Smartball: Are Low-Revenue Teams Redefining the Market for Baseball Talent?

Introduction

In Moneyball Michael Lewis argued that the recent success of the low-revenue Oakland Athletic was the consequence of a new strategy for building an MLB team that was the brainchild of general manager Billy Beane.¹ This strategy placed priority on choosing players based on quantified performance measures that contributed to winning games and eschewed the traditional subjective approach that relied on scouts' judgments about how good prospects look. While the Moneyball strategy initially earned praise and was thought to be permeating MLB as Beane's protégés took general manager positions with other teams, the strategy has more recently been questioned in the popular press and by academics who have found no empirical evidence to support it.² Nonetheless, there is a surface appeal to the notion that the A's and other low-revenue teams are doing something different to stay competitive with their high-revenue competitors in the twenty-first century. What that might be, however, has not been clearly defined and is something we hope to address with this study.

At the end of the twentieth century, MLB experienced a decade of transformation. The 1990s began with low-revenue teams operating in the manner that had prevailed since the dawn of free agency in 1976. Like their high-revenue counterparts, low-revenue teams made signing free agents an integral part of the way they built their teams. Unfortunately for low-revenue teams, this proved to be a difficult strategy, because two aspects of free agent signings caused them problems. First, unlike their high-revenue counterparts, low-revenue teams did not have the ability to paper-over mistakes. To use a 2005 season example, the Yankees, the quintessential high-revenue team, were easily able to insure against the possibility that Jason Giambi would be a bust by promptly signing Tino Martinez. In contrast a low-revenue team would likely not have the resources to make a Martinez-like signing. Second, the more insidious problem was that free agent signings that failed invariably carried with them long-term commitments to the player, wreaking havoc on the team's budget for that year and many years into the future. The Rangers' signing of A-Rod and Chan Ho Park, the Brewers' signing of Teddy Higuera and Jeffery Hammonds, or the Pirates' signing of Derek Bell are just a few examples of agreements that significantly hampered a team's ability to make other roster moves that could have benefited the organization.

Table 1.

Summary of MLB financial data ($ million)

As the 1990s progressed, low-revenue teams recognized that their predicament was being exacerbated by the widening of the gap between high- and low-revenue teams as revenues exploded for only the high-revenue teams (see table 1). They reacted by vigorously complaining that the growing revenue disparity was hurting competitive balance. While the loss of competitive balance argument was dismissed by economic analysis, low-revenue teams clung to the argument as a way to encourage revenue sharing.³ And it worked. While not the wholesale revenue sharing that exists in other sports, the collective bargaining agreements in 1997 and again in 2002 provided some measure of transfer from high- to low-revenue teams.

As is often the case, you must be careful what you wish for. For low-revenue teams, shared funds were in an amount sufficient to stifle the competitive balance complaint but not sufficient to enable them to spend liberally in the free agent market. Consequently, low-revenue teams needed to rethink the methods they might use to assemble a competitive ball club.

Moneyball describes the method Billy Beane designed. In scanning the low-revenue landscape, however, one sees other successful teams that, at least outwardly, do not fit the Moneyball mold. For example, some of these teams seem to be able to continually reload their roster with players from their Minor League system. The Minnesota Twins are the prototype for this method. Other teams seem to thrive by inviting their superstars to...