Steve Cohen Is Better for the Mets than A-Rod: A Lesson in Organizational Dynamics in Turnaround Situations

Baseball great, Alex Rodriguez, makes a run for ownership of the New York Mets.

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Years ago, I presented to a large group of analysts and portfolio managers at one of the world’s largest asset management firms about why I believed their sizeable investment in General Motors’ massive turnaround effort was unlikely to make money for their clients.

Although not my lead point, one of my arguments was that it is not unusual to uncover two companies in the exact same industry, and with the exact same opportunity set, that chronically produce wildly different operating results. For a bit of fun, I included the New York Yankees vs. the New York Mets on a long list of industrial and technology companies that fit my thesis — i.e., perennial contenders vs. lovable losers. Very often, these diverging paths can be traced back to nuanced differences in management and culture that are extraordinarily difficult to change.

What Will It Take to Resuscitate the Mets?

Ah, the Mets! Of all the teams and ownership groups that infuriate New York fans the most, the Mets and the Knicks are undeniably at the top of the list. Tune into most any talk radio sports program in this city, and you’re likely to hear rants about mismanagement and the refusal to pay up for star athletes during their prime.

Now, Mets fans are cheering the very public sale process of the team, as two very different buyers have come to the forefront as leading contenders: Steve Cohen (the multi-billionaire founder of hedge funds SAC Capital and Point72) and a consortium led by Alex Rodriguez (aka A-Rod) and his fiancée Jennifer Lopez (aka J.Lo).

You may be wondering, why is a wealth management contributor opining on major league sports? The answer is that there’s an embedded management lesson in organizational dynamics — particularly in turnaround situations — that should resonate with many business owners and their wealth advisors.

A turnaround of the New York Mets, as with most troubled organizations, will require streamlined decision making and the propensity to make substantial financial sacrifices to effect change. The purchase price for the team is just the ante; a true reversal of fortune will require open-ended financial commitments over several years. Therein lies the distinction between Cohen and A-Rod.

Steve Cohen Remains a Bidder for the New York Mets.

 © 2012 Bloomberg Finance LP

Meet the Players

Consider the facts. Cohen sits on a reported $15 billion, adding another billion or so each year to his net worth. (You know what they say, a billion here, a billion there, and eventually we start to talk about real money.) He can easily write a personal check for the $2.4 billion purchase (using Forbes’ estimated value of the team), a price that reflects a relatively modest premium to the average team value of $1.85 billion considering the size of the New York market.

Moreover, Cohen built his prior organizations by recruiting the very best talent, paying them seemingly obscene sums for material outperformance, and quickly cycling out those that did not meet expectations. (Yes, some of the results were marred by allegations of impropriety — let’s equate it to steroids in baseball.)

Most importantly, Cohen has a deep desire to win, the financial capacity to chase it, and would be the sole decision maker in the process. Think: the modern equivalent of George Steinbrenner.

Alex Rodriguez and Jennifer Lopez have reportedly committed $225 million to $300 million to the … [+] potential purchase of the New York Mets.

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Contrast Cohen to A-Rod. According to The Athletic, he and J.Lo are reportedly willing to commit $225 million to $300 million of their $700 million fortune to the Mets purchase to be the lead investors. Being the lead investor would grant A-Rod the ultimate decision making authority on baseball operations. But as rich as the couple is, they are not “MLB rich” and therefore must bring in additional investors (who might not be comfortable writing comparable checks and handing the keys to A-Rod).

Moreover, A-Rod and J.Lo reportedly will have hit their comfort limit in the investment with the purchase. That’s a problem. Turnarounds do not happen in linear fashion — there are fits and starts, with inevitable setbacks that require additional capital infusions. Most wealth advisors would also likely suggest to A-Rod that he be prepared to dial back his other business aspirations for a period of time until the soundness of the Mets investment becomes evident.

A Stark Contrast

So, on the one hand, we have a singular decision maker with the financial capacity to do whatever it takes, and on the other hand, we have a fragmented ownership group, the lead of which reportedly may not be prepared to make follow-on investments. When the “stuff” hits the fan — which it always does in a turnaround — and there is a capital call, how will the Mets pull themselves out of the cellar if there are multiple ownership groups with differing risk tolerances? It won’t work. A struggling organization needs a leader who has the vision, drive, experience, and financial capacity to effect real change.

A-Rod and J.Lo do have one advantage over Cohen, which is star power. While the A-Rod consortium might not produce a winning team, the celebrity perfume of the lead investors arguably could generate excitement around the Mets brand itself. That might be great if you own a piece of the licensing business, but even that seems destined to fade without a championship run.