Last month OC Register writer Pedro Moura published an elucidative three-part (one, two and three) series on professional baseball in Brazil. I was drawn to it by a podcast he did to follow-up on the piece with Grantland’s revered baseball scribe, Jonah Keri. In the podcast while referring to the Tampa Bay Rays’ presence in Brazil, Pedro wondered aloud if a first-mover advantage existed for the maiden MLB team to establish operations there. He was not the only one to kick this around; Dodgers’ GM Andrew Friedman ruminated over the same question in Pedro’s article. (It’s worth remembering that Friedman was the Rays’ GM at the time they announced plans to enter Brazil.) The question was left unanswered and, with the vigor of someone who just studied this topic in business school and Pedro’s blessing, I endeavored to answer it.
Published in Harvard Business Review ten years ago, Fernando Suarez and Gianvito Lanzolla’s “The Half-Truth of First Mover Advantage” is the holy grail of first mover publications. There was a time when the first mover advantage was just that, an advantage. But this article took a deeper dive and posited that the advantage exists only when the conditions are just right. In today’s technological day and age this theory is validated by some of the industry’s brightest CEOs through the mantra “it’s better to be the best in the market than the first to market.” The analysis of the Rays’ entry into Brazil will be viewed through the lens of this article.
The two kinds of first-mover advantage are durable and short-lived. Short-lived first-mover advantages are those that pay immediate dividends without lasting power. The nature of investing in international talent does not allow for a short-lived first-mover advantage to exist given the amount of time it takes for prospects to mature from baseball academies to the big leagues. If players were signed at 16 and using the average age of MLB debuts of 24, that’s eight years assuming they pan out. This assumption is generous, considering that one out of every three first round MLB picks never see the major leagues. Taking out the fact that the Rays’ announced plans ended up fading after three years, we’ll go forward looking at durable first-mover advantage at the moment in time they invested in Brazil.
The three industry dynamics that come into play when discussing this advantage are technology, scarcity of assets, and high transition costs. We’ll ignore technology because the product in question is the human capital of the Brazilian baseball players. The Rays decided to gain a presence in the shadow of the country’s largest city, Sao Paolo. Establishing a base with immediate access to twenty million Brazilians in the metropolitan area most certainly would have created a scarcity of assets for teams to follow. Transition costs in this sense will refer to the players the Rays make investments in in Brazil, and because of the contracts that bind these players to the Rays, transitions to the next to market team would be impossible. So the Rays were batting 1.000 on first-mover advantages, why didn’t it last? Factoring in the conditions under which those advantages are met is what makes Suarez and Lanzolla’s work the esteemed manifesto it has become.
Said conditions, pace of technology and market evolution, are often out of the control of the team and blame shouldn’t be placed on the Rays’ plans not taking launch after three years. Taking technology out of the picture for the same reasons mentioned earlier, according to Suarez and Lanzolla no matter how forward thinking the product may be, it will be rendered irrelevant if the market isn’t ready for it. Considering the Rays announced these plans for Brazil in 2009 and cut ties in 2012, combined with the fact that no other team has started an academy in Brazil before or since then, it’s reasonable to think that Brazil just isn’t proper grounds for developing MLB talent just yet.
So if there was no first-mover advantage for the Rays to be had, then if/when a team decides to enter the Brazilian baseball market and succeeds, a second-mover advantage must exist. Suarez and Lanzolla argue that this is a real thing, and depending on the conditions it may behoove teams to wait and judge the reaction of the Brazilian market and stand by for the proper conditions. Many of the conditions in Brazil that were not suitable enough to bear any fruit for the Rays are ones that seem systemic in the country. Corruption is a huge one, covered at great length by Pedro Moura in his piece. Another is the emphasis and popularity towards soccer, which has a historical significance in Brazil that would be impossible to be overstated.
The smart move now for teams believing there is a competitive advantage to be gained in Brazil is to invest smaller. After all, Suarez and Lanzolla define the advantage to be advantageous only when the invested team actually starts making money. Rather than building an academy like Tampa Bay announced they would, teams like Seattle and the Dodgers are running few-day camps in Brazil. This is a much smaller lift with any reward being a net positive. Andrew Friedman, GM of the Rays then and Dodgers now, is in the unique position of being the architect of a first and second mover in the same market. Friedman may not only be in the position to take advantage of being second to market, but also armed with the lessons learned of what went wrong the first time.
This article has been updated to reflect that the Rays never ran an academy, and just announced plans to do so.