Sunday, June 20, 2010

Spearing Extras with the
Florida Marlins' Margin Magic  

The Florida Marlins are an atypical major league baseball team in so many ways it's easy to overlook them for typical Management By Baseball lessons, but occasionally, they are so many standard deviations away from standard practices, they show a brilliance that takes the wisdom of Baseball to a new level. I'll tell you their latest, but for those who don't know a lot about Florida's deft touch, read the paragraphs that precede the next sub-head.

As the most astute Baseball executive, Sandy Alderson, said, every decision a team's off-field management makes has to balance the baseball considerations and the non-baseball considerations. 

The Marlins are a rare pairing in the zone. They seem to relentlessly maximize the current-income side while being adequate or better on the field. They certainly succeed at fielding teams that win a number of games far beyond what any of the other penurious teams make. In the years since 1997 (when they used a buy-a-bunch-of-stars model to win their first World Series), they have double-dipped on the salary front, saving expenses by maintaining well below average payrolls and then, more often than not, increasing inomce by getting paid money by the league for...having low payrolls. 

They are so extreme at this revenue-sharing finesse that the League and Players' Association believe they are gaming the system and finally leaned on the team to use the league payment income for its intended purpose: investing in payroll.  This insulates them some from the ugly reality that they garner either the worst or near-worst attendance in the National League. This attendance weakness has been endemic for them, and while all teams experience upticks or downticks in attention and usually attendance in harmony with how well they are doing at winning ballgames.

My very clever acquaintance Vance Gennaro will tell you winning percentage matters far less to The Fish than it does to most teams. They could play the model the Pittsburgh Pirates or Kansas City Royals do, reaping revenue sharing pelf by barely being able to fog a mirror, but the Marlins' staff is skilled and they play to win as many games as possible with the underwhelming resources ownership allows on hand

And just as they use weakness to gain financial strength with their double-dip payroll strategy, they have found a way to use weakness/failure to pry extra dollars legitimately out of fans -- and this time, not just their own. How many teams figure out a way to profit from being victims of an enemy pitcher's perfect game? So far in baseball history, just one.

On May 29, the Phillies were in Miami to take on the Marlins, and a closely-fought battle it was. While the Marlins' Josh Johnson put up a great start, yielding a single unearned run on seven hits and a walk, the visitors' ace Roy Halladay threw a perfect game, one of the rarest accomplishments in baseball

In Philadelphia, you can be sure, sales of Phillie gear went up a good bit, sales of Roy Halladay jerseys and cards and other collectibles went up a great bit, and incremental sales of tickets to Phillie games went up a snippet. The victors profit on the field and the off-the-field profits accrue as a predictable side effect.

If the Marlins had a more normal business operations crew, they might have about broken even. It's bad publicity for a team to be so offensively challenged, even for a game, that they can not only be shut out, but limited to zero hits and not even get a runner safely to first base. And the extraordinarily good pitching performance from their starter that would normally accrue a few warm fuzzies was overshadowed wholly by Halladay's perfecto. The one benefit was their attendance that night was about 25,000, roughly 55% higher than normal, and those fans attended an historic event and saw their home team play a close game against the defending champs. For certain kinds of fans in the audience, this delivered positive strokes.

But the Fish did something that has never been done. Three days after the game (this suggests to me that the idea was not pre-meditated, but an opportunistic action) The Fish put into play a way to cash in on their victimization: they announced they were selling the unbought tickets to the game at face value...that is, they figured out how to sell tickets to a game that had already been played. In some ways, these sales aren't worth quite as much as tickets sold to people who attend; the team loses some revenue opportunities for concessions and parking. In other ways, this is pure sweet margin gravy ... because there's not much clean-up, water use and effort expended to the paying-not-attending buyer.

The price they charged, face value, meant they would likely be the low-priced seller. As late as June 18, 17 days after the Marlins' announcement, someone sold a ticket on eBay for $184 and the most expensive tickets in Florida's home stadium cost less than half that. And another, very small side effect of not selling the tickets is they become a disposal cost.

How many did they sell? Well, as of this writing, they haven't sold out -- they were still selling them. In the first five hours they sold 3,500 tickets, according to the Fort Lauderdale Sun-Sentinel. With a median ticket price for the unsold I estimate at $35, that's about $120,000 of almost pure margin in the beginning of the first day. The ~13,500 unsold tickets might net $425,000, the rough equivalent of getting an extra game's without having to go to the expense of holding an extra game. On the Baseball side of considerations = bad; on the business side = gravy.

It's a small but brilliant move, making cash out of trash. It's a clever Stone Soup, a Scottish engineer gambit. Saboroso.

┬┐What can you do in your own operations to take something perceived as deadweight, plaque or trash and turn it into an asset small or large? Even my smartest clients rarely are good at this Scottish engineer's gambit. And I usually get paid enough that the three-and four figure ideas I give them seem relatively insignificant. I have had some clients succeed with this Marlin Margin Magic.

I had one client, a year-three start-up have their A/R associate go out on maternity leave at a critical juncture and when cash-flow was already sagging because of sagging sales. When they decided to lay off one of the three people in shipping/receiving area, it turned out the H.R. assistant knew that one of the three warehouse hands had been a bookkeeper in previous employment. So instead of laying off a warehouse hand and going to the the expense of hiring & training a temp or permanent to fill in or replace the A/R associate, they saved the money and operational steps and morale chill of laying off an esteemed employee.

Another, one that a brand-name leader in computer circuit boards, had accepted a full order of components from a Red Chinese supplier that didn't meet my client's rigorous test standards, but that would have met many competitors' lower standards. The Chicomm supplier refused to meet the words in the agreement and take them back, so the client was stuck with them given that the cost of pursuing a case was significantly bigger than the gross cost of the shipment and for reasons I still don't appreciate or fully understand, the Chicomms didn't care about the possible image hit.

My client didn't want to pay disposal fees and recycling required pre-processing that still would have meant they were paying again for the pieces. But a project manager in the assembly area came up with the idea of trying to sell the components to one of their imitator/knock-off competitors that had lower QA/QC standards that the components should pass. It happened to work out because the client got two different knock-off cloners interested, pitted them against each other and offered a deeply discounted price and a refund for the pieces that didn't pass the less stringent testing. On the down side, they provided components to a "competitor" of sorts, on the good side, they recovered cash and didn't pay to dispose of the waste, and discovered by inference what their competitors had been paying for some components and explicitly what their test standards were...not priceless rewards, but sweet adds much like the Marlins' take on the unused tickets to the unattended game.

Think about what assets, human, hardware, intellectual property, unused organizational capabilities your outfit might be leaving untapped, just waiting, like Florida's ticket "trash", to turn into something of value.

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