Knowing When to Take Big Swings - or Sit Back

The 2024 White Sox were a legendary team - and may have a fairly permanent place in the history books. 121 losses. A minus 306 run differential. And no player hit more than 20 home-runs. All of these (and more) stats are historically bad. Three years after winning their own division, the 2nd worst AL Central team (Twins) doubled the White Sox win total (41). 

However, this is not yet another article about the futility of the Chicago White Sox. It’s an article focused on a different team - and entirely different theme. 

The Pittsburgh Pirates have potentially the hottest player in MLB - Paul Skenes. From winning the National League Rookie of the Year to a 11-3 rookie year record (with a 1.96 ERA), the Pirates might have a generational player on their hands. And, they’re only paying him ~1.45% of what the Mets are paying Juan Soto. Or 2.7% of what the Yankees are paying newly signed Max Fried (with an 11-10 2024 record). In other words, they have a potentially super valuable asset at an absurd price - for a few more years. 

Skenes also happens to be dating Livvy Dunne, and his games have turned into must-see affairs (driving ~33% more fans per game) at PNC Park. Although pitchers can be susceptible to injury, the Pirates have another 23-year old pitching phenom - Jared Jones. And, like Skenes, Jones is making the league minimum salary. 

Bob Nutting has owned the team since 2007, and has not exactly endeared himself with the fan base. Fans are urging him to sell the team, local journalists are pushing for changes, and even former players are lamenting how things need to change in the national media. 

As a value-oriented investor, I can identify with Nutting - I hate wasteful spending and losses. However, Nutting is taking profit over potential wins to a whole different level. The Pirates have the 2nd lowest payroll (over the Tampa Bay Rays, which are basically a minor league team playing in a minor league stadium). Most of their payroll has been covered by just ticketing and concession revenue over the last 15 years. And, they still have a beautiful downtown ballpark until 2030 (though state reps are even pushing Nutting to compete). 

Baseball is quickly turning into a game of increasingly large contracts for star players - especially with the big name teams (Yankees, Dodgers, Mets, etc). While tech companies and CMU have revitalized a formerly struggling city, Pittsburgh is not a heavyweight city or market. Nutting cannot sign Juan Soto, or chase the largest superstars. But, he can bring in a bunch of very high quality players - and compete now. Even if it means losing money for a few years, the next 2-3 years are potentially one of the last times they could legitimately compete. 

I could write about baseball in literally every article on this blog - there are endless parallels to investing and venture capital. In this case, the tie-in could go a few ways.

As a founder, you have a window of opportunity yourself. You have a few years to hit a scaling pathway, or sell. You need to be careful with the money you’ve raised, but you also need to compete. If you don’t have clear product market fit, it’s usually good to be cautious and cheap. But, if you’ve found your PMF, you need to get aggressive and go fight for market share. Growth is paramount, and striking now is critical. 

As an investor, there are times to hunker down and count your pennies. But, there are times to be aggressive and deploy fast. There are also situations where you need to pay up, and push yourself out of your normal comfort zone. You don’t need to take one absolutely monster risk (aka signing Juan Soto), or play roulette. But, you need to look at the cards in your hand, and maximize the truly incredible draws. If you have an epic hand, it’s not the time to play it safe - it’s the time to be aggressive. 

Gerrit Cole, the current Yankees ace (and former Pirate), sums it up best:

 “I saw how much the Pirates mean to the city and the people of Pittsburgh,” Cole said. “I so badly want them to have that relationship with their team again. It just means so much to those fans. It really does.”

Nutting has been a deep value-oriented guy since 2007 - but now is the time to get a little uncomfortable. He has a 2-3 year window to make moves, and bypass profits for possible pennants. Like Nutting, we may have 2-3 years ourselves to get a little uncomfortable, and go after growth. It’s not a natural thing for me, and it feels a bit odd. I’m still avoiding YC rounds and hot west coast deals, but I’m more open to opportunity...even more appropriately priced rounds and not selling all stock in strong secondary offerings.