by Patrick O’Shaughnessy
I came across this week’s guest thanks to the overlap of three passions of mine: data-informed investing, value creation, and basketball.
Sam Hinkie worked for more than a decade in the NBA with the Houston Rockets, and then most recently as the President and GM of the Philadelphia 76ers. He helped launch basketball’s analytics movement when he joined the Houston Rockets in 2005, and is known for unique trade structuring and a keen focus on acquiring undervalued players. Today, he is also an investor and advisor to a limited number of young companies in which he feels his experience can improve outcomes.
At one point in our conversation, Sam mentions that he tracked success via future financial outcomes, so I did some research and found many interesting stats about the 76ers surrounding Sam’s tenure. When he took over the franchise, it was 24th in ESPN’s franchise rankings, and today it is 4th. This is the result of an impressive crop of young talent—players like All-Star Joel Embiid and Ben Simmons—which resulted in large part from unconventional decisions Sam and his team made.
While I’m sure these estimates are imperfect, Forbes estimated the 76ers value at around $418M when Sam took over and $1.2B a few months ago. NBA teams in general have grown in value, so a lot of that appreciation is obviously “beta,” but given that the 76ers had the top percentage growth number more recently of any team, some of it is “alpha,” too. While we can’t parse the exact amount, it seems his unique approach to building a team clearly created some large amount of current franchise equity value. And it looks like the dividends from those decisions will compound for many years to come.
While basketball was where Sam plied his talents in the past, his approach is more elemental. It is about finding great people, using data, and structuring decisions that create the possibility of huge returns, be they financial or otherwise. I don’t know what Sam will do next, be it investing in companies, running one, or taking over another team, but I know it will be fun to watch.
Please enjoy this unique episode with Sam Hinkie.
3:24 – (First Question) Advantages of having a long view and how to structurally harness one
6:08 – Using technology to foster an innovative culture
10:16 – Favorite example of applied innovation from Sam’s career
11:34 – Most fun aspect of doing data analytics early on the Houston Rockets
13:38 – Is there anything more important than courage in asymmetric outcomes
14:29 – How does Sam know when to let the art of decision making finish where the data started
16:29 – Pros and cons of a contrarian mindset
17:26 – Where he wanted to apply his knowledge in sports when first getting out of school and how his thinking is best applied in the current sports landscape
21:39 – How does he think about trying to find the equivalent of mispriced assets in the NBA
23:12 – Where tradition can be an impediment to innovation
25:07 – What did the team and workflow of the team look like in the front office
27:03 – The measure of truth in a sports complex
29:10 – What were the early factors coming out of the data that helped to shape NBA teams
30:42 – Best tactics for hiring
33:59 – Process of recruiting spectacular people
35:39 – Thoughts on fostering a good marriage
37:57 – Picking your kids traits in your spouse
40:45 – What kind of markers does he look for when evaluating long term investment ideas
42:44 – His interest in machine learning
45:55 – What’s more exciting, the actual advances in machine learning or the applications that can be imagined as a result
48:11 – How he got started teaching negotiations and some of the points he makes in that class
49:16 – Effective techniques for negotiating
50:03 – Is negotiating contentious, do you need empathy
50:41 – A Rorschach test of Sam based on his reading of Lessons of History (book)
53:01 – Biggest risk Sam took in his career
54:37 – Biggest risks Sam took while with the 76ers
58:09 – Do people undervalue asymmetric outcomes in the NBA
1:00:11 – The players Sam has enjoyed watching over the years
1:02:45 – Why Robert Caro is a favorite author of his
1:04:30 – Kindest thing anyone has done for Sam