The Other Side of the Trade

In the stock market, traders sometimes talk about knowing who is on the other side of the trade. What do they know? What do they hope to accomplish?

The 'other side' of the Theo Epstein trade is Larry Lucchino and the power on the throne, John Henry. As they say in Hollywood, "what's my motivation?" As I wrote on the Dirt Dogs site, Lucchino would clearly come down as the Fall Guy if Theo Epstein walked. So far, it's played out that way.

Does anyone think that Larry Lucchino gives a rat's patootie about that? Lucchino runs the business side of the house, skillfully maneuvering among the politicians, contractors, and vendors to enhance the ballpark, expand revenues, and increase club value. From an ownership perspective, you care about widget sales, top and bottom line growth, cash flow, debt service, and ultimately market capitalization. If you're John Henry, the trend is good.

If you're Henry, do you care about fan reaction to the departure of the sentimental favorite son? You don't achieve Fortune 400 status (richest people on the planet) because of sentimentality. Do you think one less fan will cross through Fenway turnstiles because Theo Epstein isn't sitting behind home plate or in the owner's box? Your investment is about dollars. Will seats suddenly become vacant and fans abandon Red Sox paraphernalia? Don't bet on it.

Dollars aside, you can already point to three playoff appearances, two ALCS rounds, and a World Series title. How dare you say ownership doesn't care about winning, or committing resources to the process?

What fans have to ask is becomes is John Henry the next James Orthwein, a sports carpetbagger, or planning to sell out in the near future. If he and Lucchino continue to increase cashflow, especially by moving Manny Ramirez, by not signing Johnny Damon, by 'going young' and allowing other contracts (e.g. Schilling) to die of attrition, then cash flow could increase dramatically and increase the real (not theoretical) value of the investment. On Wall Street they call that good business.

We fans often become trapped in concepts of loyalty and tradition. Shrewd baseball owners don't suffer the same failings, as they increase their empire through all possible means. The Sox continue to increase ticket prices, and the payoff of farm system productivity is the option of decreasing 'overhead', that is, the cost of the product on the field.

I've discussed the distinction of decision-making by ego or by money. Theo Epstein rendered a decision based on ego, walking away from Megabucks. We must presume that intolerable working conditions contributed. The motivation for the other side of the trade remains unexplained. Did ownership consider Epstein too popular, expendable at this point before his status grew uncontrollable and a threat to their longer-term goals? What are their goals?

What we as fans must accept, like players who are fungible, is that the Theo Epsteins, Chris Correntis, and others are mere pawns on the chessboard of the baseball hierarchy. They are commodities, interchangeable with minimal perceived loss in valuation. You can almost hear the boardroom chatter, "look, we'll just get another guy. The fans won't even notice the difference. The king is dead, long live the king. It's just that simple."

Sentiment doesn't drive franchise value, cash flow does. Ownership retains control of one of thirty-two proprietary businesses, monopolistic, indestructible. Or so they think.