(FORTUNE Magazine) – WHEN THE BOSTON RED SOX WON their first World Series in 86 years this past October, sportswriters everywhere heralded an end to the infamous Curse--in which the ball club was supposedly jinxed after owner Harry Frazee sold Babe Ruth to the Yankees in 1920. Indeed an ancient curse was lifted that night, but it wasn't the Curse of the Bambino. It was the curse of bad management.

For decades--eight-plus decades, in fact--the Red Sox were among the worst-run organizations in sports. Then in early 2002 the ball club was sold to the troika of John Henry, Tom Werner, and Larry Lucchino for $660 million--and a classic business turnaround story began.

Starting with wealthy patriarch Tom Yawkey, who bought the team in 1933, and ending with John Harrington, who presided over a group of cronies who ran the club for the Yawkey estate until 2001, the team's owners for nearly 70 years offered a lowlight reel of personnel decisions. The Red Sox were dead last in the majors when it came to hiring an African-American player, passing on both Jackie Robinson and Willie Mays in the process. In the early '80s they lost future Hall of Fame catcher Carlton Fisk because the team sent him his new contract two days after the deadline. (Told of the news at a luncheon, managing partner Haywood Sullivan was caught on camera growling, "Open up the damn bar.") Or take an incident in 2000: Manager Jimy Williams tried to discipline outfielder Carl Everett for outbursts of temper--only to have his boss, Sox general manager Dan Duquette, publicly side with Everett (statistically he was having a good year). No wonder the club was best defined by the phrase "24 players, 24 cabs"--a reference to the clubhouse climate, which often bordered on frigid.

The new guys have changed all that. Entrepreneurial, in touch with their customers, and smart about hiring talent, the three men have created a culture that cares both about winning and making money. The three had all previously owned small-market teams--Henry, a wealthy commodities trader, owned the Florida Marlins, while Werner and Lucchino owned the San Diego Padres. They thus bring with them a nimble "we have to outsmart the big guys" mentality. In Boston, however, they have a $127 million payroll, second only to the Yankees. That doesn't mean they spend money like water, as the Yanks do. On the contrary: Sox management now puts together its roster with the kind of budget discipline that marks most small-market teams. "They take their budgets very seriously," says Bill James, the famed baseball statistician who serves as a Red Sox consultant. They also think hard about creating a cohesive clubhouse. The shaggy-haired troupe that romped its way through the postseason actually appeared to be having fun. Former Arizona Diamondbacks ace Curt Schilling wanted to pitch in Boston so badly that he took a pay cut. "The Red Sox used to be in the 'no' business. Their first answer to everything was no," says Boston Globe columnist Dan Shaughnessy. "Now they're in the 'yes' business."

That goes for customers as well. Boston's ancient Fenway Park is sacred ground to the Red Sox faithful. Yet with just over 35,000 seats, it's the smallest stadium in the majors. The old guys wanted to rip it down and have taxpayers underwrite a new stadium--this in a state legendarily hostile to such deals. The new owners brought a stadium architect onboard who, each off-season, has cleverly found ways to add high-priced seats and generally spruce up the park. According to Smith College economist Andrew Zimbalist, author of May the Best Team Win: Baseball Economics and Public Policy, those improvements have added $20 million in annual revenues. Zimbalist says that the owners have also made far better use of their 80% ownership of the Sox's cable network; he estimates that generates some $40 million to $50 million in new revenues. Although baseball teams keep their bottom line a closely guarded secret, Zimbalist calculates that if the team were put on the market today, it would probably sell for between $900 million and $1 billion.

But the biggest shift of all has been toward a long-term mentality. Like a corporation starving its fledgling divisions to meet quarterly numbers, the Sox had long made a habit of trading away minor-league prospects to get big-name help in a pennant drive--thus bankrupting the future while overpaying for declining assets. (The championships, of course, never materialized.) But this year, when their talented squad began to flounder in midsummer, management did just the opposite. They traded away their most popular player, shortstop Nomar Garciaparra, who had become unhappy in Boston. In the process they shored up both the team's defense and its chemistry. "I think it's indicative of a boldness in this new regime," says the Globe's Shaughnessy. "We have a philosophy where we don't go for it in any particular year," John Henry told the New York Times a few days after the World Series had ended. "We feel we want to be in the playoffs every year if we can. If you're in enough playoffs, eventually you should win a title." If that sounds more like a hard-nosed commodities trader playing the percentages than a passionate sports fan going for broke, well, it's about time.