Some Peter Thiel miscellany

A few Peter Thiel related links.

First, some bits from his Reddit AMA today, one of my favorites to date (I bolded the questions for easier reading).

What do you think about NSA/Snowden and the impact on cloud, security, and general startups in the USA?

It is a much-needed debate.

BTW, I don't agree with the libertarian description of the NSA as "big brother." I think Snowden revealed something that looks more like the Keystone Kops and very little like James Bond.

The first thing an intelligence agency should do is counter-intelligence, and the NSA could not even figure out that there was something suspicious about an IT person downloading all those files. And once they knew Snowden had done this, they apparently still couldn't figure out what all he had taken...

It was inappropriate that the US was tapping Angela Merkel's cell phone. But I suspect that this was news to Obama as well. And more generally: the NSA has been hovering up all the data in the world, because it has no clue what it is doing. "Big data" really means "dumb data."


Why do you think more wealthy people don't fund anti-aging research? What do you think could be done to encourage them to do more?

Most people deal with aging by some strange combination of acceptance and denial. I think the psychological blocks to thinking about aging run very deep, and we need to think about it in order to really fight it.


So, unrelated question, but I'm just curious--- What was your reaction to THE SOCIAL NETWORK movie?

The zero-sum world it portrayed has nothing in common with the Silicon Valley I know, but I suspect it's a pretty accurate portrayal of the dysfunctional relationships that dominate Hollywood.


what is one thing you believe to be true that most do not?
Most people believe that capitalism and competition are synonyms, and I think they are opposites. A capitalist accumulates capital, and in a world of perfect competition all the capital gets competed away: The restaurant industry in SF is very competitive and very non-capitalistic (e.g., very hard way to make money), whereas Google is very capitalistic and has had no serious competition since 2002.

Hi Peter.. if you were not from United states, do you believe you could reach the same position as you are now?

One can never run this experiment twice, but...

I was born in Germany and my parents emigrated to the US when I was 1 year old. I think Germany and California are in some ways extreme opposites -- Germany is pessimistic and complacent, California is optimistic and desperate. I suspect my life would have turned out very differently had we stayed in Germany.


Peter, what's the worst investment you've ever made? What lessons did you learn from it?

Biggest mistake ever was not to do the Series B round at Facebook.

General lesson: Whenever a tech startup has a strong up round led by a top tier investor (Accel counts), it is generally still undervalued. The steeper the up round, the greater the undervaluation.


What is your view on bitcoin? will it replace the current financial system we have?

PayPal built a payment system but failed in its goal in creating a "new world currency" (our slogan from back in 2000). Bitcoin seems to have created a new currency (at least on the level of speculation), but the payment system is badly lacking.

I will become more bullish on Bitcoin when I see the payment volume of Bitcoin really increase.


Can you comment on how you think artificial intelligence may change society in the coming decades? And what you think we can do to increase the chance that these changes will be positive?

I think AI is still a fair ways off. But the economic questions (e.g., how will this impact our work?) are secondary to the political questions (e.g., will AI be friendly?).

The development of AI would be as momentous as the landing of extraterrestrials on this planet. If aliens landed, the first question would not be about the economy!


You've spoken a great deal about stagnation and a fair amount about what institutions and individuals might do tocombat it. What advice do you have for adapting to it? Short of becoming an entrepreneur, what does the prospect of technological stagnation mean for how average individuals should invest and plan their lives?

If our great expectations about the future are not realized, then we need to save way more than we are doing today. China (with 40% savings) is perhaps more "rational" than the US (with about 0% savings), at least in a world of general stagnation.


I have heard stories about you at PayPal not wanting to hire MBA's. And now we all know your stance on college. I have 2 questions.

Why did you refuse to hire MBA's?Do you think there needs to be a change in K-12 education to lessen the demand for college?

1 no absolute ban, just think most MBA's tend to be high extrovert/low conviction people -- a combination that in my experience leads towards extremely herd-like thinking and behavior 2 yes, I think K-12 should give people enough skills to be able to contribute towards our society -- it is failing because it does not even come close to this


How do you combine your libertarian politics and your Christian faith? Is there a contradiction you struggle with or do you see no conflict at all?

To think of Christ as a politician might be the easiest way to get him all wrong.

The theological claim that Christ is the "son of God" is also the anti-political claim that Augustus Caesar (the son of the divine Julius Caesar) is not the "son of God." So I think that Christ should be thought of as the first "political atheist," who did not believe that the existing political order is divinely ordained.

Now, I think that there is lot of resonance between political atheism and libertarianism, even if they are not strictly identical...


Did Anton Chigurh kill Carla Jean Moss at the end of No Country for Old Men?

Probably. But the real issue is that Chigurh did not overcome chance himself.

"No Country for Old Men" is the movie that chapter 6 of my book is directed against.


You mentioned in the Tim Ferriss Podcast that you think when startups fail it is simply a tragedy. Do you think anything can be taken out of it when the unfortunate does happen?

Unfortunately, not very much... Failure is typically so overdetermined that people never learn all the reasons for which they failed.


How important do you feel social responsibility is as a contributing factor to a companies success?

A sense of mission is critical, but I think the word "social" is problematically ambiguous: it can mean either (1) good for society, or (2) seen as good by society.

In the second meaning, it leads to me-too copycat companies. I think the field of social entrepreneurship is replete with these, and that this is one of the reasons these businesses have not been that successful to date.

Second, Dan Wang summarizes some of Peter Thiel's key responses from this debate with Marc Andreessen. On energy:

Look at the Forbes list of the 92 people who are worth ten billion dollars or more in 2012. Where do they make money? 11 of them made it in technology, and all 11 were in computers. You’ve heard of all of them: It’s Bill Gates, it’s Larry Ellison, Jeff Bezos, Mark Zuckerberg, on and on. There are 25 people who made it in mining natural resources. You probably haven’t heard their names. And these are basically cases of technological failure, because commodities are inelastic goods, and farmers make a fortune when there’s a famine. People will pay way more for food if there’s not enough. 25 people in the last 40 years made their fortunes because of the lack of innovation; 11 people made them because of innovation.


One of the smartest investors in the world is considered to be Warren Buffett. His single biggest investment is in the railroad industry, which I think is a bet against technological progress, both in transportation and energy. Most of what gets transported on railroads is coal, and Buffett is essentially betting that after the 21st century, we’ll look more like the 19th rather than the 20th century. We’ll go back to rail, and back to coal; we’re going to run out of oil, and clean-tech is going to fail.

On finance:

Think about what happens when someone in Silicon Valley builds a successful company and sells it. What do the founders do with that money? Under indefinite optimism, it unfolds like this:

  • Founder doesn’t know what to do with the money. Gives it to large bank.
  • Bank doesn’t know what to do with the money. Gives it to portfolio of institutional investors in order to diversify.
  • Institutional investors don’t know what to do with money. Give it to portfolio of stocks in order to diversify.
  • Companies are told that they are evaluated on whether they generate money. So they try to generate free cash flows. If and when they do, the money goes back to investor on the top. And so on.

What’s odd about this dynamic is that, at all stages, no one ever knows what to do with the money.

On the technologically-accelerating civilization:

How big is the tech industry? Is it enough to save all Western Civilization? Enough to save the United States? Enough to save the State of California? I think that it’s large enough to bail out the government workers’ unions in the city of San Francisco.

Finally, a link to Thiel's new book Zero to One which releases next week. It's a collection of a lot of what he taught in CS183 at Stanford. For a taste, revisit notes from the class as compiled by Blake Masters.

Learning from the economics of video games

So how can games provide insight into real life problems and politics?
The two groups don’t really realize this yet, but game designers and policy makers are doing exactly the same thing. Both groups have these giant populations that are so big that you can’t sit down and talk to everyone about exactly what they want, so you get this mass of information and opinions. And your job is to look out at this sea of people and figure out what would make them happier and then design a bunch of rules that does that. How do you handle player vs. player combat? How do you handle the market? How do you handle conflict between players? Those are all political problems. Many game designers function like lawyers or policy makers. The policies may be very different, but they are in the same business.

Do you think there are opportunities for each side to learn from the other? 
I think that the opportunities go in one direction. I think that game designers should not take anything from the policy makers, because policymaking is so bad. Think about this, we’re going to implement a change to health policy that is going to involve one sixth of our economy. No game designer would ever do something like that without testing it, but we go forward without tests all the time in real life. I think that real world governments have a lot to learn from the way that game designers develop patches, how they talk about that process, how they implement it, and how they do the actual work to figure out what that patch will be.

What about the economic world? How can big business use games to improve their business?
Well, you’re stepping over that live wire called Gamification, and I don’t want to give anyone the idea that Gameification is a reasonable strategy for businesses. The basic idea is that you have all these people doing data entry, and if you just give them badges every time they do something, then magically they’ll love their job. That’s not how human behavior works. I think that we can do a much better job of making the lives of everybody in the real world feel more meaningful, but that’s not Gamification, that’s a cultural change. Figuring out how to do that is the tough problem, but giving everyone badges is a weak attempt to make your company a more enjoyable place. What’s going on here is basic human motivation. The gaming industry knows more about engaging people than any other industry right now.

From an interview with Edward Castranova, a telecommunications professor at the University of Indiana.

We are still a ways off from the popular dystopian sci-fi scenario of being citizens of a corporation rather than a nation-state, but some companies are already arguably more powerful than many countries, certainly on the scale of economic throughput. That's why it's still valuable to debate and discuss the ethics of some of the largest companies in the world. The policy decisions technology companies like Facebook, Google, Amazon, Uber, Apple and other behemoths make have massive effects in society, and they've been under a lot of scrutiny. Some of the outrage is trivial and overblown, but in the grand scheme of things I'm glad people challenge and question these companies publicly. For the companies, the consequences usually just consist of PR headaches that blow over eventually when the energy of the initial fury dissipates.

Operating under the aegis of “maximizing shareholder value” isn't much of an ethical foundation.

Music economics in the age of abundance

Jay Frank of FutureHit.DNA notes that for music labels, a streaming music customer is “now worth nearly 15% more than the person who bought music either digitally or physically.” In this third industrial revolution, that's not surprising. Streaming music services are the logical service for this age of abundance while purchasing music made more sense in the age of scarcity, however artificial that scarcity was.

Frank recommends artists face facts about the economics of this new age.

As Ethan points out, it took an “indie pop/rock group” 34 months to make more money from streaming than they did from sales. Some artists will do it in less time, and others in more time. Either way, the artist has to take the long view. It’s certainly easier and much better to run a music business with the money coming in quickly with an up-front sale. However, if you believe in your music and have patience, the long run pays off. In this way, the recorded music business will quickly resemble its partners in publishing. In another way, with many artists being financially irresponsible, is it so bad for them to get their money slowly over a prolonged period?

A person buying $14 worth of CDs a year has the money going to 3 artists at the most (3 CDs x under $5). A person buying $14 worth of downloads a year has the money going to maybe 18 artists at the most (18 downloads x $.79). However, $16 worth of streaming revenue conceivably goes to as many as 3,200 tracks (3,200 streams x $.005). Even if you take an assumption that a person does 100 listens of one artist in a year, that’s still spread out over 32 artists in a year, or nearly double the max average for download sales. As I’ve reiterated before, the real issue facing artists with streaming is that the very access that allows them to make money means the pie gets sliced thinner. There’s more money, but it just goes to more artists.

Disposability of a song only works if you work it extra hard while it’s hot. If an artist/song takes 34 months to make more money, then the song needs to be relevant for those 34 months. No longer can you stiff a consumer who buys something and only listens to it a couple of times. Now, those listens need to reoccur and do so over a prolonged period. This also means continually marketing content to ensure it stays relevant.

The first two are just reality. The last one is curious: how does one create a song for repeat playability across the years? What are the qualities of such a song? One can ask the question another way: do some artists knowingly create music that is disposable? That would only seem to make sense if it was easier to do so, otherwise why wouldn't one want to create something longer lasting? All things being equal, you'd prefer the longer cultural relevance and a revenue stream that more closely resembles an annuity.

Despite the great consumer experience that is streaming music, I'm less bullish on the financial attractiveness of that industry. Companies like Pandora, Spotify, and Rdio will all suffer from the wholesale transfer pricing problem. The labels have a unique asset, the digital streaming rights to millions of songs, that all those companies require to survive, and the labels will continue to adjust the pricing to squeeze all the margin out of the business.

There is a path forward. Video sites like Netflix, Hulu, and Amazon all suffered through the same problem as studios licensed back seasons of shows for exorbitant fees, often to multiple buyers who ended up with undifferentiated offerings on which to charge meaningful subscription fees. Still, all of them had to license a meaningful enough library, let's call it tonnage, to serve as a base for a service. From there, all three turned to financing original content that they'd own exclusively as a means of differentiation.

The music streaming services may have to take a similar approach and compete with the labels head to head in working with artists directly to handle the jobs further up the value chain like production and marketing. I've long thought Spotify, as the leading streaming service in subscribers, should become a music label of its own.

It's a costly road, and the payoff is not immediate, but at least it offers the possibility of future profits which might never materialize given the terms the music streaming services have to work with now.

Fast Fashion

Fascinating article on the phenomenon of fast fashion, much of it tied to the an area of downtown Los Angeles known as the Jobber Market.

In the 2000s, the first major wave of second-generation Korean immigrants— kids who had grown up around their parents’ showrooms—started hitting adulthood. They headed off to American universities to study business, or to schools like Parsons to acquire skills in design, marketing, and merchandising. “They are going to fashion schools everywhere—in Paris, London, Milan, L.A., and New York, all over the world,” says Tommy Choi, a 15-year veteran of the Jobber Market.

On their return to Los Angeles, the kids revamped their family businesses: re-branding, creating company logos, building out showroom spaces to make them appealing to American wholesale buyers, and setting up sleek websites. Their Americanized cultural identities and native English skills allowed Jobber Market businesses to communicate fluently with domestic department-store and retail buyers. And their design, marketing, and merchandising skills allowed companies in the neighborhood to start making clothes on the cutting edge of fashion.


Competing against retailers that were still observing the three-month fashion cycle, Forever 21’s buyers only needed to show up daily in the Jobber Market and choose from a smorgasbord of fashion-forward designs, all ready to be shipped that day. If the company’s buyers did not agree with one vendor’s price, all they had to do was go next door, where a similar design could likely be had for cheaper.


There’s one more important part of the picture: Fast fashion did not just arise from a new intergenerational division of labor within Korean fashion businesses. It also arose from a new distribution of risk in the industry, with much of it falling on the shoulders of the Korean and Mexican families near the bottom of the production chain. For the fast-fashion suppliers in the L.A. Jobber Market, consumer demands are unpredictable and the market is highly volatile. Wholesalers live at the mercy of retailers who set prices and squeeze profit margins; families must invest cash and put thousands of styles into production before knowing what will sell. Everyone in the Jobber Market tells me about the stress, likening the business to gambling at a casino.

So much to unpack in that story, well worth reading.

I had no idea cycle times for fashion could be so short. One more advantage of “made in the USA”: the ability to rapidly reduce cycle time in an industry where trends can be fleeting.

At some point, perhaps manufacturing shops in the Jobber Market move down the apparel value chain and start selling direct to consumers? I need to wander through that neighborhood the next time I'm back in L.A.

Flexbility or stability, pick one

From a story on the rise of sharing economy jobs through services like TaskRabbit, Uber, Lyft:

Labor activists say gig enterprises may also end up disempowering workers, degrading their access to fair employment conditions.

“These are not jobs, jobs that have any future, jobs that have the possibility of upgrading; this is contingent, arbitrary work,” says Stanley Aronowitz, director of the Center for the Study of Culture, Technology and Work at the Graduate Center of the City University of New York. “It might as well be called wage slavery in which all the cards are held, mediated by technology, by the employer, whether it is the intermediary company or the customer.”

(Disclosure: For two weeks in the summer of 1988, I had a gig as the au pair for Professor Aronowitz’s daughter, then a toddler.)

That final parenthetical is, not ironic, but hilarious?

Snowpiercer, VOD, and indie film financing

Over the past few years, some indie films have been experimenting with day-and-date release in theaters and on VOD services like iTunes. It has always made a lot of sense to me: you capitalize on your theatrical marketing spend when you put movies out on multiple platforms at once, instead of having to spend multiple times to market the theatrical release and then the VOD and DVD releases.

Studios had always been hesitant to go too far with this strategy because of blowback from the theater owner cartel and because studios are just generally a bunch of conservative folks who need to be dragged kicking and screaming into the future. It didn't help that the only movies that typically received this type of treatment ended up being some of the most obscure movies out there; it led to the self-fulfilling prophecy that this was a dumping strategy for movies with little or no market.

Some forces are finally converging to make this strategy more attractive, though. For one thing, the DVD release window continues to shrink in value as the DVD purchase market fades away. As with CDs, so go DVDs. Secondly, the theatrical film business is flat, and for indies it is likely declining as more share of theatrical spend is for blockbuster movies. The competition for moviegoing as a form of entertainment is increasing, and most of it comes from a computer people carry with them all the time and that turns on with a tap of a button. Other competition comes from a larger but also more accessible screen, the giant LCD TV in people's living rooms. Desperate times call for desperate measures.

Here comes the poster child for the revolution. Snowpiercer is the widest multi-platform release ever. It wasn't quite day-and-date, but two weeks after it was released in theaters, it was available on most VOD services like iTunes and cable operators like Comcast and DirecTV.

Some interesting tidbits:

But RADiUS-TWC is taking steps to create a new language around digital platform revenues, with Snowpiercer earning an estimated $1.1 million from VOD this past weekend, nearly twice as much as the $635,000 it earned in theaters. “From a layman’s perspective these numbers are possibly not that interesting,” admits RADiUS-TWC co-president Tom Quinn. “But from an industry perspective, it’s a game changer.”
Why? For a distributor, VOD is both cheaper and more profitable. “That $1.1 million gross is actually worth almost double to me in terms of how it nets out in our bottom line,” says Quinn, who claims that the film’s real-value weekend gross is thus about $2.6 million, enough to land in the box-office top-10.
This strategy also didn’t require a traditional TV spend. “We are being promoted on TV, but we are being promoted on TV to consume,” he explains. “We have a TV campaign, but it’s in service of actually selling the movie to be purchased. That’s very different.”
Also, VOD—with access to 85 million homes—doesn’t have the same drastic theatrical drop-offs from week to week.

More from Variety:

The picture has racked up an impressive $3.8 million over its first two weeks on VOD, while pulling in a respectable $3.9 million over five weeks of in theaters.

The lowered marketing cost is huge here, it's difficult to overstate just how deep a hole a studio digs for an independent film when the studio takes out a broad ad campaign, including television ads, to promote its theatrical release. The irony is that it's not clear that an expensive TV campaign ever made sense for all but the biggest indie films, and the increased competition for the theatergoing experience makes that even less logical.

Perhaps the total potential audience for your movie is not massive, and frankly, for many indie movies it won't be. In this age of increased competition for attention, being able to keep your marketing costs at a minimum gives your movie more opportunity to make a profit at whatever percentage of your potential audience you manage to convert.

The internet does not increase the total user attention in the universe, it only makes it easier to tap into it. There are still only 24 hours a day in the lives of each of the people in the world, and that finite resource is being subdivided more and more. It's one reason Hollywood is so eager to please the Chinese market with plots that are China-safe; it's one of the few ways to grow the base of paying customers by a magnitude of order.

Liam Boluk writes about some strategies for indie filmmakers:

As a result, VOD and digital distribution should represent the indie priority – not just another non-theatrical channel. However, this means far more than pursuing a common release date across all mediums, penetrating a wide variety of different providers (Netflix, Amazon, Apple etc.) or standing up a direct-to-consumer distribution portal. Indie studios will still need to find a way to stand out among the 500+ other indie titles per year (not to mention thousands of pre-existing major and indie catalogue titles). What’s more, revenues will still be too slight to fund elaborate marketing campaigns nationally. As such, studios will need to establish and cultivate direct-to-consumer relationships through which they can inform individual consumers of any new releases that might be of interest and help guide them to the appropriate distributor (e.g. Netflix, iTunes etc.). If this is done well, indies may even be able to use consumption and interaction data to guide future film investment decisions (as the major studios, as well as OTT video providers do).


With RADiUS-TWC sharing this data on its VOD success, perhaps the stigma of having your movie released on multiple platforms simultaneously will diminish. The next generation doesn't see it as a black mark if your movie is released on multiple platforms, they see it as outdated and absurd that more movies and TV shows aren't available on all the screens all the time. While your movie opens to largely empty theaters in an exclusive theatrical window, they sit at home watching videos on YouTube.

While I personally still love and prefer to go to the theater to sit in a darkened theater with other people to see movies projected on a giant screen, I support whatever release strategies continue to finance filmmaking. The windowing strategy isn't going away anytime soon, but it makes less and less sense as we transition from the age of artificial scarcity to one of uncontrollable abundance.

Miss American Dream

Each residency is a reflection of the demographic the property is going for—the Mirage made a play for the affluent and not-quite-debaucherous late 30s/early 40s crowd with Boyz II Men, these boyz who are now patchily gray men, who remain pure in their desire to romance you, to make gauzy, romantic, sweet, consensual love to you, and quickly retreat when you give the nod, who wear sequined letter sweaters and overestimate the impact their music had on our sex lives (“I bet there are some Boyz II Men babies in here!”). The Venetian very much wants the Midwestern, soft-country audience of Tim McGraw and Faith Hill. Planet Hollywood, with its hot pink accents and movie-themed rooms, was built for the Britney fan.

It’s only late in the evenings that Vegas visibly becomes what the tourism board says it is: young and saturated with sex—and not the Boyz II Men-sanctioned lovemaking kind, either. Out on the Strip, aging women wear shirts that say “Girls! Girls! Girls!” A man working for a competing strip club has a shirt that says “Orgasim Clinic: Accepting New Patients.” (Sic on that tragic typo.) Single-named DJs pump their skinny arms as women in tight tube dresses and Lucite heels they bought online a year ago straddle mouth-breathing men on VIP couches like they just heard there was an asteroid headed toward earth or just took a handful of Ecstasy; platonic girlfriends decide to make out at no urging at all because we’re in Vegas bitchez! One does not have to go far to feel the erection of a stranger in the rear of one’s jeans. It is in these small, handsy hours of the night that Caesars’ hope for Britney was born.

Taffy Brodesser-Akner on Britney Spears residency at Planet Hollywood in Las Vegas.

I enjoyed this economic breakdown from AEG Live president John Meglen before her residency began. It's telling about the economics of Vegas.

“Even if you believe in Britney, that gives you 50 shows [per year], great, what are you going to put in there your other 200 nights a year?” Meglen told me, in his office in L.A. “If all they have in there is Britney Spears and she is sold out for 50 shows, they have failed. They need Britney Spears and the Spice Girls and Jennifer Lopez and Pink or whoever, okay?” That said, even if the theater is sold out and the seats filled, that doesn’t quite fulfill the residency’s mission, which is to say: Vegas may claim to want youth, but young people aren’t actually good for business.

“You have to ask, ‘Are those kids buying tickets yet?’” Meglen continued. “Because most of them still are seven in a carload driving out from Southern California, they all sleep in one room, they spend the day at the pool and at night they go to the clubs. They’re great at using the workout room, that comes with your ticket. They don’t get the body scrubs or the facial wraps, you know? They don’t gamble and they don’t eat at restaurants and right now, in my opinion, it’s fucking tanking the whole fucking city.”

Billy Beane and the resource curse

Benjamin Morris posted a good analysis of the value of Billy Beane over at FiveThirtyEight.

To be conservative, let’s just look at the period since Henry made Beane his offer: In the last 12 years, the Red Sox spent $1.714 billion on payroll, while the A’s spent $736 million. We can then break down what it could have looked like if Beane had worked for the Red Sox like so:

  • Let’s say it would have cost Boston the same $736 million that it cost Oakland to get the A’s performance with Beane.
  • At the hypothetical $25 million-per-year salary I suggested earlier, Beane would have cost the Red Sox another $300 million. (It’s possible that Beane would have wanted more, but it’s even more possible that they could have gotten him for less.)
  • The difference in performance between the A’s and the Red Sox over that period (where the Sox were as successful as at any point in the franchise’s history, and the A’s were supposedly stagnating after Beane’s early success) has been about 50 games for Boston. Since we don’t know exactly how good Beane would be at procuring additional wins above his Oakland performance, let’s assume that the Red Sox would have had to pay the typical amount teams have paid for wins in the period to make up the difference. According to the year-by-year price of wins from my calculations above, those 50 wins (taking when they happened into account) would have a market value of about $370 million (though this might have been lower with Beane in charge).

If we combine these — the price of the A’s performance ($736 million) plus Super-Expensive-Billy-Beane’s salary ($300 million) plus the additional 50 Red Sox wins at high market estimates ($370 million) – merely duplicating their previous level of success still would have saved the Red Sox more than $300 million relative to what they actually spent, and that’s with reasonably conservative assumptions. That’s money they could have pocketed, or spent making themselves even better.

Management and ownership are undervalued in sports (though ownership's compensation should include the equity value of the franchise which usually outweighs salary by a lot; it's just that ownership often selects management so they have a ripple effect on franchise competitiveness). It's the reason I have a Cubs jersey with “Epstein” on the back as my profile pic on Facebook. I consider the hiring of Theo Epstein as the Cubs President of Baseball Operations the single most important Cubs hire in my lifetime as a long-suffering Cubs fan, far outweighing the value of any single player. Forget all talk about curses; the Cubs have just been so badly run for so long that even random luck hasn't been enough to deliver a World Series title in over a century.

In December of 2012, Bill Barnwell did a great piece on how Jim Harbaugh was the most undervalued asset in pro football, and in his annual ranking of trade value in the NFL for the year ahead Barnwell still had Harbaugh ranked 49th, the only coach to appear in his top 50 list. Harbaugh certainly turned around the Stanford football program.

Whether it's Beane or Epstein or Harbaugh, of course it's not just their influence but the staff they bring in that matters, too. But that's one thing about bringing in someone like that: their ability to hire great people or bring past teammates with them is one of the keys to their value. Epstein brought in Jed Hoyer and Jason McLeod and countless other people whose names aren't public but who've given the Cubs, in a few short years, the best farm system in baseball. The mantra with the Cubs has always been "wait til next year" but now it feels more like “can't wait til next year.”

The longer I'm a sports fan, the more I think the most important thing if you're loyal to a sports team is quality ownership. In some sports, more football and basketball than baseball, a good manager or coach matters, too. Baseball being a series of individual confrontations, the tactical value of a good manager is less there than that of a coach in basketball or football.

The hypothetical question of how Billy Beane would have done with the Red Sox is an interesting one. On the one hand, as Morris notes, Beane has done a ton with less in Oakland. On the other hand is the well-known phenomenon called the resource curse.

The resource curse, also known as the paradox of plenty, refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy, a phenomenon known as Dutch disease), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities).


Sports has its own version of the resource curse, and even Epstein, who delivered the Red Sox their first World Series in ages, ran into it late in his tenure there, signing a ton of expensive free agents like Carl Crawford. Beane would have had a much larger payroll in Boston, and that might have had him chasing more big name free agents rather than searching for inefficiencies as he has had to with the A's.

Or so the theory goes. Readers here know I'm wary of extrapolating phenomenon across boundaries, of the temptation of metaphor, and taking the resource curse, which is often used to discuss countries with rich oil supplies, and applying it to wealthier teams in baseball draws my immediate suspicion.

What's happening in baseball is that teams are smarter about locking up players for their prime years. In baseball, players become eligible for arbitration after three years of MLB service, and they become free agents after 6 years of service in the major leagues. However, teams can sign players to contracts that lock the player up for their first few years of free agency, as well, and more and more teams are doing so for their star homegrown players to secure more of their highest productivity years. This means rich teams like the Yankees can swoop in and buy with a fat contract are older and further into their career. Older players are more likely to be on the downside of the careers or to suffer injuries. Thus what appears to be a resource curse in baseball, as noted in the ESPN article I linked to above, may just be a temporary phenomenon.