Without question the most famous and influential book in sports economics is Moneyball by Michael Lewis. As anyone who has read the book or seen the Oscar-nominated film starring Brad Pitt and Jonah Hill knows, Moneyball tells the story of Oakland A’s manager Billy Beane and his attempt to reinvent player evaluation in Major League Baseball through the use of data analytics.
Beane turned to his assistant Paul DePodesta and his knowledge of quantitative analysis to determine how to win the most games with the least payroll. Beane and DePodesta knew that on-base percentage (OBP) was an overlooked and underpaid statistic in baseball in the 1990s and early 2000s, an era before advanced metrics were available to anyone with a smart phone. Getting to first base by frequent walks generated a lot of runs, and therefore a lot of wins, but it wasn’t very “sexy.” That meant teams could sign players with high OBPs for a lot less money than players who generated the same number of wins for teams by hitting towering home runs or stealing lots of bases. Moneyball ushered in the “quant revolution” in sports that essentially every team in every sport has now embraced to some extent.
While the Moneyball M.O. was originally designed to maximize a team’s number of wins given a set payroll, quantitative analysis also serves other purposes. For example, with the right data, any statistician (and every team now has one) can determine not only how much payroll it will cost on average to “buy” a win but also how much an additional win will generate in terms of revenue. (In other words, what are the marginal costs and revenues of an additional win?)
Unfortunately for the players (as well as the fans of most teams outside of New York, Los Angeles and Boston), MLB’s current revenue sharing arrangements and collective bargaining agreement create conditions where, for many teams, it makes no sense to even try to compete. MLB pays players significantly less than their true value for the first six years of their careers, an arrangement that is only satisfactory to players if they can make it to free agency to earn an outsized payday. But for most small-market teams, the data suggest any additional wins generated by signing free agents to big contracts bring in less marginal revenue than they cost in payroll.
So most big leaguers never get that payoff they’ve spent years waiting for and are simply replaced by new underpaid pre-free agency players. This is how the league ends up with teams like the Baltimore Orioles fielding an entire line-up earning the league minimum while staying profitable by cashing a generous revenue sharing check from the league each year.
The new deal between the players and the owners will raise salaries for players at or near the league’s minimum wage ($570,500 in 2021), a group that comprises roughly half of all major leaguers, by roughly 40%. But the total cost to teams amounts to just $100 million, or less than the combined annual contracts of Max Scherzer, Gerrit Cole and Stephen Strasburg. Even worse, there are few new incentives for the “have-nots” in baseball to spend money on talent to stay competitive. It looks like the days of glorified minor league teams masquerading as major league clubs are here to stay.
Victor Matheson, a professor of economics at College of the Holy Cross, is associate editor of the Journal of Sports Economics.