Moneyball as Sport Finance in Action: But Are the Lessons from Baseball More Generally Applicable?
Gerrard, Bill, Howard, Dennis, International Journal of Sport Finance
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.
The special issue starts with an examination by Hakes and Sauer of one of the essential Moneyball hypotheses, namely that Oakland took advantage of a market inefficiency in the valuation of hitters. Hakes and Sauer provide confirming evidence of a market inefficiency that was largely corrected in 2004 after the publication of Moneyball. Whether Moneyball caused or reflected a change in other teams' evaluation of hitters remains an open question.
After Hakes and Sauer's statistical evaluation of the Moneyball hypothesis, the special issue offers four contributions on the applicability of the Moneyball approach to other more complex team sports. Probably the most widely researched sport outside baseball on the value of playing talent is basketball, in particular, the National Basketball Association (NBA). Perhaps this is not surprising since the small number of players and quick-scoring features of the sport allow greater separability than other invasion sports such as the many codes of football. Berri, Brook, and Schmidt consider the complexity of measuring individual player contributions in the NBA and make a convincing case that teams have been inefficient in the calculation of players' sporting value (e.g., All-Star voting) and financial value (e.g., salaries) because of an overemphasis on scoring and draft position.
But as the next contribution by Mason and Foster shows, North American major leagues vary greatly in how far they have progressed in adopting and adapting the Moneyball approach. Mason and Foster focus on ice hockey and argue that despite the widespread interest in Moneyball and the availability of tracking technology to acquire the data, significant measurement, analytical, and cultural problems have limited the implementation of Moneyball.
The next two contributions provide an international perspective on Moneyball, showing how the story of the Oakland A's has had a truly global impact. Gerrard tries to determine the practical substance and significance of Oakland's "David" strategy and then attempts to develop a conceptual framework to analyze player contributions in the even more complex context of soccer, providing empirical estimates for English Premiership soccer teams. Stewart, Mitchell, and Stavros show how Moneyball can be applied in another code of football, Australian Rules Football, using regression analysis to identify how different types of player actions contribute to match outcomes.
The final contribution by Wolfe et al. confirms the interest that Moneyball has generated beyond sport. Wolfe et al. show that the Oakland approach has resonances across the business world. After all, irrespective of whether an organization is chasing sporting glory or financial profit, effectiveness requires the efficient identification, deployment, and valuation of resource inputs- especially human resources. And science in the form of metrics and statistical analysis can play a key role in achieving organizational efficiency. When all is said and done Moneyball is a very well told story of one organization and its appliance of science to achieve its ends. We hope that the contributions of this special issue re-affirm the significance, substance, and, most importantly, the general applicability of the innovative sporting and financial regime that Billy Beane and the Oakland A's organization has developed.
Lewis, M. (2003). Moneyball: The art of winning an unfair game. New York, NY: Norton.
Medoff, M. H. (1975). Racial discrimination in professional baseball. Atlantic Economic Journal, 3, 37-44.
Scully, G. W. (1974). Pay and performance in Major League Baseball. American Economic Review, 64, 915-930.
Zimbalist, A. (1992). Salaries and performance: Beyond the Scully model. In P. M. Sommers (Ed.), Diamonds are forever: The business of baseball, pp. 109-133. Washington DC: Brookings Institution.…
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Publication information: Article title: Moneyball as Sport Finance in Action: But Are the Lessons from Baseball More Generally Applicable?. Contributors: Gerrard, Bill - Author, Howard, Dennis - Author. Journal title: International Journal of Sport Finance. Volume: 2. Issue: 4 Publication date: November 2007. Page number: 175+. © Fitness Information Technology, A Division of ICPE West Virginia University Aug 2007. Provided by ProQuest LLC. All Rights Reserved.