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The Economics of Baseball and Moneyball

Regular MLB season is a wrap, and tomorrow the baseball postseason begins. This is usually the time of the year when I usually think of one of my favorite movies, Moneyball.

Moneyball, based on a book written by Michael Lewis, follows the story of Oakland A’s general manager, Billy Beane (Brad Pitt), who decided to follow a more unconventional way of baseball recruiting. Together with Ivy-league graduate, Peter Brand (Jonah Hill), they reinvent the flailing baseball franchise by using data analytics, thereby tapping the bargain-bin players with high potential to meet their tight budget. It’s a typical David and Goliath storyline, although this time around, data and advanced mathematical models are being strewn around instead of slingshots.

Scarcity, a key principle in economics, was the central theme in Moneyball. The clip below summarizes the constraints that the Oakland A’s was facing at that time: A small market team with a small budget and a small-market GM willing to take on bigger baseball teams with deeper pockets.

The Oakland A’s and Billy Beane were faced with a major budgetary constraints with the goal to make the championships. A lofty goal indeed, but not quite impossible with the help of statistical analysis called sabermetrics. Bill James, the original proponent of sabermetrics, and other sabermetric researchers, “search for objective knowledge about baseball.” Their goal is to look beyond traditional baseball measures such as batting averages or pitcher wins. They also try to forego the typical characteristics that general managers and scouts tend to look for, like pitcher form, athleticism, etc.

Peter Brand (Jonah Hill) describes it in this clip. Being one of Bill James’ disciples, Brand believes that by overlooking the traditional and more subjective ways to assess a player’s contribution to the team using a series of statistical models, general managers are able to find undervalued players and are able to pay less than if they did otherwise. He likens it to an “island of misfit toys."

Sabermetrics is an example of how technology can influence decision making and ultimately, the decisions that we make. And I think spoilers aside, the Oakland A’s strategy was a successful one. The thing though is that this strategy was easily replicated by other teams. All they had to do was to hire mathematicians, statisticians and economists, so what was initially a competitive edge became commodity.

So what’s the new competitive strategy for the Oakland A’s? Move to a bigger market with deeper pockets, that is, Las Vegas, which pretty much ends the cost-conscious roster strategy called Moneyball. It was good while it lasted though and for what it’s worth, I loved that economics and statistics became the heroes and crushed it.


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