Lessons From Free Agency
Unlike our parents and grandparents, we’re not getting the gold watch for 30 years’ service at the same company. In fact, most of us are unlikely to get long service leave, as we’re statistically expected to change roles every 2-3 years.
So what does this mean? How do we survive in a system without consistency?
As employers, how do we make sure our team is structured for success?
I believe we can learn a great deal from the world of sport – an industry built on making short term roster moves.
The term “Free Agency” refers to a person’s ability to finish a contract, then make a fresh decision about where they’d like to play next, with no obstruction or obligation.
Getting this right has transformed players’ careers, and getting it wrong has ended many more.
These are make or break moments for the team, with general managers making tough calls that can win championships or waste golden opportunities.
This is the skill of evaluating each player, and start thinking creatively about what talent needs to be brought in for the team to thrive.
Here are some principles that are (uncomfortably) true for the world of business.
Good cultures save money
In 2013, the Brisbane Lions AFL team had a huge problem:
All of their top 2011 and 2012 draft picks walked out the door.
Within a matter of days, five highly talented young players simultaneously declared they were leaving, and each requested a trade to a different club (massively undermining the Lion’s negotiating power).
What came out was that the Lions had a culture problem. The club was a terrible place to be, and these young players wouldn’t stand for it.
Many of these players have gone on to enormous success – Sam Docherty recently won the Carlton Best and Fairest award.
Brisbane cemented themselves as a rough destination, and now they have to overpay for free agents.
If you are renowned as an unpleasant workplace, you will have to pay over the odds, and will struggle to retain your graduate employees.
By contrast, if you’re seen as a supportive, positive team, top talent will take lower salaries to join the culture.
Culture may feel like a luxury, but it saves a lot of money in the long run.
The benefits of drafting well
Free agents are expensive – great for giving your team a quick boost, but not the foundation of long term success.
Instead, the teams that thrive are the ones with two skills:
1. The ability to spot raw talent that would fit their system
2. The ability to support and develop raw talent into elite performance.
Investing in these skills saves enormous amounts of cash – you get great production for young players, before they can command huge salaries.
It also gives you the ability to take people who don’t traditionally excel at what they do, and help turn them into superstars.
Cut your losses
Taking calculated risks is a good strategy, so long as it’s paired with a willingness to cut your losses.
My team, the Houston Texans, recently traded their second round draft pick to get rid of their expensive quarterback. That’s right, they paid a huge price to remove a player, and it was 100% the right call.
When the optimism fades, it’s vital that you acknowledge a mistake and stop throwing good money after bad. This applies to people, systems, storefronts and new business units. Embrace the failure and move on to the next thing.
Refusal to do so is an expensive indulgence.
The economics of mentors
In 2011, the Denver Broncos drafted Von Miller, a star prospect with behavioural issues.
Miller missed the 2014 Superbowl with an injury, avoiding the 43-8 blowout to the Seattle Seahawks.
Denver had one of the best offenses in history, but not a great defence.
That loss prompted Denver to bring in a free agent defensive end, DeMarcus Ware.
Ware had two jobs; produce on the field, and mentor Von Miller.
Ware immediately did both, helping Miller re-shape his technique, his attitude, and his results.
In 2016, Denver again made the Superbowl, but this time they won, thanks to two players – DeMarcus Ware and Von Miller. Miller narrowly edged out Ware for MVP, but it was close.
The genius was that one signing added not one elite player, but two.
Recruitment of senior team members isn’t just about what they produce themselves, but about the influence they have over your younger, cheaper team members.
Similarly, a senior recruit who brings down the culture can ruin an entire team.
When to use a short term contract
The NFL has a great term called a “Prove It” deal.
Generally speaking, contract negotiations are a disagreement between the team and the player over their value.
The player thinks they are amazing, and the team thinks they’re pretty good.
That means they might struggle to come to a long term agreement.
Instead, they create a one year “Prove It” deal. The team essentially says:
“Ok, if you’re so good, we’ll pay you a good rate for one year, while you demonstrate your usefulness. If you are good, you’ll get the 5 year deal you’re hoping for, or if not, you’ve proven yourself as a gun to the other 31 teams.
But if you’re not so fantastic, then we’ve avoided a long messy commitment.”
This is a great way forward for hiring senior team members – giving them the chance to perform while removing the risk to the business. It’s especially useful for those in business development, sales, or starting a new arm of the company.
Just be ready to pay up if they turn out to be amazing.
When to use a long term contract
If you have a superstar on your team, other groups will naturally be interested.
When there’s no clarity over whether your superstar will be around next season, it becomes a big distraction that often creates headaches and diminishes performance.
Ambiguity breeds mistrust, and mistrust is highly contagious.
By being transparent with your core team, you can give them a sense of job security, which in turn allows them to focus on their work – and almost always leads to higher levels of output.
Sometimes that’s a verbal signal, other times it’s an ongoing contract. Either way, you want to ensure that everyone’s mind is on the task at hand, rather than thinking about their next role.
Money is about respect
At a psychological level, pay rises eventually stop making us happier. The magical mark is around $80,000, above which we receive comparatively little benefit from extra pay.
Arnold Schwarzenegger once said:
“Money doesn’t make you happy. I now have $50 million but I was just as happy when I had $48 million”
So why does money drive career decisions?
It’s about respect. At an ego level, it’s about keeping score.
Not because there’s a tangible difference in quality of life, but because of the story we tell ourselves.
The prestige of being the highest paid player at your position is of immense importance, because that’s what they’re striving for. The idea that someone inferior earns more money is offensive, a sign that their value isn’t being acknowledged.
It’s the same for us. Imagine what would happen if everyone’s pay was made public within our company.
Who would be upset? Why?
Is it because staff are treated badly?
Or because they are technically compensated well, but feel disrespected?
In The Psychological Value Of Money, Erik Bijleveld discusses the choice of:
Option A: You earn $100k, others earn $200k
Option B: You earn $75k, others earn $50k
Which do you think people preferred?
Salary is a complex issue – and our enjoyment of a pay raise is far weaker than our displeasure of not receiving timely increases.
It’s totally irrational, and a very real issue.
Your production must exceed your contract
Despite what we tell ourselves, people are not treated equally.
Instead, it’s likely that they’ll be treated fairly without being treated the same.
Therefore, two players who perform at the same level but get paid differently will be assessed differently. Rookies are given more leniency, and star recruits are held to higher standard. Not the same, but definitely fair.
The parallel is that even if you’re the top performer in your division, you can still be seen as underwhelming, based on what salary/perks you receive.
It means that the relationship almost always needs to sit slightly in the employer’s favour – if not then the business is incentivised to replace them with a cheaper/better alternative.
Understanding where your success comes from
When someone is successful, it’s easy to overlook the real forces that created their success in favour of a more flattering narrative.
Warren Buffett uses the analogy of having everyone in America enter a coin flipping contest (predicting heads/tails).
Statistically, several hundred people will correctly call 20 flips in a row. This is pure chance, but you can bet that those people will soon start bragging and writing books about why their approach is so fantastic.
Similarly, athletes who win championships with a team then move to the highest bidder, usually a struggling team. The problem is, the athlete is now missing all of the other factors that enabled them to perform at their peak. In fact, they may now be the best player on the team, receive extra attention from their opposition, and see their output plummet.
Yes, you might have an offer for more money, but what else changes?
Your colleagues? Your responsibilities? The quality of what you’re selling?
Maybe it’s better to be a part of a winning system rather than the standout in a struggling organisation.
The importance of getting games
They say in AFL that 50 games is a tipping point for young players –at which their performance starts to drastically improve.
There’s a tradeoff – go to a losing team and you’ll get those games quickly, go to a winning team and it might take 2-3 years before you get on the field.
This happened to the recent AFL expansion clubs – talented young players were fed up with playing in the reserves, when they would be a top player somewhere else.
That said, there’s also the risk that young people are thrown in the deep end without adequate support, and the shock kills their confidence. The Melbourne Demons made a pair of 21 year olds co-captains during some very hard years, and the pressure almost ended both of their careers.
If your staff feel like they’re missing the action, they are likely to jump ship and move to a team where they will be given responsibility and authority – and they’re entirely right to do so.
Sacrifices keep the team together
Leigh Matthews, three-time premiership coach of the Brisbane Lions, asked his team to take a pay cut in order to keep the winning group together. Hawthorn famously did the same thing in the last decade, and they also went on to win three in a row.
Strategy is sacrifice. If your strategy is to win premierships, then the dollars don’t matter as much.
If you’re in this for the money, by all means chase the bigger contract. Just remember what you’re sacrificing, so that you’ll be happy with your decision in the long run.
More than anything else, Free Agency reminds us that loyalty is dead, and it cuts both ways. Organisations are under no obligation to keep paying someone who can’t deliver, and players who can deliver have their pick of all the available organisations.
The question isn’t “How can we lock people in”, but rather “How do we attract/become the best at what we do?”
Talent x Work Ethic = Job Security.
Our job is to make good decisions that are win-win for staff and employer alike, because a one-sided deal won’t last long.