Economics in Major League Baseball
Economics in Major League Baseball
Jared Atamanchuk
University of Victoria
V00892920
Abstract
As the tradition heavy sport of baseball enters our technologically advancing world, the
economics of the game adapt. Classical methods for creating successful teams are becoming
antiquated due to the increasing use of statistics and analytics. Redefining maximizing utility
in the MLB is reflected in players salaries and how teams allocate a given budget.
The first baseball team was established 150 years ago, making it the oldest sports
team in North America. After 15 decades baseball has developed many traditions,
philosophies and a culture that is unlike any other sport. However, with time philosophies
adapt and we can observe that in the MLB. Contracts are now reaching almost half a billion
dollars, so it is ever important to determine who really deserves these huge amounts of
money. The progression of analytics and use of statistics is shifting teams values and how
they determine success. Why do some teams win more games than others? Statisticians are
digging deep into baseballs stat-riddled core. This paper will examine how the economics of
Adjusted?”, Brown, Link and Rubin (2015) delineate the change in MLB salaries since the
baseball after 2003. They analyzed specific stats to determine their effects on point scoring
and winning.
and Levitt (2015) analyze famous baseball teams over the years. They look at the factors for
their success and indicate any change in philosophy over MLB’s lifetime. I will use this
On-base percentage (OBP) is the stat that measures how often you succeed at getting on base.
The more times you become available to score, in theory the more times you should s core,
right? This is what the Oakland Athletics gave much focus to in 2002 and what Brown et al.
(2015) said “led to the overwhelming popularity of using statistics” (p. 5) in baseball. With
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the third smallest budget in MLB the Athletics won the most games in the National League.
Furthermore, during that season they won 20 consecutive games breaking the league record.
They did not however win the championship. It is explained in Michael Lewis’ Moneyball
that other organizations may have been undervaluing players with a high a OBP that did not
otherwise standout. Brown et al. (2015) concluded that after 2003 OBP gained more
importance for teams when determining players salaries while other statistics remained
stagnant.
Are teams favoring players with high OBP because it leads to more games won?
Maybe allocating a bigger portion of a teams to budget to such players increases a teams
utility. ESPN MLB Stats- 2018 indicates that the winningest team, the Boston Redsox, do in
fact have the highest collective OBP. As baseball improves its analytics, new statistics are
being created and gaining attention such as Wins Above Replacement (WAR). WAR
indicates how many extra wins a player brings to his teams compared to the average, new
player. Based off this, WAR seems to be the ultimate stat for determining success. Although
this could be true, there is controversy surrounding it. Slowinski (2010) says there are many
smaller stats found within WAR that could be calculated poorly. Also, it is more difficult for
players who play more games to maintain their WAR. Whether or not these statistics are
legitimate indicators of success, building a baseball team on specific statistics may be proving
to be cost-effective. That is, until maybe “a competitive labour market should naturally bid up
the reward for OBP” (Brown et al., 2015, p. 15) and down for other statistics.
A lot of progress has been made for determining pitchers success as well. Pitching
stats, such as Wins, are some of the oldest in the game. A pitcher receives a Win if they pitch
at least 5 innings, their team wins the game, and their team is currently winning if they are
switched before the games end. Wins used to be considered very important when evaluating a
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pitchers ability. However, it relies heavily on the success of other players on the team so it
isn’t a pure indicator of ability. Earned Run Average (ERA) is now the main stat used when
evaluating pitchers. It determines how many runs your pitcher allows per game that aren’t
influenced by the rest of the team, hence “earned”. Averbukh, Brown and Chase show in their
paper Baseball Pay and Performance that Wins now have a small correlation to salaries,
With the rise of the internet and social media, MLB players are becoming increasingly
famous with their fans. A famous baseball player brings more people to the stadium, more
viewers to televised games and more merchandise sales. So by signing a popular player, one
would expect greater revenues and return to capital. However, this return to capital is in
dollars and not games won. In 2018 the New York Yankees received Giancarlo Stanton in a
trade with the Miami Marlins. He was a former MVP and one of the biggest names in
baseball. He undoubtedly made the Yankees the most talked about team at the season debut
but did not perform to his typical ability. Signing popular players over underrated ones may
not provide you with more games won nor maximize utility. Is a $20 million player really ten
times better than a $2 million player? As aforementioned, greater revenues succeed the
acquisition of popular players. Although the players themselves may not prelude success, the
money they bring in might. It can be used to acquire better players and strengthen an
organization for years to come. This is something that the biggest budget teams like the
Yankees and Dodgers have been doing over the years with great success.
Many strong baseball teams have been built through observation, qualitative data and
fame. However, there is so much more information to gain through analytics and studying
statistics. Major League Baseball is undoubtedly modernizing, and statistical methods are
now a significant part of building a successful team. New stats are created all the time and the
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value that teams place on certain stats shifts. This should create salary fluctuations that
should trend towards an equilibrium in a competitive market for free agents and new players.
References
Armour, M. L., & Levitt, D. R. (2015). In Pursuit of Pennants: Baseball Operations from
Averbukh, M., Brown, S., & Chase, B. (2015). Baseball Pay and Performance. Retrieved
from https://ai.arizona.edu/sites/ai/files/MIS580/baseball.pdf
Brown, D. T., Link, C. R., & Rubin, S. L. (2017). Moneyball After 10 Years: How Have
Major League Baseball Salaries Adjusted? Journal of Sports Economics, 18( 8),
771-786. doi:10.1177/1527002515609665
Lewis, M. (2003). Moneyball: The Art of Winning an Unfair Game. USA: W. W. Norton and
Company
https://library.fangraphs.com/misc/war/
(2018). MLB Team Stats - 2018. Retrieved February 10th, 2019 from
http://www.espn.com/mlb/stats/team/_/stat/batting
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