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Empowering Exceptional with Jeff Luhnow, Part 2

Please enjoy Part 2 of our discussion with Jeff Luhnow, general manager and president of baseball operations for the 2017 World Series Champion Houston Astros. A longstanding friend and client of Vinson & Elkins, Jeff recounts his unique approach to building a winning team, his untraditional path to success, and the future of baseball. One of the first to introduce analytics to the game of baseball, Jeff Luhnow’s ahead-of-the-curve thinking has now been adopted by many in the league. Listen to Part 1 here.

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Transcript

Sean Becker
Welcome back to Empower Exceptional, the V&E Plus podcast series where we focus on fascinating people doing innovative things in their fields. This is part 2 of our discussion with Jeff Luhnow, general manager of the 2017 world series champion Houston Astros. When we last left off, Jeff was telling us why he didn’t try to aim for a quick fix for what was, in 2013, a struggling team. But the Astros didn’t spend a ton of money on top players right away.
Jeff, you spent a couple of years strategically rebuilding the team instead. …during those two years, when you’re closer to a 200 than a 500 team even, you got a lot of pushback.
Jeff Luhnow:
No doubt.
Sean Becker:
How did you weather that?

Even though we lost 111 games, the most in franchise history in 2013, we very quickly had the best farm system in baseball, so we went from 27 to number 1 in two years.

Jeff Luhnow

Jeff Luhnow:
Well, the nice thing is that Jim and I were aligned. We knew this was coming, and we were prepared for it. And it was tough, but one of the things that we did is we communicated very proactively with all of our stakeholders. Our season ticket holder base had declined by about half of what it had been in 2005 and 6. But the ones that were still there were paying good money to come see what’s not really a great product at the big league level. So we had to make sure that they stayed on board and they understood our plan. All of our corporate sponsors, our partners, our investors, people in the community, the media, employees. We did what we call overcommunicating those first couple of years. And what we did is we shared with them our plan, our plan is to develop the best player development and scouting system in the industry so that we can be a powerhouse for a decade or more once we get good. And we’re going to try and make that as soon as possible.
And we developed metrics about how we were doing in those areas. Even though we lost 111 games, the most in franchise history in 2013, we very quickly had the best farm system in baseball, so we went from 27 to number 1 in two years. And so we were able to talk to our stakeholders about Carlos Correa and George Springer and players in our system, Lance McCullers that we knew were going to get to the big leagues and be stars. And even though they hadn’t been there yet, our fans started to get excited. So when they finally started to arrive and the team finally started to get better, it all came together in a way that really made everybody satisfied that they stuck with us.
Sean Becker:
One great example about staying the course that might have been pretty challenging at the time was the 2014 draft. You’ve got the number one pick in the entire draft, you draft Brady Aiken. Tell us what happens there, and specifically why you looked at the long term instead of signing him then and paying a lot of money to do so?
Jeff Luhnow:
Well, we made the right decision for us at the time. This was a lefthanded pitcher who was one of the best prep pitchers that I has ever seen in my 10 years of scouting. And he was to us the best player available in the draft. The way the draft works is you don’t get to do all your due diligence before you select the player. You have to do some of it afterwards, including the medical due diligence. And so during that component of due diligence, we found an issue that was really problematic for us because number one pick in the draft is a huge opportunity not only just financially but also the opportunity costs of getting one of the best players in the amateur world. And we ended up not signing the player because of what we found through the due diligence. And the reaction from the media, from the fans, from everybody was horrific that we were being cheap, that we were being unfair to this player, et cetera.
But we took the decision that was in the best interest of the Astros. By not signing the player, we essentially received that same pick the following year, number two pick instead of number one. And we obviously saved all that money. at the time, when you give up what you know is a great player for the promise of maybe something in the future, it’s not satisfying for fans, it’s not satisfying for media or anybody. But we knew that the number two player the following year would probably be a much higher return for the Astros than the player that we had selected that we thought was likely in the future to have a medical issue. And so we had to wear it for a whole year. Fortunately, the following year, the number two player in the draft ended up being Alex Bregman who ended up being one of our key players in our world series run. So it all turned out well for the Astros.
Sean Becker:
Around the time you’re drafting Bregman, you’re getting a lot of scrutiny and you take the unusual move of allowing a Sports Illustrated writer in literally into the clubhouse, into your offices and to shadow you. Why did you do that?
Jeff Luhnow:
Well, like I said, we were being very transparent with our fans and our stakeholders. This was 2014 the year that we made the number one pick and didn’t sign him. Sports Illustrated is a great magazine, and the writer had gone to college with our scouting director. And so we sort of trusted he wasn’t going to throw us under the bus and make us look bad. And we figured why not let him come in and take a look at our process. He spent two weeks with us, and keep in mind, the team had lost over 100 games three years in a row. This was the worst team in baseball for the last three years. And he writes his article, and then sends me an email and says, “You’re never going to believe this, but I think the Astros are going to be on the cover of Sports Illustrated.” And I thought, “How could Sports Illustrated put the worst team in baseball for the last three years on the cover?” And he said, “No, it gets worse. Not only are they putting you on the cover, they’re predicting that you’re going to win the 2017 world series.”

I walked into Jim’s office and I said, “Jim, we’re on the cover of Sports Illustrated and they’re predicting we’re going to win [the World Series] in three years?”

And I thought, “Oh, no, this is not good. That’s not certainly the pressure that we need.” It ended up being a really fun, kind of tongue in cheek but serious article about how the changes we were making, his theory was they were going to work, and whether it was 16, 17 and 18. At some point, the things we were doing were going to work and we were going to have a successful team. Now, the writer has gone on to write a book about this. It’s been one of the best selling sports books in the last six months. He’s done quite well for himself because of it, so power to him. And fortunately for him, unfortunately for us there was no Sports Illustrated curse when it comes to predicting champions three years in advance. We were able to nail it exactly the time that he predicted it.
Sean Becker:
In 2014 when the cover first comes up, what’s the reaction within the organization?
Jeff Luhnow:
I took a big gulp and I walked into Jim’s office and I said, “Jim, we’re on the cover of Sports Illustrated and they’re predicting we’re going to win in three years?” And he said, “You know what, this overcommunication, strategy that we’ve had for the past three years. Why don’t we tone it down a little bit now and let our results speak for themselves?” And at that point, it was the right thing to do because we knew that we were on the rise. 2014, we had 19 more wins than we did in 2013. We started to become a decent team. By 2015, we made the playoffs and beat the Yankees in the wildcard game in New York. At that point, we changed our strategy. It was still obviously communicating, but not over communicating and letting our results speak for themselves.
And that’s pretty much where we are today. Unfortunately, in 15, 16, 17, 18, we had four winning teams, made the playoffs three out of four years, made the championship series twice and won the world series once. It’s much more fun to not have to go out and market what you’re trying to do and just let the results speak for what you’re doing.
Sean Becker:
About those results, 2017, the Astros finally win it all, you’re the general manager, that’s your team you helped build. What did that mean to you?
Jeff Luhnow:
It was incredible for my family, for all the people that we had brought into the organization to watch Jim celebrate to watch our owners celebrate. It meant a lot. This was the first championship in 56 years of the Astros being in existence. And anytime you’re able to deliver the first championship to a franchise that has a special meaning, it also was special because that summer, Houston had been hit by the most devastating storm in the history of the country. And so many people in Houston were struggling for something to feel good about, and we were able to deliver that to them. So there were so many reasons why that felt special, but at that point, I had been in the industry 14 years and I had been involved in three world series and two championships in St. Louis, but never as the person in charge, as a secondary role.
And that ring that I put on the day I got the ring and looking down at it and thinking, wow, this was something that I feel really good about. I know I had a huge impact in making this happen along with so many other people, of course. But it’s something nobody can ever take away from me. And they’re very few professional accomplishments in life that result in something as tangible as being written into the history books and having a ring with a whole bunch of diamonds on it.
Sean Becker:
Well, the city of Houston is pretty grateful, and also the city is pretty grateful for the hope of sustained excellence as you talk about. Jeff, you’ve been described as someone who has a commitment to radical honesty. And to that end, you got a license plate that reads GM 111. What’s the significance of that?

Jeff Luhnow

Jeff Luhnow:
So after we lost 111 games, the franchise most in 2013, I decided that I needed to send a message to our players. So I put that license plate on my car, and I told them during spring training, I’m going to look at this license plate every morning on my way into work and every night coming home from the ballgame. And that 111 number is going to remind me of the low point of the Houston Astros franchise. We lost 111 games. It’s also going to remind me that what really matters in baseball is winning championships and winning at the big leagues, not having the best farm system. I made a commitment to the players. I said, “I’m keeping that license plate on my car until we make the playoffs, whether that’s 3 years or 10 years, that staying on there as a reminder to me every day of what really matters in this job, in this baseball job.
Fortunately for me, it was only two years until 2015 when we made the playoffs and I was able to take that thing off. And last year after we won the world series, amazingly enough, the total number of victories ended up being 112, one more than 111 we lost in 2013. So I changed my license plate to what it is now, which is WS 112, and I feel pretty good about it.
Sean Becker:
That’s great. In some ways, you’ve built a front office that has been highly successful, very innovative. And as a result, people are now taking notice of what you have built, and that creates opportunities for others that you’ve worked with. Certainly this past off season, two of your lieutenants within the front office, Sig Mejdal and Mike Elias move on to other franchises for opportunities. Well, what does that mean for you now as a change agent and trying to innovate now as you look at 2019, how do you do it?
Jeff Luhnow:

The industry has become much more sophisticated, which means we have to be much better about figuring out how to develop, and more importantly, how to implement things quickly.

Well, it’s flattering first of all, and it’s great for the people that work in the Astros organization that get an opportunity to go on and build their careers elsewhere. David Sterns, the general manager of the Milwaukee Brewers, they made the national league championship series this year and took the Dodgers to seven games. He works here with me for two years as my assistant general manager. Mike Elias is now the general manager of the Baltimore Orioles. Like you said, Sig went with him. Several of our coaches and our scouts have gone on to leadership positions in other organizations. It means that we’re doing a good job developing talent, not just on the field, but also in the front office in the coaches and scouts, which is a great thing. And it’s a compliment to our process and our people. But what it also means is that a lot of the competitive advantage that we have by doing things differently is leaking out into the industry.
And so we’re paranoid about are we in our, we are in a zero sum industry. Every victory we have comes at someone else’s expense. And so if we have an advantage and it leaks out, it’s no longer our advantage. We’re paranoid about trying to find new sources of competitive advantage and developing people, exceptional people that we know someday are probably going to go on to other organizations. The windows of opportunity are shorter and shorter. Back in St. Louis, if we drafted well, we could do it for seven years until someone noticed and copied it. Here in Houston, we use technology to evaluate skills, and we had about a five year advantage over other clubs. No longer are we able to find those advantages that last five or seven years. These days, if we have an advantage, it might be two or three years before other clubs copy it.
The industry has become much more sophisticated, which means we have to be much better about figuring out how to develop, and more importantly, how to implement things quickly because so many teams have the right answer. The difference between the successful teams and the ones that don’t quite get there are ones that are able to take the right answer and implement it because implementing the right answer involves human beings, and it involves changing behavior and changing belief structures and getting people to do things differently than they’ve done their whole careers. While it may sound easy, you’d edict from home office to go change the way we do things. Once you start involving 16 year old Dominican kids and 50 year old coaches who have been in baseball their whole lives, it becomes a lot more difficult. And that’s something that we’ve become really good, at and I think it’s something that’s become our competitive advantage.
Sean Becker:
You’ve been credited as someone who does a great job of recognizing how demographic differences affect a clubhouse, affect the product, and really add value. I think about Carlos Beltran. Tell us about how he added a new perspective and why you made the choice at the time to put a lot of stock in an aging hitter?
Jeff Luhnow:
We had a very young team, a lot of the players we had developed and drafted were getting to the big leagues. They were really good and exciting like Springer and Correa and Altuve. But what we were missing was the veteran presence, and the leadership. And we tried signing a couple veteran players, Scott Feldman and Colby Rasmus and others, but they didn’t have quite the leadership component that we were seeking. We wanted players that were good players because you don’t want someone in the clubhouse who’s not helping the team win. Carlos Beltran was having an amazing year with the Rangers and Yankees, and he also has an incredible reputation in the industry for helping young players and helping everybody around him, quite frankly, so we signed him to a one year deal. We also made a trade for Brian McCann from the Yankees who similarly has a great reputation for being a mentor and a leader. And bringing those two people into our clubhouse in 2017, starting with spring training, I could tell the difference.
Carlos Correa started to go to Carlos Beltran and ask questions, and our pitchers would go to McCann and ask him questions. And these two guys took it upon themselves to really change the culture in the clubhouse. 2016, we had a very talented team and we missed the playoffs. 2017, we had essentially the same team with a couple of veteran additions, and Josh Reddick is another one that I want to throw in there. And all of a sudden, we’re the best team in baseball, and it’s not even close. And we steamroll through the playoffs, we beat the three largest market teams, New York, Boston and Los Angeles, and we go on to win the world series. And I got to give a lot of credit to McCann and Beltran and Reddick and the veterans, not because of their performance during the post season, but the way they shaped our team and helped to build our culture throughout the season.
Sean Becker:
Is the importance of personality, the importance of different voices in that room something that you were aware of in your previous life as a consultant, as an engineer?
Jeff Luhnow:
Well, yes, because as a consultant, you want to have a different perspective if you’re helping clients out. You want to be able to look at their problems from a different point of view and come up with maybe some unique solutions. And so diversity of thought, diversity of experiences has always been important to me. I’ve hired so many people in our front office that have different backgrounds. I have people with no college education, I have people with PhDs and doctors in different things. I have lawyers, physics majors, you name it. And everybody comes with a diFferent perspective, different set of experiences.So that works for us in the front office. And down in the clubhouse, it’s the same thing. If you have all young players, which we essentially did in 2015. We got into a really tight five game series with the Kansas City Royals who went on to win the world series that year.
And during game four we had, we had the series won. We were winning by three runs in the eighth inning. And all of a sudden, our guys made mental mistakes and gave up. And the pressure got so great that they made more mental mistakes, gave up runs and we ended up losing that game and losing game five and being eliminated. And it was clear to me that we had the talent, but it was the lack of experience in the youth that hurt us in that series. From that point on, we focused on getting enough veterans in there that have been there before that would help calm our players. And now our players have experience themselves because they’ve been in the postseason three out of the last four years. But it was an important component, for sure.
Sean Becker:
You’re continuing to make change, is there a new innovation coming in terms of how players are evaluated and how teams are built that no one’s heard of yet?
Jeff Luhnow:
There are several that we’re working on. If I were to talk to you about them on this podcast, I’m sure there’s a Rangers fan somewhere that will be listening. We need to be careful not to share all of our secrets. But suffice it to say that the pace of change in baseball in the last 10 years has accelerated in a way that I never anticipated. And I was responsible for some of the early change. We have more innovation now in baseball than we’ve ever had. And it’s not slowing down at all, so the things that are happening now that I wasn’t even really contemplating five years ago are, are incredible and are really making a difference. And so I don’t even know what’s going to happen five years from now, but I do know that there’s going to be differences and that we’re all going to be working hard to capitalize on those.
And a lot of it is going to have to do with, with technology. Technology is accelerating how we think about our game. And not just us, but other sports as well in a way that we couldn’t even imagine five years ago.
Sean Becker:

The information we’re getting from all of these technologies in the ballparks is enabling us to see things that the human eye could never see before.

Research and development for baseball organization, does that mean investing in more scouts, more what?
Jeff Luhnow:
Well, it means investing in capabilities that can help you win. And sometimes that involves human beings doing certain tasks, and sometimes it involves a understanding the information that technology is able to provide. There are sophisticated radar and camera systems now in every ballpark, not only in the major leagues but in the minor leagues and in the amateur world as well. And the information we’re getting from all of these technologies in the ballparks is enabling us to see things that the human eye could never see before. You could always tell a good curve ball from a bad curve ball, but now we can tell exactly granularly, exactly how that curve ball might play in the big leagues or will play in the big leagues because we have enough of them that we know. And so being able to capture all this data and analyze it, make sure you understand the conclusions from it, and then go implement the conclusions. That’s what we’re all about now in the front office.
Sean Becker:
You’re on the Vinson & Elkins podcast, so I have to ask, what role have lawyers played in assisting you in building organizations and innovating?
Jeff Luhnow:
Well, the interesting thing is that baseball has its own legal world. There’s rules with baseball, so we have a lot of, typically the commissioner of baseball, the senior executives are all lawyers. We have to negotiate with the union, collective bargaining agreement. But for me personally, the Astros have worked very close with Vinson & Elkins on a couple of big projects around town. I personally have used Vinson & Elkins to help with my deals, and it’s been a great experience. And I have hired lawyers in baseball, lawyers think about things a little bit differently than business people, than baseball people. And to me, it’s the combination of all of those different mindsets that results in the best outcome for the Astros. I’ve been very happy with my relationship and our relationship with V&E. And obviously this podcast is a fun example of sharing something that your clients do back with the broader community, and sharing best practices perhaps among your clients. So that’s kind of fun.
Sean Becker:
Well, it’s been a privilege to work with you, and we appreciate you sharing your insights and expertise.
Jeff Luhnow:
Well, it was a pleasure talking to you and sharing our story today.
Sean Becker:
Well, that’s it for our first podcast in the empowering exceptional series. Thanks for joining us. I’m Sean Becker, signing off. And we look forward to seeing you again soon for another episode.