January 16, 2024 • 1hr 3min

Daryl Morey - Systems Thinking in Sports - [Invest Like the Best, REPLAY]

Invest Like the Best with Patrick O'Shaughnessy

In this episode of Invest Like the Best, Patrick O'Shaughnessy interviews Daryl Morey, President of Basketball Operations for the Philadelphia 76ers. Morey is known for pioneering the use of advanced analytics in basketball, earning his approach the moniker "Moreyball." The wide-ranging conversation covers topics including the principles of great games and sports, decision-making processes in NBA front offices, applying analytical frameworks across domains, career development, and negotiation tactics.

0:00

-0:00

Key Takeaways

Basketball is nearly a perfect game because it balances skill and luck, allows for creativity, and has room for both data analysis and artistry in decision-making
Superstar players have an outsized impact in basketball compared to other sports, making acquiring top talent critical for success
Decision-making in sports front offices requires balancing data analysis, scouting, and managing human biases
Rules and structures of sports can be analyzed and optimized to create more compelling and fair competitions
Applying analytical frameworks from sports to other domains like business, investing, and entertainment can yield valuable insights
Challenging your own mental models and "operating system" is key for personal growth and career development
Negotiation tactics like post-deal optimization can lead to better outcomes for all parties

Introduction

In this episode of Invest Like the Best, Patrick O'Shaughnessy interviews Daryl Morey, President of Basketball Operations for the Philadelphia 76ers. Morey is known for pioneering the use of advanced analytics in basketball, earning his approach the moniker "Moreyball." The wide-ranging conversation covers topics including the principles of great games and sports, decision-making processes in NBA front offices, applying analytical frameworks across domains, career development, and negotiation tactics.

Topics Discussed

Principles of Great Games and Sports (3:09)

Morey begins by discussing what makes for a "perfect" sport or game:

Balance of skill and luck - Some luck helps maintain viewer interest, but too much reduces the impact of skill
Stakes and unpredictability - Games need to feel important and have uncertain outcomes to be compelling
Data-informed but not data-solved - Sports that allow for data analysis while maintaining an element of art/creativity are ideal
Multiple levels of engagement - The best sports can be enjoyed by casual fans and die-hards alike

Morey states: "Basketball lives in this perfect niche of data and art. I don't feel like it's ever going to be solved."

Impact of Superstar Players in Basketball (21:07)

Morey explains why superstar players have such an outsized impact in basketball compared to other sports:

Only 5 players on the court at a time magnifies individual contributions
Best players can "call their own number" repeatedly, unlike in baseball where batters must wait their turn
Offensive schemes can be designed to get preferred matchups for star players

"You can literally justify any activity, any investment, anything to get one of these players," Morey says about acquiring superstar talent.

Decision-Making Processes in NBA Front Offices (28:32)

Morey details how his front office makes key decisions:

A "small council" of 7 key people vote on decisions before meeting
Data is provided to all council members to inform their votes
One member is remote to fight groupthink
Different voting methods are used depending on the situation
Post-vote discussions focus on understanding differing perspectives

He emphasizes the importance of tracking decision quality over time: "An executive who has a long track record of good draft picks, good free agent decisions, good trades is an interesting thing because it's hard to be consistently good over time."

Analyzing and Optimizing Sports Rules (37:41)

Morey critiques the rules and structures of various sports, particularly soccer:

Offside rule is poorly constructed and difficult for casual fans to understand
11 players per side is likely too many, leading to suboptimal gameplay
Penalties are either meaningless or game-changing, with no middle ground

He argues for more willingness to change rules: "The NBA will always change its rules like most of these sports...Soccer's completely hosed. They have a whole bunch of things they need to fix and they have a game that's been around since...1312 and they won't change the most minor things ever."

Applying Analytical Frameworks Across Domains (36:17)

Morey discusses how he applies his analytical approach to other areas:

Analyzing emerging esports to predict which will become popular long-term
Examining music industry trends, like why first albums are often an artist's best
Critiquing business book publishing models and incentives

He notes: "That's probably what I love the most, which is why I love the MIT conference. So when I get there, it brings from every sport...Like, hey, show me this sport. Like cricket. Recently I got more into cricket. I was just watching in England, they have this new hundreds format and I was watching, I was like, boy, they're doing this definitely suboptimally."

Career Development and Personal Growth (45:33)

Morey shares his perspective on managing one's career and personal development:

Challenge your "operating system" - Be willing to change your habits, perspectives, and personal brand
Constantly seek better models - Look for ways to improve your mental models and decision-making processes
Embrace struggles as learning opportunities - Difficulties in youth can build valuable skills and resilience

He advises: "The number one thing that I tell, especially younger folks...is to not accept the operating system that you've been handed."

Negotiation Tactics and Biases (52:31)

Morey reflects on lessons from a Harvard negotiation class:

Post-negotiation optimization - After a deal is agreed upon, look for ways to improve it for both parties by being more open about true preferences
Awareness of implicit biases - Recognize and account for unconscious biases in decision-making
Value of outsiders - People who look different or take unconventional paths may be especially talented to overcome inherent biases

On post-deal negotiations: "I would encourage, and I've seen this in many industries people don't do this. That once a deal is done try to then negotiate a slightly better deal for both sides."

Rapid Q&A and Closing Thoughts (58:51)

In the final segment, Morey answers rapid-fire questions:

Dream dinner party guests: Carl Friedrich Gauss, Benjamin Franklin, Robert McNamara, and J. Robert Oppenheimer
Kindest thing done for him: A heartfelt letter from Sam Hinkie when Hinkie left the Houston Rockets

Morey expresses admiration for Hinkie's interpersonal investment, saying the letter is still kept in his safe.

Conclusion

This wide-ranging conversation showcases Daryl Morey's analytical approach to sports, business, and life. His insights on game design, decision-making processes, and personal development offer valuable lessons for leaders in any field. Morey's willingness to challenge conventional wisdom and constantly refine his mental models exemplifies the kind of thinking that leads to innovation and success in competitive environments.

The discussion highlights how frameworks from one domain (like sports analytics) can yield insights when applied to other areas. It also underscores the importance of balancing data-driven decision-making with an appreciation for the human elements and artistry involved in complex systems.

Ultimately, Morey's approach emphasizes the value of continuous learning, challenging one's own assumptions, and seeking out diverse perspectives to drive both personal growth and organizational success.