Baseball for the Thinking Fan

Login | Register | Feedback

btf_logo
You are here > Home > Baseball Newsstand > Baseball Primer Newsblog > Discussion
Baseball Primer Newsblog
— The Best News Links from the Baseball Newsstand

Friday, November 09, 2012

Boston Globe: Healey: Red Sox owner John Henry shutting down investment firm; no intention of selling team

“May I have your attention please. Now playing first base for your Boston Red Sox, number nine, Andy Carroll. Carroll now playing first base.”

Red Sox owner John Henry is shutting down his Florida investment firm after several years of decline, but Henry insists he has no intention of selling his stake in the Boston baseball franchise.

Founded in 1982, John W. Henry & Co. helped Henry build a fortune using complex statistical models to trade in commodities. The firm managed $2.5 billion in 2004, the year the Red Sox won the World Series. But assets under its watch declined dramatically in the financial crisis and have not come back.

On Friday, Henry said the Boca Raton firm told clients in October that it planned to return the rest of their money—which now amounts to less than $100 million—by year’s end. It will continue to manage Henry’s personal account.

Mattbert Posted: November 09, 2012 at 10:11 PM | 27 comment(s) Login to Bookmark
  Tags: business, nomoneyball, owners, red sox

Reader Comments and Retorts

Go to end of page

Statements posted here are those of our readers and do not represent the BaseballThinkFactory. Names are provided by the poster and are not verified. We ask that posters follow our submission policy. Please report any inappropriate comments.

   1. Ivan Grushenko of Hong Kong Posted: November 10, 2012 at 01:29 AM (#4299449)
Whoa. $2.5B to $100M! That's terrible. I'm not sure why this should affect the team though. The team is supposed to support itself anyway.
   2. The Anthony Kennedy of BBTF (Scott) Posted: November 10, 2012 at 01:39 AM (#4299453)
It just means that all the investors pulled their money out, not that they lost all but 100m. Of course, the investors pulled their money because they were losing/not making any money.
   3. Bourbon Samurai Posted: November 10, 2012 at 06:03 AM (#4299478)
It just means that all the investors pulled their money out, not that they lost all but 100m.


That is an important clarification I have been missing in these reports. Thanks
   4. bob gee Posted: November 10, 2012 at 08:10 AM (#4299483)
here's what usually happens:

rich person gives gobs of money to a firm. rich person pays 1-2% of the amount he gives / yr to the firm.
firm tries to make a profit. assume they do. they keep 10-20% of the profits for themselves, rest go to the rich person.
once the firm has success and/or publicity, lots of other rich people put money in the firm. the firm then may have to change their strategy / alter their risk portfolio because they have to take on larger positions.
if the firm has one losing *quarter* (or below-average) , some people will pull money out of the firm. that's not too bad.
however, if the firm has one losing *year* (or below-average), more ppl will pull money out of the firm. and when word goes around that some people are pulling money out, most other people think "they're pulling money out, i better pull money out too."

that's what happened in this case.

a more individualized example (not relevant to henry's case, but he COULD have led the firm down this strategy) which can lead to disaster is as follows:

firm is down 8% three-quarters of the way through the year. the traders are mainly paid in bonuses, and the bonuses are based off of being + for the year. the traders and firm both believe that if they don't get +, people will pull their money (as talked about above).

the trader/firm then starts taking on huge outsized position (relative to what they'd normally take on) - positions which if they go right can get them back to positive territory, but also a position where, if it goes wrong, can mean the fund is now down 25-35% for the year. and this can result from a small position in the underlying price, because the firm has put on a position which is way too big.

if they lose money/close up shop, what happens? they wait a couple years and open up a new one. some of the most intelligent traders have blown up several times because they can't practice risk management in "unusual" times (ie. where the market doesn't go according to their project models), and then blame others/ the market / etc. for their failings.
   5. You Know Nothing JT Snow (YR) Posted: November 10, 2012 at 10:24 AM (#4299497)
Whoa. $2.5B to $100M! That's terrible. I'm not sure why this should affect the team though. The team is supposed to support itself anyway.


That's not the way baseball works anymore.
   6. karlmagnus Posted: November 10, 2012 at 11:33 AM (#4299506)
As I have been saying for several years, the Henry finances have been in trouble and this has affected the Red Sox. Now Liverpool is losing money as well, economy will be the watchword. Getting raid of the Gonzalez and Crawford contracts without suffering a PR hit shows the quality of therse people's PR operation, the one thing they're good at.

Don't expect to see any big free agent signings or trades for top players; Henry needs the cash flow to support Liverpool and his expensive wife.

Sox need new ownership. Fast. And someone whose money is in a decently stable business.
   7. Matt Clement of Alexandria Posted: November 10, 2012 at 11:38 AM (#4299509)
And someone whose money is in a decently stable business.
Henry's money is now in a stable business - the Boston Red Sox.
   8. greenback calls it soccer Posted: November 10, 2012 at 11:59 AM (#4299515)
I know Bobby Valentine is gone, but it still seems odd to attach the adjective 'stable' to the Boston Red Sox.
   9. Matt Clement of Alexandria Posted: November 10, 2012 at 12:08 PM (#4299516)
As a business? They own a regional sports network. As a team, who knows, but owning the Red Sox is a money printing license.
   10. Tripon Posted: November 10, 2012 at 12:14 PM (#4299517)
   11. DA Baracus Posted: November 10, 2012 at 12:16 PM (#4299518)
Now Liverpool is losing money as well


They were losing money under Hicks and Gillette. Making money in soccer is the exception, not the rule.
   12. Rickey! trades in sheep and threats Posted: November 10, 2012 at 12:16 PM (#4299519)
MITTMENTUM!
   13. Golfing Great Mitch Cumstein Posted: November 10, 2012 at 12:53 PM (#4299536)
a more individualized example (not relevant to henry's case, but he COULD have led the firm down this strategy) which can lead to disaster is as follows:

firm is down 8% three-quarters of the way through the year. the traders are mainly paid in bonuses, and the bonuses are based off of being + for the year. the traders and firm both believe that if they don't get +, people will pull their money (as talked about above).

the trader/firm then starts taking on huge outsized position (relative to what they'd normally take on) - positions which if they go right can get them back to positive territory, but also a position where, if it goes wrong, can mean the fund is now down 25-35% for the year. and this can result from a small position in the underlying price, because the firm has put on a position which is way too big.

if they lose money/close up shop, what happens? they wait a couple years and open up a new one. some of the most intelligent traders have blown up several times because they can't practice risk management in "unusual" times (ie. where the market doesn't go according to their project models), and then blame others/ the market / etc. for their failings.


Henry's funds were black box and traded on some proprietary algorithm for the commodities markets.

His #### doesn't work in the post market meltdown market.
   14. Nasty Nate Posted: November 10, 2012 at 01:39 PM (#4299561)
As I have been saying for several years, the Henry finances have been in trouble and this has affected the Red Sox. Now Liverpool is losing money as well, economy will be the watchword. Getting raid of the Gonzalez and Crawford contracts without suffering a PR hit shows the quality of therse people's PR operation, the one thing they're good at.


You have predicted literally every off-season since 2005 that the Sox were going to have a low payroll because of losses of John Henry's business and every single season you have been wrong. Given that every year for 6-7 years evidence has been building that you have absolutely no idea what you are talking about, maybe you should wait until the Sox actually play a season with a low payroll before you pat yourself on the back.
   15. The Yankee Clapper Posted: November 10, 2012 at 04:04 PM (#4299630)
. . . owning the Red Sox is a money printing license.

True, but with reduced income from his investment business, Henry may need more income from the Red Sox to maintain his lifestyle. Can't have him flying first class instead of using a private plane, after all. Since the current CBA makes it so attractive for teams to get below the luxury tax threshold, who knows what the actual motivation will be going forward. Might take a couple of off seasons to see if Henry's finances have impacted the Red Sox.
   16. Matt Clement of Alexandria Posted: November 10, 2012 at 04:09 PM (#4299634)
Since the current CBA makes it so attractive for teams to get below the luxury tax threshold, who knows what the actual motivation will be going forward.
The Red Sox were already locked in under the luxury tax threshold for the foreseeable future regardless of Henry's finances. They never went over by much, and with the new rebate making going over by even five bucks cost millions of dollars, the days of paying luxury tax were already over.
True, but with reduced income from his investment business, Henry may need more income from the Red Sox to maintain his lifestyle. ... Might take a couple of off seasons to see if Henry's finances have impacted the Red Sox.
Won't happen. You're wishcasting.
   17. Jose Is The Most Absurd Thing on the Site Posted: November 10, 2012 at 04:11 PM (#4299636)
Henry has always shown the willingness to spend big on the Sox. Maybe he's spent unwisely at times but he's spent. This report is troubling but as noted above the Sox are a license to print money. I think the concern here should be the Sox moving from a consistentt #2 to top 6 or 7 and that should be more than enough to contend regularly if they spend smart. Most MLB teams are limited by a willingness to spend and Henry has always shown that willingness.

And Karl, if you predict something to happen every year for seven years and it finally happens all it means is you were wrong six out of seven years so I wouldn't be too impressed with yourself.
   18. Darren Posted: November 10, 2012 at 04:50 PM (#4299659)
As I have been saying for several years, the Henry finances have been in trouble and this has affected the Red Sox.


And you have been proven wrong, over and over and over again. But don't let that stop you. Someday, inevitably Henry will either spend less or sell the team, and then you can say you were a visionary!*


*Not really, but you'll probably try to anyway.
   19. Darren Posted: November 10, 2012 at 05:03 PM (#4299666)
   20. Crispix reaches boiling point with lackluster play Posted: November 10, 2012 at 05:30 PM (#4299695)
It must have been so depressing to see Carl Crawford and Josh Beckett leave town. Truly the death knell of a one powerful, now broke franchise.
   21. RB in NYC (Now Semi-Retired from BBTF) Posted: November 10, 2012 at 05:53 PM (#4299724)
Yeah, Red Sox fans can throw a whole slice of pizza and not worry about the cost.
I've either never seen that before, or forgotten. That's great stuff. I know one of the big complaints about NESN broadcasts is that they discuss everything except in the game, but in that case you have to make an exception. That was great stuff.

I see no reason to believe Henry's finances are negatively affecting the Red Sox. They may be making a decision to spend less money, but I don't see that tied, specifically, to Henry being worth less.
   22. Nasty Nate Posted: November 10, 2012 at 06:07 PM (#4299737)
Remember to point to these:

2008: Henry's broke, that's why we can't have Manny anymore!

2010: Henry's broke! No more spending on payroll!



65. karlmagnus Posted: December 16, 2005 at 07:10 PM (#1780359)
The combination of the Renteria trade and the Crisp/Marte trade suggests the Sox are in a financial bind and desperately trying to reduce payroll. It probably foots with Henry's poor year; you don't make much out of a hedge fund if it loses money. Sox may have just become a small market franchise, until we get new ownership.


Estimated payroll ranks since:
2006 - second
2007 - second
2008 - second
2009 - fourth
2010 - second

according to here.
   23. Walt Davis Posted: November 10, 2012 at 08:12 PM (#4299791)
But, as always, Karlmagnus has a solid point. If the Sox had new owners, brought back Duqette as GM and coaxed Manny out of retirement to play LF, they would totally DOMINATE.
   24. Golfing Great Mitch Cumstein Posted: November 10, 2012 at 09:38 PM (#4299827)
The Red Sox were already locked in under the luxury tax threshold for the foreseeable future regardless of Henry's finances. They never went over by much, and with the new rebate making going over by even five bucks cost millions of dollars, the days of paying luxury tax were already over.

Henry's funds were failing for many years. He went from a few billion under management in 2004 to $100 million in only eight years. It can be argued that he saw the end coming and reduced costs for the Red Sox. I don't think that is the case, but Henry's failing hedge fund business has been coming down the pike for a while.
   25. valuearbitrageur Posted: November 11, 2012 at 12:47 AM (#4299912)
Henry's funds were failing for many years. He went from a few billion under management in 2004 to $100 million in only eight years. It can be argued that he saw the end coming and reduced costs for the Red Sox. I don't think that is the case, but Henry's failing hedge fund business has been coming down the pike for a while.


You can argue that his funds started declining in the early 90s. If I remember correctly (it's been years since I've seen his year by year performance record) his original fund a huge run in the late 80s, then it's results became pretty mediocre for a long period. He opened new funds to diversify and some had big years, but overall the firms results weren't special, or even good. But the advantage of of having that huge run was that the long term results looked great for a while, then still good for a long while.

He really seems like the epitome of the lucky coinflipper. Build a huge fund off a huge lucky streak you had as a tiny fund, and do well enough for long enough to not lose customers and you can be become extremely wealthy before the inevitable underperformance.

The long term is the friend of the truly sklled investor, over time their results are more likely to demonstrate their skill, not unmask their luckiness.
   26. tshipman Posted: November 11, 2012 at 03:07 AM (#4299943)
The long term is the friend of the truly sklled investor, over time their results are more likely to demonstrate their skill, not unmask their luckiness.


Isn't the real factor size? As your fund gets larger, it gets harder and harder to beat the market because your purchases are making up a larger part of the market. Even Warren Buffett has been pretty damn ordinary since around 1990.
   27. bob gee Posted: November 11, 2012 at 07:56 AM (#4299950)
26 - yes.

You must be Registered and Logged In to post comments.

 

 

<< Back to main

BBTF Partner

Support BBTF

donate

Thanks to
Ray (RDP)
for his generous support.

Bookmarks

You must be logged in to view your Bookmarks.

Hot Topics

NewsblogDave Dombrowski: Injury worse than expected, Miguel Cabrera 'is as tough as you can possibly be' | MLive.com
(18 - 3:41pm, Oct 25)
Last: Lars6788

Newsblog2014 WORLD SERIES GAME 4 OMNICHATTER
(3 - 3:38pm, Oct 25)
Last: Bourbon Samurai

Newsblog9 reasons Hunter Pence is the most interesting man in the World (Series) | For The Win
(22 - 3:31pm, Oct 25)
Last: esseff

NewsblogPhils' philospophy beginning to evolve | phillies.com
(9 - 3:27pm, Oct 25)
Last: JRVJ

NewsblogOT: The Soccer Thread, September 2014
(934 - 3:25pm, Oct 25)
Last: Swedish Chef

NewsblogYost's managerial decisions make for extra-entertaining World Series | FOX Sports
(5 - 3:18pm, Oct 25)
Last: Davo's Favorite Tacos Are Moose Tacos

NewsblogOT: Politics, October 2014: Sunshine, Baseball, and Etch A Sketch: How Politicians Use Analogies
(3780 - 3:00pm, Oct 25)
Last: Morty Causa

NewsblogJohn McGrath: The Giants have become the Yankees — obnoxious | The News Tribune
(19 - 2:59pm, Oct 25)
Last: PreservedFish

NewsblogBoston Red Sox prospect Deven Marrero enjoying turnaround in Arizona Fall League | MiLB.com News | The Official Site of Minor League Baseball
(7 - 2:51pm, Oct 25)
Last: puck

NewsblogBuster Olney on Twitter: "Sources: Manager Joe Maddon has exercised an opt-out clause in his contract and is leaving the Tampa Bay Rays immediately."
(85 - 2:23pm, Oct 25)
Last: puck

NewsblogOT: Monthly NBA Thread - October 2014
(392 - 2:08pm, Oct 25)
Last: madvillain

NewsblogGambling Bochy creature of habit when it comes to pitchers | CSN Bay Area
(3 - 1:14pm, Oct 25)
Last: esseff

NewsblogMLB - Royals' Ned Yost keeps managing to win - ESPN
(9 - 12:55pm, Oct 25)
Last: The elusive Robert Denby

Hall of MeritMost Meritorious Player: 1959 Ballot
(7 - 11:46am, Oct 25)
Last: lieiam

NewsblogRoyals get four AL Gold Glove finalists, but not Lorenzo Cain | The Kansas City Star
(17 - 11:46am, Oct 25)
Last: BDC

Page rendered in 0.4218 seconds
52 querie(s) executed