Moneyball as Sport Finance in Action: But Are the Lessons from Baseball More Generally Applicable?

Article excerpt

Organizational effectiveness measures the extent to which an organization achieves its objectives. In the case of professional sports teams, the sporting objective is very simple and easily measurable: winning. Building a winning team requires playing and coaching resources. Big-market teams with larger financial resources have a competitive advantage, more able to attract the best playing and coaching talent. Inevitably, leagues with an unequal distribution of financial resources across teams face potential problems of competitive dominance by the largest teams. Hence, there have been various attempts to create a more even distribution of playing talent and greater competitive balance by cross-subsidization mechanisms between teams, such as centralized selling and distribution of league image rights, and/or controls in the players' labor market such as salary caps and payroll taxes.

The consequence of budget constraints imposed on teams either by the size of their local markets or by league regulations such as salary caps is to increase the imperative for teams to be efficient in order to be effective. Efficiency measures output relative to input. For professional sports teams, sporting efficiency is the salary cost per win. Winning teams with a fixed salary budget must achieve the lowest cost per win in order to maximize their effectiveness in terms of games won. But maximizing sporting efficiency necessarily requires the estimation of the expected win contribution of individual players (i.e., sporting value) and the incremental revenue of winning more games (i.e., financial value). The pursuit of sporting efficiency brings together the principles of sport management and financial management. It is sport finance in action.

The theory and empirics of estimating the sporting and financial value of elite playing talent are well established in the academic sport economics/management literature. Starting with Scully's seminal contribution on pay and performance in Major League Baseball (MLB) (1974), the financial value of baseball players has been frequently analyzed in the intervening period charting the effects of changes in the baseball players' market following the introduction of free agency (see, for example, Zimbalist, 1992) as well as investigating whether or not baseball players' salaries have been subject to racial discrimination (see, for example, Medoff, 1975). Baseball, like other striking-and-fielding sports, has the characteristic of high separability of the contributions of individual players with little interdependency. So it is no real surprise that our understanding of the sporting and financial value of players is most advanced in baseball. And further, it is no real surprise that the team most advanced in utilizing statistical analysis in pursuit of sporting efficiency (and effectiveness) is a baseball team. Moneyball: The Art of Winning an Unfair Game (Lewis, 2003) is in essence the story of how the Oakland Athletics under its general manager, Billy Beane, have successfully challenged bigmarket rivals such as the New York Yankees in recent years yet have typically spent only around one third of the Yankees in player salaries.

Moneyball has been a best seller in both the sports world and the financial world. From the sport finance perspective it raises two key questions. First, what are the actual mechanisms that Oakland has exploited to achieve costs per win lower than all other MLB teams? (See Gerrard, this volume, for estimates of costs per win for Oakland and other MLB teams over the period 1998- 2006.) Moneyball, after all, tells a story that in turn needs to be scrutinized empirically. Second, given the high separability of playing contributions in baseball, are the lessons of Moneyball specific to baseball (and other striking-and-fielding sports) or are they applicable to other sports and even other non-sport organizations? It is these two questions, particularly the transferability of Moneyball, which this special issue seeks to investigate. …