor leagues maybe a
00:09:07major league that point up like it's of pop up to shortstop in the course of August five hundred feet so that was a no not top ten moment for me but things got better after that so you know you live and you learn to how did you use
00:09:20your brain in your pitching career she talked about her that being an advantage compared to other players so in baseball the minor leagues your discount airports are are off in coach will come in and say okay were facing this guy he's really bad on curveballs cutters when you
00:09:36get ahead try to elevate a fastball like well I don't have a curve ball I don't have a cutter if it you know what I supposed to do so I when I analyzed every header date your film on all these guys and where they stood in the box
00:09:52what their mannerisms were what pitch is did you do you swing a first pitch wrecking ball all this kind of stuff to determine what I should go to them and I'm not looking against the other team's short left handed pitcher I'm a tall right handed pitcher so I
00:10:05try to find %HESITATION facing with was similar stuff to what I had and what they did and how would they were successful or unsuccessful and I use that to create my own model for how I would face hitters now it doesn't go to pursue that everything going to
00:10:20plan because that means your throat execute the pitch perfectly in order to get to the next step so I would have okay I knew exactly the first pitch I was gonna third every year then from there if it was if I fell behind in the count this is
00:10:32what I was gonna do if I was ahead of account this house gonna get a strike out or get a week bomb play as somebody that through you know low nineties with very below average stuff for me %HESITATION sit here in the minor leagues in and literally ninety
00:10:44percent of pitchers have better stuff than I did and how my gonna make it well I have to figure out what to throw and that's when people ask me what's the best pitch you have I say whatever I think they had %HESITATION doesn't want to see you know
00:10:57none of my pictures are really good enough I mean I I had probably had an above average slider bows about it and and so I mean for my career average more than one strikeout per inning which is a huge market in in baseball and it wasn't because of
00:11:10the stuff is all because of me being able to figure out what they were seeing what they wanted to see into the opposite it's like it's really a poker except for if you're playing against a poker player who you got to see the last five tournaments every single
00:11:24hand they had what they were full so I know that okay all every time you have Jack nine you full pre flop just like every single Kerr Boise first pitch you take to your playing in my early game every day every day are you going in between innings
00:11:38into the dugout on us if you have a three game series so although so you do the research before yeah so before every series was the research time so then that would last and I have no cars I keep in the bull pen just reminder of okay you're
00:11:50going in the game right now you're only face three hitters you know the order you know is coming off the bench just in case a pensioner and you know this is by the time you get a group of it it's just it's easy memorization and you go from
00:12:00there but again it led to let me legally can shake awesome catchers didn't like it too much joining the Players Association what did that mean for you and we're headed that drive you through the next steps yes that was really cool for me so I joined the union
00:12:13fell in love with the business of baseball I join the licensing committee for the M. L. B. P. A. and the executive subcommittee which directly negotiates the collective bargaining agreement with ownership and my big thing was I had thought I'd figured out a way to help minor leaguers
00:12:27getting paid minor leaguers are actually not covered under the Major League Baseball Players Association they're not represented at all and so I thought okay I can't get this power point together I went to the Michael Weiner who is in my opinion one of the best union leaders at
00:12:43that in baseball and really in any union around him he's using credible and I said listen here's what we gotta do we gotta give every that's making five million dollars more in baseball's very very few they get one percent of their salary gets taken out and it's tax
00:12:58free so they don't they never get one percent of it the owners match it and now instead of baseball players making fifty five hundred dollars a month basically two dollars an hour now we can pay a minimum wage and they can make a living and they can end
00:13:09up becoming better helps baseball helps everybody and he looked at me and told me gotta stand my position is a biz I represent majorly players I'm trying to get more money to players your you have a proposal that's gonna take millions of dollars away from the guys I'm
00:13:22representing as I understand that but what about what's right and if you did I have to do my job here and I'd again I totally get his point totally understand where he's coming from but still it's stuck with me that that nobody's looking out for these guys no
00:13:36one cares about minor league baseball players and I want to change that and fast forward to play a little over two years in the big leagues and unfortunately %HESITATION I tore my labor at a shoulder injury tore my labrum and which is a year long recovery and it's
00:13:51about two out the most you can use about two hours a day in rehab and after the first month of being severely depressed and really I gotta give a lot of credit to my wife for snap me out of it my wife very understated and she's incredibly supportive
00:14:08and she sat me down and gave me the speech that I'll never forget Moses which basically that's get your head out of your **** here and you're you're wallowing in your own self pity and I'm not gonna stand for anymore is really what I needed to hear and
00:14:21she knew that and you know it's just like any good relationship she knows me better than I know me at times and and I really needed that as a guard to get going here I thought what am I going to do and I thought I thought about becoming
00:14:33a professional poker player at one point I thought well I always had the job IT analyst with with Peter I called peers apps whatever you want you come on in and it has like you know what this idea I have for minor leaguers I really want to give
00:14:44this a shot and I had it when I was in the minor leagues I've so there's a huge separation is can I create a company that takes some of the career risk away from these players when said making no money now being twenty five years old with a
00:14:57family with no skills now when you're released and now what are you gonna do can I invest in them give them money hundreds of thousands at some point sometimes millions of dollars in exchange for a future share of their earnings if they don't make it they keep all
00:15:11the money and if they make it we share in their success and I always had that idea I thought it was a really good idea at the time I only knew two people that had money and one was Marvin bush and the other is Peter right through the
00:15:25hedge fund guy and went to both of them told my plan and they said there's no way you're gonna raise any money for this because look if there's a thousand people that can tell me who's good and arms are long right from the numbers you sat at odds
00:15:38are very long you got a three percent you're throwing darts at three percent chance so I said okay here's one window I'm gonna put to Matt together to confirm my beliefs so I put some pen to paper get the get the staff had back on if you will
00:15:50ransom models and after a couple months I really had to swallow my pride and realize that I didn't know anything what was the data at the time what I thought was important for hitters let's say you know on base percentage for the basic money Boston the basic Moneyball
00:16:04stuff exactly it really didn't matter in the minor leagues in terms of predicting major league success and we're ahead of the lesson I learned was it's not at the results are not predictive to future results it's actually the process that is far more productive to future results than
00:16:22the results themselves give you an example so if I'm a hundred for a hundred with a hundred broken bat doubles over the first baseman's head and you're over a hundred with a hundred or line outs the center fielder you have ways of way higher probability of success in
00:16:38the major leagues and I do even though my on base percentages incredible IBM's great player with any staff but you are this terrible player with any stat you you have a way brighter future than me because the process you had so many want Dr they're gonna fall over
00:16:52time and if I had so many broken bad shots they're gonna be outs overtimes are there specific statistics that you can model for in the minors that look different from the statistics in the major small they're all there it's just how you analyze them and so the other
00:17:08thing that I did as a lot of conceptualizing of the statistics so it's a you and I both have ten home runs but you get your ten home runs in ten nothing blocks first the team's fifth reliever and I have my ten home runs against Clayton Kershaw anti
00:17:23games I have way more power than you Major League potential power and so in Major League Baseball all pictures are going to be very very good to compare to Miley pictures so we care about at bats a lot more bats with position players that face higher quality pitching
00:17:41if you're facing a pitcher that's not ever going to be a major league pitcher what do I care if you ten home runs you bill all your numbers based off that it's amazing that what translates to future success is is really how well you do against those types
00:17:55of pitchers how well in what circumstances what's the ball park like you've to conceptualize everything to get a true predictive model amber using just hard core excel in front of a computer yes I did I am self taught are but not completely honest not not strong the process
00:18:14actually took me more than a year of fourteen to sixteen hours a day and I am I in a balancing the sixteen hours a day of that country numbers two hours we have fourteen hours a day and then sleep in do it again odd but I love that
00:18:26stuff I mean I loved the long term puzzle is so much creative thinking that goes in with it and it's frustrating because ninety percent of the stuff you do doesn't actually matter you but you don't know until you try it and is a lot of guessing check in
00:18:39now again I built this incredible team now they can apply done in two months but that process got me to to a model that I thought was going to be very successful I then went back to Marvin Pierce and now you something here now let's time to you
00:18:54know write a business plan to the due diligence get the legal work so now we're in I guess middle of two thousand fourteen and I'm twenty nine years old I'd never done at the time never done anything like this and it took me about a year I went
00:19:06to my first investor meeting in October two thousand fifteen with his game plan of what we were gonna do and I met with thirteen individuals from Washington DC were all very intelligent individuals as my first meeting I thought this is perfect is gonna get my feet wet they're
00:19:21gonna destroy me and then at that point all learn from it be able to answer their questions and then when I go to really try to raise money I'll be more prepared and they heard it they said that there and and but but that there was a catch
00:19:34see I was raising money as it is set up as a hedge fund's structure sort of limited partnership in Egypt in a general partnership I was the general partner and I was looking for a limited partner money and they said no no no we will put in money
00:19:46in that limited partnership but only if we also get a third of a general partnership will pay you for that and I ended up accepting that deal and we are off to the races they took about six months I had about five million dollars a lot of people
00:19:58are coming in for the minimum but I mean I understand I was twenty nine years old never run a business of my life house of former baseball player it's hard to kind of get your head pass that from an investor it wasn't until I had the biggest breaking
00:20:10in B. L. A. history big like advance I sure not to be LA history which was which is why I got a call from a friend of mine asking me if I wanted to go to %HESITATION health care conference and I just got back from a red eye
00:20:23from San Francisco I said no one my going to health care conference for any so well the there's a guest speaker Paul DePodesta and for those who don't know Paul he's the money ball guy and it but I believe the best year in baseball history for twenty years
00:20:35took teams to the playoffs winning records and then tried to move on is now with the with the Cleveland Browns and I met Paul and I will I just just to shake his hand say thank you I had no designs of any business anything he's a busy guy
00:20:50and I shook his hand of course you remember me he was he was running the Mets from two thousand ten to two thousand fifteen I was pitching from two thousand eleven to thirteen with the Phillies he's already done it and I said I was really wanna thank you
00:21:01for creating all the metrics and stats that you did because there's been instrumental in my modeling in what I'm doing Guinea asked what I what it was and I and I told him I'm going to create a company that's gonna invest in minor league players and heave the
00:21:14I've never seen him a man's face go white before and it went it was like a ghost he said well I got to go up and give the speech right now I'm cancelling my flight back to Cleveland we gotta talk house what what's going on freaking out and
00:21:27this is like my hero I will absolutely freaking out just listen speech almost shaking and gives a speech comes back and tells me says in two thousand four I was gonna do this exact same thing to the point where I had money raised to do it and I
00:21:43was bout get ready get started when the Dodgers called me and asked me to be the GM of the Dodgers and my wife and I we had this long talk and it was really fifty fifty and he ended up taking the Dodger job because I've been waiting twelve
00:21:55years or somebody come up to me tell me they're doing this this is awesome this is a great idea I got to be a part of it skip to the end he's a he's the second largest shareholder besides myself and and a partner and and now all I
00:22:06can say a really good friend and so that was a huge break and then he told me look there's just investor those gonna invest a lot of money in this one you go see him I went to see a number of structural he writes a five million dollar
00:22:18check funds close in three days so you have a model statistical model the tell you a little bit more about the likelihood of a minor leaguer making to the pros how do you approach the first minor leaguer and get him to sell you pieces future yes so it's
00:22:35important to note that I started this company by players for players I put myself in the player shoes so what the player one in the US and my idea was the money we're giving them is actually gonna help them succeed I mean me personally if I had a
00:22:49hundred thousand dollars the minor leagues maybe I go to a a semi and get my delivery with the electrodes and see how I can pitch healthier maybe I stay healthy maybe I make tens hundreds of millions of dollars playing I don't know the idea is the money that
00:23:02we give them should help them achieve their dreams of making the major leagues but I want them to be as informed as possible on their decision making and I don't want to sell them on anything so I never ever ever gone to a player and say Hey of
00:23:14the hundred and twenty players we sign now in that price three hundred is we've offered or more you should do this you shouldn't do this I say that this is the option for you and you need to be informed about this decision if a player is interested in
00:23:25it as eight you have a lawyer review it you should talk to your agent your financial adviser all these minor leaguers have agents financial advisors talk to them and then after that just to make sure they understand we videotape the signing before the signing and asking all these
00:23:38questions do you understand if you make five hundred million dollars you will owe us twenty five million your career soon they do deal for five percent do you understand if you never make it you'll never %HESITATION us a penny and go through the %HESITATION there's a list of
00:23:49twenty questions I won't bore you with them but that that's the most important part of it to me is making sure they absolutely understand what they're doing and who's the first signing I can't give you names unfortunately in as related to protect the players what's the story of
00:24:03the first signing well the story is this is this gets into not not great stuff here and I'd like to learn on the fly in that was a lot of players are saying no early which is again fine but I want to go and I keep mine I'd
00:24:15talk to all the agents about what we're doing they all seem to like what we're doing they clearly understood it and I was going through the agent to talk to the player figure that's how it's gonna work because again we're helping their player get to the major leagues
00:24:30and not taking anything out the agents pocket so I thought this is great else and I go to players Hey I know you said no caster hissed as to why is that well I don't give up thirty five percent like thirty five percent that's insane you never asked
00:24:42for that another player says well I don't do this deal because if I don't make it then I'm gonna be bankrupt like wait now you get to keep the money if you don't make it's on getting that there's a major red flags here so I go to the
00:24:53agents of some of the agents are picking up my call my what's happening here so finally one of my good friends as an agent I call on it he says listen swim I'm not going to out as I don't know how you didn't see this but what you're
00:25:07doing obviously helping players there's no doubt about that but also I'm a for bid everyone my players from doing these deals and so that doesn't make any sense to me walk me through that is as well agents are heavily regulated by the union we have to sign a
00:25:20player every single year and we don't get paid from player until they play three years in the major leagues save guys in a ball they're not get paid for seven years but they have to get back I service every single year because listen if you give a guy
00:25:33a million Bucks he doesn't make it what do I care it but if you give a guy a million Bucks is one of the good ones of one of the very very few that do make it arbitration now other ages are gonna come in and say look at
00:25:44this terrible Delia made you're gonna make all this money give us my back to the Vance if I was your agent out of never had to do this deal and now the original agent is worried that the player will leave him right before the agents but %HESITATION yeah
00:25:56so I didn't figure that in so again that's only a few agents most agents are really good about it but then that's when I started going to players directly and I said look you hear from me and then you talk to your agent so the agent tell you
00:26:10anything different you know know the truth more importantly I'm happy to have a three way call with you your agent and you get all the right information and then supplier start signing left and right and that's when this the snowball effect happen and how successful was your predictive
00:26:23model incredibly successful so to the point where over seventy five percent of the players that we sign aren't top three hundred prospects in baseball me sign which is amazing to think about so if you have a three percent chance making big money and now you eliminate the top
00:26:41three hundred players now it's down to a fraction of one percent of those guys Dow again when we signed them they're outside the top three hundred they they become prospects they become good and that's what happened but we've been very very successful to the point where our first
00:26:57fund was it was a twenty six million dollar fund and also I should say the biggest X. factor the plane was our players can assign Bram going these investors and I got everything figured out in its power players gonna sign in AS and they are I don't know
00:27:11they have nothing no scientific reason for that but I you know I knew I was this is going to really work was when investors came to me and said of course you can build a model to figure this out but there's no way player sign and I went
00:27:21to players every player in the world's gonna sinus but there's no way you can predict which one of us is going to make it and that's when I knew I had the vortex if you will and that's when you know we expect the fun the last five years
00:27:35I thought was gonna be three they thought I was crazy and a being eighteen months in terms of the appointment of deploying the monies we raise a second fund raise a hundred thirty million dollars for the second fund %HESITATION in order to do it over a much longer
00:27:46period yeah and I don't this rate metric or is it too soon but what percentage of the players that you signed in the first on the ultimately you know played a game in the pros we believe that over half the players we signed a plate and a major
00:27:59loss verses under ten percent all right so there's some alpha in this model as we like to call it is it to proprietary to ask what are some of the things you figure it out was was going into and conceptualizing all what we figured out what we talked
00:28:12about earlier with what what actually matters to major league success an actual value of players now the the one thing that we haven't touched on yet is pitching has our offense of stuff pitching my model initially was very weak compared to my offense of model because I'm saying
00:28:27all these pictures are going to be great in the minor leagues but they weren't because I got hurt and they that elbow shoulder surgery and I can really really hurt a career so I was doing tons of research did all these deals with all these different companies to
00:28:40get more than twelve thousand pitching videos and I had done so much research on injury stuff after I got hurt and I'm looking at angles all different kinds of parts of the delivery to try to figure out exactly how much stress pitchers putting on his elbow and shoulder
00:28:55to determine what is the likelihood of getting her to their scientific research that went into what you're looking for in the mechanics of a pitch Dr James Andrews is one of the one of the best surgeons around he did my surgery talk to him at length about this
00:29:09by a mechanic experts I mean I I talk to everybody I could talk to about it and just basically try to test for what they were saying and what came out of it was what they were saying was kinda accurate but not quantifiable was good enough for me
00:29:24to build a model say this guy's high risk medium risk low risk that was it taken a dive into this model of it so you have twelve thousand videos of players that are pitching and then you or your team go in and are modeling some statistics about either
00:29:42their arm angle where the wind %HESITATION how does that work right so we're trying to figure out throughout the delivery how much stress you putting on your elbow initial so you look at the delivery there are so many theories out there on what causes arm injuries and I
00:29:55was just gonna try to test for a mall now in the beginning in the first time when I was doing this we were investing in pictures because I was able to get the high medium low it wasn't until we raise a second fund that we had a lot
00:30:06of money from the management fee to really get a team and they were able to crack the code on pitching that I wasn't able to Sam Hinkie who ran the seventy Sixers is in our fine polity protest obviously and now here we are with the second find we
00:30:20got a lot of capital has called on both and I said I want to turn this thing in from a baseball company to invest in minor leaguers to the world's greatest sports analytic company is what was my is my dream in my vision now hire these guys to
00:30:33help the baseball model obviously but then get into whatever else we think we should get into and so I called him the who's the smartest guy we know in sports all sports any of what's easy answer that is is this guy Jason Rosenfeld but you'll never ever do
00:30:46it because you got tapped by Magic Johnson he's guilty the Laker GM and five years are Jim another team in in very short order but in his experience he he'll know who's good so I did some some digging on chase and I found out you you went to
00:30:59Harvard and was a two year president the advance analytics for sport club and in turn for Daryl Morey in Sam with the rockets and really help build that system the rockets use then it well with the rockets met Yao Ming thought that there was a lot of potential
00:31:14business of the NBA and trying to keep my eyes like nineteen at this point and decides to teach himself Mandarin becomes fluent in six months and you end up majoring in second major in Mandarin and at Harvard and the guys out of this world smart out of this
00:31:27world just another level and it ended up going to the Shanghai sharks and was so good they denounce him as the assistant general manager of the team in his early twenties which was amazing did a great job there came back to leave office turn down jobs turn down
00:31:42jobs finally Magic Johnson tapped him and said Hey come work a Lakers your office be right next to mine you report to me you can build your team and what let's do something and I gotta give magic a lot of credit for a lot of the old school
00:31:53guys wanted done that and one trust numbers in math but magic and I don't know magic at all but just in hiring Jason Westwood of smart move to understand look I don't I may not understand this stuff but I want to bring on somebody that will and so
00:32:06I call Jason up and I said Hey I'm trying to build this team and after talking me more and more and more he called me back a couple weeks later and said this is my dream job this is what I want Hey do you mind if I do
00:32:18it which of course was like absolutely and so Jason did leave the Lakers came to work for big league advances our chief strategy officer running the entire analytics team he brought on several people one alts name in particular Zach Brad Shaw %HESITATION and there's a competition call cattle
00:32:34competition for machine learning experts and thousands of people apply for this all across the world and that the data set at the time was predicting March madness and he won that competition I mean this guy's another out of this world machine learning expert so getting back to pitching
00:32:51now so now I have this team and I was told telling about the pitching said well let me take a look at it and what they did is they saw they said look you're looking at this the completely wrong way you're looking at this linearly you're measuring the
00:33:02angles and you're comparing it to the subset of these twelve thousand pitchers that's not how you should do it for example when I was doing was I know when your front foot hits the ground a certain angle should measure between twenty and forty degrees and I know that's
00:33:16the healthy degree and they're saying no that's the healthy degree for all twelve thousand but not that specific picture you have to individualize this and see how he gets to that position so this picture they show me look he should be between thirty five and fifty five because
00:33:29of how we got to that position so it's all about the preceding step not in general with pitchers so once they showed me this they built a model that was truly revolutionary to where we can predict when a pitcher is going to get hurt with incredible accuracy the
00:33:45point where it MLB teams are paying for our service now and and it's it's been it's been a really a really big hit talk about competition so you start this clearly your first mover there on other people doing it are you still the only game in town now
00:34:01trying to buy stakes in minor leaguers are brother people come and try to compete with you so there are a couple people have tried to compete with us but nobody really can because nobody goes and gets the guys are outside the top three and prospects because you can't
00:34:14predict which ones are going to be and so there were some golden guys that quit and try to do it they have a couple players then they left because they realize they couldn't they couldn't do it when they were projecting the player okay I know this guy's gonna
00:34:26be good it was too late we already have because we can project amid figured out earlier unfortunately there's been some bad actors coming in the space %HESITATION that I've hearing from other players saying sitting down room Hey signs contract right now give you money which is a big
00:34:40big problem for me and players are understand the contracts not their native language they don't have a lawyer review it they don't understand what's going on which again is a is a major problem which is actually the a big reason why were pushing for a law to to
00:34:56make sure these players are protected and so we we are going to try to get that through a Delaware this year and I guess it's probably relevant to talk about you did have a lawsuit yes that went through swing describe what happened there yeah so unfortunately we did
00:35:10have a player sue us and he's complaint was actually the first time the public heard anything about us as a company which was a really my biggest mistake I've made so far as CEO and I'm sure I'll make a lot more I want to keep as low profile
00:35:28as I possibly could in running this company and the reason for that partly was selfish I don't really like the spotlight like operate on the radar and so the public now here's of us from this complaint for Francisco Mejia who I when we sign in the ad forty
00:35:43two games enables wasn't a top fifty prospect it was a good player definitely good player the time but wasn't one of these surefire can't miss guys and it he had it the next year he has a season of a lifetime gets all the way from forty two games
00:35:58and able to the major leagues almost very very rare and sell another company comes in with a spot in later and Offerman a lot more money and now he gets upset why I do this original deal I'm not sure what happened but someone convinced him Hey make a
00:36:14fuss about this this company did we give answers big they'll settle it won't be an issue which of course you never do and so he he comes out this complaint filled with lies and that people start to believe these lies like he did have a lawyer review the
00:36:26contract we forced him to do these things the good news is we have proof to back up every single thing that we set and once they saw that proof they knew there was nothing Francisco ended up dropping the case we actually counter sued him we settled the countersuit
00:36:42he paid a portion of our legal fees for the case and then wrote a very long apology that was highlighted actually the Sports Illustrated article that came out about us which is good I mean either look he made a mistake and in doing that and then making up
00:36:56these things but he ended up accepting responsibility for that and I love Francisco I love at all of our hundred and twenty nine players now that we have and I root for during the entire time it's I reform every day and and it's like family family sometimes gonna
00:37:09be disputes if it with a hundred twenty nine players of one is upset that's one too many in my opinion how do you track enforcement as these players sort of the ones that make it to the majors we have many many players in the major leagues they've all
00:37:22paid on time and in full is because of how we sign and we get their financial by %HESITATION involve we get everybody involved so everyone understands the deal actually come strife their financial adviser at this point and it's pretty easy process yet you've cracked the code on better
00:37:37predictability of pitching injuries how do you think about this from a business perspective %HESITATION me lay this out on the one hand you have your investment fund on the other hand I have to think that every major league team would like to have access to what you know
00:37:50about not just those pictures but maybe even the pitchers in the majors that's right and are those %HESITATION conflicting no absolutely not and it's it we have really good relationships with teens and so it's important note the subjective analysis that goes into our offers we have the math
00:38:08part which gives you this let's say this player should mate we were gonna office player five hundred thousand dollars then we call the team are scouts for the teams so was a what do you think about your player and we'll see the give me the work ethic they'll
00:38:20give me the how is like in the clubhouse players like an altar call posing scouts say what you think about this player and you get some very valuable insights we had one player that was a third baseman and really dominating we love this kid we call the GM
00:38:34of the team who tells us you know what this guy's going to be a first baseman he's gonna he's not that great defense was gonna play himself out of the position while our model has third base first first base is a big difference in terms of dollars so
00:38:44now we can massage the number we put it in his first base and and we can Paul and I will both go over the numbers of and come up with offers for this way last year the trade deadline to you you know two thousand seventeen seventeen teams called
00:38:56us this year twenty four teams call us at the trade deadline asking our advice on who the underrated prospects this organization you just give that out course it's a very mutual thanks and now that we have the pitching metrics it's even better so it read the pitching metric
00:39:10so we came up with help are funded investing players help relationship a team's helps investing players yeah show what's next who well that's a that's a great question so we've we've assembled a team that is is truly incredible and it's really an honor to work with those guys
00:39:31and I and I tell them that in it it's it's kinda easy to assemble a team to be honest with you because you look at these guys Harvey all these brilliant people and that they can go make half a million dollars a year on Wall Street but a
00:39:43lot of them make fifty grand you're working sports because there's so many people that want to work in sports I care about quality of life their quality of work they don't the salaries not nearly as important well I say Hey I'll give you a triple or more what
00:39:57you make it in baseball plus equity in the company every person that comes with me gets equity in the company so they're part of it their partners they don't work for me kinda do but there they're part of the team and so we have this T. we say
00:40:11okay now we're gonna do we've been getting offers every day it's a new offer to soccer federation's of reach out as we have nobody has any experience in soccer by the way to soccer is reach out to us offering is multi million dollar year contracts to help them
00:40:25in advance of the World Cup in Qatar using advanced analytics are you doing that we are not so we chose not to do that for several reasons yeah we we have to weigh the cost of our time and our effort in the ultimate end goal in our chance
00:40:37of success in that endeavor M. two M. B. eighty actually three NBA teams now called us wanted to fire their entire advance the only department have us be the analysts apartment for those teams remotely look they know Jason they know exactly if those guys on our team that
00:40:51they know the mean we picked off the very best guys on all these different teams and now teams are taking notice of this is a look I can hire guys full time but they're not gonna be in the same ballpark as your guys and you know do you
00:41:03want to do this offering is great deals we think we have two or three ideas that were really kind and narrowing in on right now they could all be very special and we're looking at the fees doing feasibility work on all of them and before we decide of
00:41:18of what's gonna happen next but it should be the next three to six months will be for pick one and and really attack I mentioned you can answer but I have to ask the question is can disclose what any of those are you have me on a three
00:41:32months and I'll tell you about sounds great what's been the most disappointing aspect the most disappointing aspect by far was the push back from different groups organizations people about what we're doing and it's all because they only care about the subset the small subset of the group that
00:41:56makes it right just as I said over half the players will make it we're still projecting twenty percent to be profitable keep in mind they had only three years if you they DO ten percent the returning a hundred fifty thousand because they make five thousand dollars a year
00:42:08in order to be successful I make the big money if we can get you know ten percent will be very successful I I think we're gonna get about twenty percent which means we're gonna be losing money on eighty percent these players as a venture capital exactly right but
00:42:20the problem is there are groups you know the MLBPA for one let's say we invest in five hundred players four hundred nine I never make it we have a hundred fifty million dollars one makes a hundred million Bucks owes us gives us a ten million Bucks bottom forty
00:42:34million was between four nine nine people the %HESITATION BPA looks at is players just lost ten million dollars because they don't care about the minor leaguers and to see the amount of push back we're getting from them and from agents that obviously don't care about the players and
00:42:50care more about them keeping their client is very is very frustrating and I think that the goal should be to inform the players agency we should I'm not seizure top players to take this never I don't think anybody should ever tell player take this deal I also think
00:43:04nobody should ever tell player they shouldn't say here's the options here's were forecasting for you you make the choice that's All I Want out of this and maybe I was too idealistic and thinking that was going to happen but it really didn't happen that way early and that
00:43:19that was frustrating what have been your biggest mistakes whole got how many do you have another five hours the I've made it made a lot obviously the media mistake was was a big one I would say is kind of in baseball is a term called I wash and
00:43:33I don't know of many people know what it means there is but it's it's basically doing things just for the sake of doing so you take three hours of pitching cover first base I have a five minute someone make it again if I do that just because you're
00:43:44there right at school I wash we call that such I watched so I want to create a company that didn't have any I wash we're not gonna have meetings every five minutes or every week or anything like that I created team and I say go I trust Jason
00:43:57I trust his team figure out how we can do things all of the that didn't work and the reason is when there were certain things I needed or wanted for different meetings Dave would produce things that weren't exactly what I wanted and I said wait a second if
00:44:11you don't understand something let me know and we can go over to more I was thinking everyone will come to me but nobody really did so now like okay do we have to have meetings yes I'm kind of going back to the maybe there is a reason people
00:44:22do these things so we look at it as you can imagine at that twenty nine when I started now thirty two years old I was look at everything if I start this today how would I do it and then do it that way then I I had this
00:44:34idea in a need it most of it works but they're some of it I have to understand we have to conform and do things that the normal way and I guess if you will so it is you put to work fun to where you think about fun three
00:44:48do you have any sense of my portfolio construction %HESITATION absolute and how do you think about that in this investment strategy right so it's funny that a lot of investors specially in the financial world they say oh you know we gotta make sure we have we have too
00:45:01many shortstops no people get traded do you have and this is too much of our portfolio to a single player etcetera so that is a lemonade in our second fund with sample size you know we're gonna have five hundred players not find your first one there is a
00:45:19major concern about that yeah we have seventy seven players in it we don't want to have didn't constructs that money going to a couple guys so that was a lot of very big concern early but it I kind of worked itself out so the beginning we had such
00:45:32a good array some low some high some different positions that it really just worked itself out but that was all there was strong consideration and do you use sort of a cult conviction waiting in the sense that if the model tells you that someone has a better chance
00:45:47than another one you're willing to well that's the interesting thing about the model is we could have two players that we think are five hundred thousand dollar players but one we think has only a twenty percent chance to be the major leagues but has a five percent chance
00:46:02of being a hall of fame type player versus another guy has a ninety eight percent chance of being in the major leagues that sort of high beta low beta exact exactly high bit a little bit is exactly right so we don't want all these guys that we think
00:46:14of a twenty percent of these these these long shots of full final long shots or full fund of sure things and that that was what I was kind of talking about we got lucky to have a really good mix of both house gonna just play it by ear
00:46:26if we just for signing all the long shot then I would take a step back oversight Wilshire things I'll take a step back but it really worked out naturally well that's really lucky I guess for that too yeah I mean there's an at and there's always this element
00:46:37of luck versus skill when you're talking about kind of a base rate of ten percent of the guys making the pros and three percent really making it and you you have numbers that are twenty thirty forty percent there's clearly skill where do you think in the results you
00:46:49seen so far the outcomes of come from that skill and the model and where is it just been good luck I would say as a fund is definitely skill from player to player level there's lock it that makes any sense so there are players that that we gave
00:47:07a hundred thousand dollars to that I thought were more long shots that all of sudden break camp with the team like how is this happening like that's lucky within way better than we ever expected but then there are players that we're you know ninety percent gonna make it
00:47:22never happened down years they get demoted I think that's unlucky till but it's all depending on how you feel about the model to really determine that but we're about to head into the playoffs as you as you watch the Major League Baseball playoffs now do you have a
00:47:37completely different lands where you're rooting for your players like a fantasy game and and not rooting for one hundred percent one hundred percent I don't care about teams anymore I used to and I don't I don't I just all my it's my family that's out there and so
00:47:49I've just read for those guys hard my wife my family friends that come over all pulling for our guys and and it's it's really a lot of fun it's really really cool but if you want you want will be on a baseball playoff prediction from me yeah go
00:48:03for it may make sure you know your front of Yankee fans so just let's start that as I grew up a Die Hard Yankee fan my dad born and raised in New York City it was hard to now I'm not at nearly as much because you know I
00:48:13got players in the red Sox are for me to hold there had home runs and I'm excited I'm like out who am I but I I think the answers are gonna be tough to beat I I think that they're the clear favorite in our I guess modeling if
00:48:27you will not the red Sox not the red side is mounting why not a seven game series now the pitching staff person yeah I mean it's offensively it's in a lot's gonna depend on a couple stars here they're the red Sox done an incredible job great team but
00:48:41there if you look at what the Astros have done against quality pitching with the red Sox done against quality pitching in the types of pictures you're gonna face in the playoffs why I would not bet against the Astros that's for sure all right there's the production and we'll
00:48:55we'll have to get this out either slightly before slightly after it all plays out we'll see I'm a ghost turned to some closing questions what's your favorite talent their hobby the either have now are you had your past wells gonna say basketball we talked about that earlier I'm
00:49:11gonna go with your I do every single morning before I start my work days is %HESITATION evil so do too and I try to do it under five minutes and that's how I know my brains getting sharp %HESITATION hometown field on the day so I love I love
00:49:25that I think it's a really good mental Kickstarter for the day I'm a huge game of thrones nerd as well I've read all the books I post on message boards so it's pretty bad but that's a that's a hobby as well awesome what's your biggest pet peeve that's
00:49:38pretty easy it's at its efficiency when people do things inefficiently it bothers the the crap out of me I'm a kind of guy that everything I do I try to make his efficiency as possible whether it's your urine on trying to figure out when to flush the toilet
00:49:52to make sure you're you're the P. in the water goes down together so you say those two seconds every time every day I can't stop thinking about how to be more efficient it's it's probably bad but then when I see people do things inefficiently it's bits bother some
00:50:06and and it's it's hard all right at what teaching from your parents as most stayed with you really the way they taught by example I was very fortunate I grew up in a in a middle class maybe upper middle class family both my parents always wanted me to
00:50:21follow my dreams whatever they were and I've always loved sports in date not only do they tell me to do that but they supported me in doing that any kind of pitching lesson I wanted they gave me any kind of team I want to play for any anything
00:50:32at all like that my dad was unbelievable about that but I do want to talk for a minute about my mom if you don't mind because she is my true inspiration and I've been very fortunate to have two women in my life that are incredible but my my
00:50:44my mother obviously first she is the American dream she is the definition of resilience she grew up in a very tough family situation to the point where the owner eighteenth birthday she she left the house and had to kind of figure things out completely independent on our own
00:51:01took a job just like entering data and just really worked really hard met my dad had me started working at the department justice very low level and ended up descending to becoming the CFO of the department of justice office of justice programs which manages tens of billions of
00:51:20dollars and all the while took night school to go to college all the while never missed a single one of my games when I like realize it might I guess using twenty is like what she had done it was how did how did you do that mean she's
00:51:36truly inspirational in the fact that she will fight and compete and do everything she can in order to succeed and I think I get I get that from her and and yet she is my true role model in life what information you read that others might not know
00:51:51about well book I read a few months ago from Annie Duke it was thinking in bats which was really how I've kind of always done everything and so kind of reading it was a sort of an entrance into my own brain it was like she knew me better
00:52:07than my friends knew me it was the weirdest thing but also some of the behavioral stuff that I hadn't really understood was really cool insights and I think that for business people investors I mean anybody can get anything out of this book I think it's really really cool
00:52:24dad's a good one for sure if you could meet one person dead or alive shake their hand and just say thank you who would it be and why I'm gonna go with Bill Gates and the reason isn't the Microsoft stuff it's it's what he's decided to do with
00:52:42his wealth and you're on this earth I want to make it a ton of money in and use it to help as many people as I possibly can and Bill Gates is living I mean he's he had a great idea you have ran an incredibly successful company obviously
00:52:57in is now using that to get to give back in the whole giving pledge with all these guys I think I don't think people realize just how important that is for like the economy for just mankind in general of what that's going to mean getting ninety nine percent
00:53:10of your wealth up to in order to help others I think is is admirable and I would love to meet him and shake his hand and say thank you all right last one what life lesson if you were into that you wish you knew a lot earlier in
00:53:20life when I see things that are just wrong and and that I don't like I handle it very poor learning how to handle that was something I really wish I'd learned earlier in baseball there is problem after problem because I would I this these Albers models to determined
00:53:36what pictures I should throw to what hitters and that's kind of how I became successful being senior sign everyone out of a thousand chance was because I was able to figure that stuff out and I would shake off in a hit or get a hit which happens of
00:53:48course as much as I shook off and the pitching a wide you do that why'd you throw that their local do you want to go back and analyze every single time I'm checking out I bet my records better than it was when I wasn't and he's like you
00:53:59can't have those kind of conversations like that and any just for getting these fighting matches and then this guy's a coach that's gonna help determine if I get moved up or down and here I am getting in these fighting contest with them instead of a really when a
00:54:17motion is a there's a there's a saying when a motion is high logic as well and when you're in the situation just say okay and move on then Hey let's have a meeting let's sit down one on one is it you know this is what I was thinking
00:54:29there what were you thinking and really listen and understand then you can get your point across and it's a much better chance for people to understand my side in me for me to understand their side instead of just right when something I know ways are frustrates used to
00:54:44jump on it really take a step back in and have that conversation I wish I'd learned that much much sooner grape Michael thank you so much really enjoyed it well thank you I really appreciate you have me on tape before you take off I've started sending out a
00:54:57monthly email the chairs a small selection of what caught my night over the month I get a lot of emails like this and I'm sure you do too some only gonna send no more than a handful of the very best things that caught my eye if you'd like
00:55:10to receive that email pop on my website at Capital allocator podcast dot com and join the mailing

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