A film adaptation of Michael Lewis' book "Moneyball" is about to explode onto movie screens around the country in a release no doubt coordinated intentionally with the onset of the playoffs for Major League Baseball. Moneyball was a game-changer for many baseball fans, myself included. I now know about Bill James, "sabermetrics", and the value of statistical analysis of baseball. When I read Moneyball for the first time, I had been following baseball for twenty-five years. Stats people, other than the superficial Elias and sports page people, were completely alien to me. I had no idea that a Saber Nerd subculture existed. Now, I am one.
I was familiar with Michael Lewis, having read Liar's Poker. I have friends who work on Wall Street and in suburbs now (for hedge funds). Lewis' description of the bond desk at Salomon Brothers in the eighties was an epic read in the finance department of my college after it was released. Oddly, despite the tremendously unflattering portrait of Wall Street, it inspired some of my friends to want to work there.
I was pushed into reading the Moneyball by an acquiantance who knew I was a baseball fan. After grudgingly agreeing to "take a look at it," the book sat on my credenza for several months. I picked it up one weekend, and I read it cover-to-cover in one sitting. Moneyball hit me in the face in a way that completely transformed the way I looked at sports, baseball, and business.
The book, as we all know now, revolves largely around Billy Beane, general manager of the Oakland Athletics, during the 2002 season. It describes some of the tactical philosphies used by the A's in playing the game and in acquiring and using players. Everything appears to have linkages to heavy-duty statistical analysis.
The gist of Moneyball was that the A's, by application of statistical analysis, were able to identify how to best acquire talent that allowed the team to compete at a high level, despite the low level of payroll that the A's could afford. A variety of strategies were used. The team identified certain baseball skills as being undervalued in the marketplace. On-base percentage was famously a big deal. So was slugging percentage. Stealing bases was overvalued. Closers were overvalued.
The team considered not just raw statistics, but other factors, such as where a player played most of his games. Pitchers who were in the minors in hitter-friendly parks and leagues were overlooked by other teams because their numbers, like ERA, were comparatively poor, being inflated by results from games in high altitude parks, in one instance. The A's looked for pitchers who caused lots of ground balls, though they may have been unconventional otherwise, with Chad Bradford receiving a lot of praise. Drafting college players rather than high school players was a tactic used to improve the risk/reward profile of the draft.
The essence of it all was to find a competitive business advantage for the A's in a marketplace of baseball players and baseball general managers that was, up to that time, inefficient at ferreting out truly useful talent. And the A's, by virtue of using this strategy, were cleaning the clocks of pre-enlightenment teams.
As I mentioned above, this is not exclusively a baseball book. It is a business management book, too. The tactics Beane and the A's used were the same that many businesses had used for years. But Major League Baseball was, at the time, run in no small part with good 'ol boys doing the selecting and developing of players. And these people ignored modern analytical tools that helped to evaluate real performance. Instead, the good 'ol boys relied on potentially misleading statistics, such as pitcher Wins, Saves, batting average, total steals, etc. When writing multi-million dollar contracts for players, they were acting on information that was horribly misleading. Things that today seem incomprehensible to almost everyone were, at that time, normal.
"Moneyball" didn't mean just sabermetrics. Sabermetrics, to me, means "looking at statistics in baseball to find the truth about how to best understand the game." Moneyball was about beating the competition by finding a competitive advantage on the cheap and working it. Statistics was a big part of it, but not all of it.
Today, I think it is safe to say that every Major League Baseball team is aware of sabermetrics and the importance of it, whether they use statistics heavily or moderately. There is no team that does not understand the importance of on-base percentage today. The low-hanging fruit is picked. Everyone is a Saber Nerd now.
So where does this leave Moneyball the idea? Is it possible for a low budget team to use information that can help it to compete consistently against the better-funded big money teams? Yes, but the way to do it has changed, since the sabermetrics genie is out of the bag.
Adaptation in a competitive marketplace requires participants to constantly "up the ante" when a successful new strategy emerges. In the case of the A's, they succeeded in a way that was conspicuous and embarrassing to many other MLB teams. Other teams caught on pretty quickly to what the A's were doing at the time and why it was important.
Now that all teams are paying attention to the obvious benefits of statistical "sabermetric" analysis, the advantage of relying on statistical analysis has been eliminated, or reduced to nearly nothing. Now teams must use it just to keep up with everyone else. To gain an advantage over other teams, new strategies and new sources of competitive advantage must be identified and exploited.
In shorthand, the reason the classic "Moneyball" strategies (get those under-appreciated, high OPS players on your team) no longer work for small market teams like the A's is that everyone else wants those players, too. The players are no longer under-appreciated. It's a classic example of the Red Queen's hypothesis: "It takes all the running you can do, to keep in the same place." In other words, an entity must continually adapt in order to continue to out-compete other continually adapting entities. Executing well-established strategies at a high level is not enough. Innovation is required.
A small market team can compete, but the advantage cannot rely on the specific tactics identified in Moneyball. New ones must be identified. Perhaps acquiring better and more information on international players. Perhaps developing better ways to teach skills and actually develop players in the minor leagues. Perhaps training advantages that can reduce the likelihood or length of injuries. Using arbitrage, like the Tampa Bay Rays do, when trading players in order to exploit market inefficiencies that may remain (see: Closer, the Cult Of). Figuring out which players to retain with long-term contracts and which to let go. Perhaps requiring managers to follow mathematical models in game situations.
Rather than Saber Nerds slaying old-timey baseball guys, Moneyball showed us something obvious, and what we knew all along. Excellent business managers beat the pants off poor ones. Everyone knew that. But baseball, with its often blind adherence to tradition, ignored the importance of modern management techniques. And when the curtain was pulled away from the Oakland A's, it dawned on me that Major League Baseball is not some Elysian Field, free from competitive pressures. It, too, benefits from the lessons of W. Edward Deming, Kaizen, and Toyota for instance. Business strategies work for baseball, too. Because, it seems, good management adds value. Everywhere. Even in the innocent, fantasy world where many of us place baseball, because, you know, it's a pastime. And because we belittle the importance of business management skills with things like the Office and Dilbert.
The modern version of Major League Baseball requires exceptionally skilled leaders with great business skills. Familiarity with risk models, portfolio theory, and quantitative analysis are far more important than the old-timey guys were willing to admit in 2002. Now, almost everyone knows better. Again. Because none of this is new.
It's as though we pretend that Babe Ruth's new approach to playing a deadball game never happened. That tying independent minor league teams to major league clubs was never a big deal in the past. That teams that welcomed black and Latino players had huge advantages for decades. And teams that jumped into Latin America with both feet in the eighties killed competitors who didn't. Innovation has been with baseball forever. And after the innovation, it always seems that there is a "gee, that was obvious!" take on it after the fact that ignores how revolutionary the innovation was at the time. I mean, Branch Rickey, people! Yet the Joe Morgans and Bill Conlins of the world don't equate sabermetrics with Moneyball with Branch Rickey. The common thread is that innovation helps well-run teams to win more games. And to rewrite the "rules" of running a franchise.
In a conservative, clannish environment like Major League baseball, modern business management techniques led to execution of a strategy that killed general managers, owners, and players who "knew the game" by playing it. A baseball team in today's world turns out to be more of a major business enterprise than a "club." It's a multi-million dollar business with perhaps an enterprise value of a billion dollars. And now everyone realizes that they have to be run that way by people trained to run valuable businesses.
Moneyball was about intelligent management. It was not about statistics, though the two topics lived together for a period. For a while, using statistics to analyze players was "Moneyball" but now, "Moneyball" has to be something else. Sabermetrics has been co-opted by the status quo. And maybe the next "Moneyball" will result from a sharp baseball executive identifying an expoitable flaw in the current sabermetric orthodoxy.