The Sabermetric Revolution: Assessing the Growth of Analytics in Baseball

6. Analytics and the Business of Baseball

6 Analytics and the Business of Baseball Quantitative analysis has been increasingly introduced over the last two decades to understand the business of baseball (and other sports). It has been applied to a variety of issues, such as efficient ticket pricing, regulation of secondary ticket market policies, impact of stadiums and teams on a local economy, threshold city size for hosting a team, franchise valuation, the relationship between player development expenditures or major league payroll and team performance, labor market institutions, and optimal competitive balance, among others. Entire books have been written about these subjects, so in this brief chapter we only wish to illustrate an area of this research that directly affects the sabermetric concerns of player performance and team strategy. It is the received wisdom that sports leagues, in order to command the interest and attention of an adequate fan base, must attain a certain degree of competitive balance across all the teams in a league. Without such a modicum of balance, the uncertainty that drives the suspense and excitement of league games and championship seasons is compromised, and game attendance as well as television ratings will suffer.1 Exactly how much balance is needed to maximize league revenues in the short and long runs, however, has never been established. Moreover, it is clear that the optimal degree of balance varies considerably between open and closed league systems, as well as from league to league within each system. Analytics and the Business of Baseball 103 Competitive Balance in European Soccer Leagues Notably, the soccer leagues in Europe, which operate with an open, promotion /relegation structure, demand less balance. This is because several contests during the league year are of interest to the fans: winning the league, not being relegated, gaining a berth in the following year’s Champions League or Europa competition, along with various domestic competitions. In contrast, in the U.S. closed leagues, gaining a postseason berth and winning the championship is all that really matters. Two other factors are also prominently at work. First, for a fan of Manchester United, Bayern Munich, Barcelona, InterMilan, or any other team, the two biggest prizes are winning the domestic league and winning the panEuropean Champions League. If there is too much balance in the domestic league, then the domestic league’s best teams will not have the requisite resources to dominate in the pan-European competition. Therefore, the European football leagues generally engage in much less revenue sharing than the U.S. leagues. Second, the promotion/relegation leagues contain an automatic balancing mechanism that is not present in closed leagues. In open leagues the number of teams that play in a particular city is ultimately determined by market forces; thus, there have been between five and seven teams from greater London in the English Premier League in recent years. In the closed leagues, the market power of large city teams is protected by administrative controls exercised by the league monopoly. No team in the English Premier League contains the natural geographic advantage that, for instance, the New York Yankees or Los Angeles Dodgers have in Major League Baseball. Competitive Balance in U.S. Sports Leagues For these reasons, the U.S. closed leagues all depend on the equal distribution of 100 percent of central television, radio, Internet, licensing, and other revenue sources generated by the league office. They also all now have a supplementary revenue sharing system. In the NFL, which has had extensive revenue sharing since the league’s inception in the early 1920s, the policy is 104 Chapter 6 the most penetrating, encompassing about 75 percent of all league-wide revenues . In the NHL, NBA, and MLB, where either little or no revenue sharing was present at the beginning of the leagues, the amount of shared revenue is less than 30 percent of league-wide revenues. Naturally, team owners from large cities in the latter leagues have a tendency to resist additional sharing because they paid a much higher price for their franchises than did the owners from small cities. They tend to view such sharing as confiscatory. The conflicts among owners over revenue sharing frequently spill out into labor conflicts and other inefficiencies. Among those leagues that did not begin with revenue sharing, MLB has the most extensive sharing. MLB’s supplementary system was introduced after the devastating 1994‒1995 strike and has been expanded steadily, from under $30 million being shared in...