Molloy 1

Jack Molloy

Professor Hill

Econ 338

11/3/13

Moneyball Paper

Moneyball follows Billy Beane, the general manager of the Oakland Athletics, who used and developed a variety of statistics and successfully put together a winning team contrary to everyones expectations. Moneyball delves into a topic that is seen throughout, but hardly utilized, rational decision making in sports through use of math. Usually the rational decision is sports is often the one that is the most unpopular or counterintuitive. This is seen elsewhere, such as the NFLs lack of going for it on 4th down, Moneyball delves into the exploitation of the many labor market inefficiencies in the Major League Baseball market that Beane had capitalized off of. After a relatively short playing career Billy Beane became an advance scout, a few years later he took over as the GM of the Athletics in 1999. That year the Athletics ranked 11th out of 14th in payroll and 5th in wins in the American League. In 2000 and in 2001, the Athletics ranked 12th and 2nd respectively. In 2002, they were again ranked next to last in payroll but were first in wins.

"The guy's an athlete, Billy," the old scout says. "There's a lot of upside there."

"He can't hit," says Billy.

Molloy 2

"He's not that bad a hitter," says the old scout.

"Yeah, what happens when he doesn't know a fastball is coming?" says Billy.

"He's a tools guy," says the old scout....

"But can he hit?" asks Billy.

"He can hit," says the old scout, unconvincingly.

Paul reads the player's college batting statistics. They contain a conspicuous lack of extra base hits and walks.

"My only question is," says Billy, "if he's that good a hitter why doesn't he hit better?"(Lewis, Moneyball ) Billy Beanes ideology on the valuation of players was strictly numerical. He valued On Base and Slugging percentage as opposed to the traditional statistics such as Batting Average and Stolen Bases. The Oakland Athletics focused on players who were undervalued, players who didnt fit the traditional mantra of a super star. Often times they went after players who were considered damaged goods. Beanes statistical methods were what allowed them to be successful. For example, Beane determined that getting hitting the baseball into the field of play was more important than hitting a homerun. He also figured that Walks were also pivotal because the provided players to get on base. Through this valuation the Oakland Athletics were able to sign the high potential players who were undervalued by other coaching and scouting staffs.

Molloy 3

A prime example of this is after the 2001 season when the As three of their best players due to free agency. Most teams would have been in a rebuilding mode but the As went out and simply reloaded by finding talent that fill the gaps left by those three players. Beane simply ends up getting players that nobody wants and the next season there is almost no fall off, in fact they increased their wins. Beanes focus: What is the most efficient way to spend money on baseball players? Without the financials to obtain the star players, Beane had to develop a way to find talented yet undervalued prospects, the prospects that were being ignored by other scouting departments. Helped by Harvard economics graduate, Paul DePodesta, Beane and DePodesta accumulated and analyzed data from thousands of players. From this data Beane derived in depth statistics about the players, accumlated a list of players he wanted to go after and then d id so. Through this analyzation of data he punctured the countless myths about what was important to winning at baseball. (Lewis, Moneyball ) Beane statistical approach allowed him to spot talent that other scouts couldnt. A lot of the prospects that Beane drafted werent even on the boards of some teams. Some of them werent what the scouts pictured when they saw a good player. "The evaluation of young baseball players," Lewis writes, "had been taken out of the hands of old baseball men and placed in the hands of people who had what Billy valued most (and what Billy didn't have), a degree in something other than baseball." (Lewis, Moneyball ) How Beane addressed player evaluation is very personal and is a reason why he is considered one of the best. Ive got a first round draft pick, says Billys high school coach Sam Blalock ,and Fifteen and Twenty scouts showing up every time we scrimmage (Lewis, Moneyball ) Billy Beane was considered to be an up and coming super star both in baseball and

Molloy 4

in football. Countless MLB and College teams were knocking down his door to try and get him to play for their respective teams. Stanford University even went as far as to offer him a scholarship to play both football and baseball. The New York Mets eventually won out by drafting him in the first round and offering him a contract worth $125,000.

The only issue was that Beane was not a good player. He was too emotional, too critical of himself to ever be successful. Yet scouts saw what he had to offer physically and athletically so they concluded that he was bound to succeed. "Teammates would look at Billy and see the future of the New York Mets. Scouts would look at him and see what they had always seen.... The body. The Good Face. (Lewis, Moneyball ) After bouncing around the MLBs various farm systems, he quit the game while playing for Oakland. Beanes career as a journeyman player gave him insight on how to evaluate what to look for and what not to look for so he went to the GM of the Athletics and asked to become an advance scout Nobody does that. Nobody says, I quit as a player. I want to be an advance scout." (Lewis, Moneyball ) Beanes success led many to question why such inefficiencies in the evaluation of talent in the MLB were prevalent. Baseball executives were locked into looking at stats of old and into the potential that prospects would have instead of looking at their individual production. They relied heavily upon scouts gut feelings and whether or not the prospect looked like a baseball player. Beanes personal experience allowed him to be able to avoid this trap. He looked at players objectively not whether or not they fit the traditional mold of an MLB player. Another question could be posed as to why no one had begun to use in depth statistics such as Beane had used earlier. The earliest development of advanced baseball statistics goes back to when a man name Bill James developed advanced formulas such as runs created, on

Molloy 5

base percentage and slugging percentage. James work was published and became an instant hit with the baseball fans but was largely ignored by executives. What likely is the simplest explanation for such behavior is the fact that people rely on tradition, habits, and what other people believe rather than what the rational decision actually is. We see this, as mentioned before, in the NFL with not going for it on 4th down. Often times the stigma attached to decisions that are against what is perceived as normal is too much of a deterrent for an individual to proceed in a rational fashion. The use of bad statistics is prevalent throughout baseball. Statistics such as batting average and steals are weighed far more heavily than they should be. But one statistic that is completely useless and way overvalued is that of the save. The effectiveness of a relief pitcher that doesnt, at most, blow a three run lead is terribly useless at judging the effectiveness of a pitcher. Your best relief pitcher should be used in critical situations of the game when your chances of winning or losing are at an equal percentage rather than a good chance of you winning regardless of who is in for the save. When youre up by three runs heading into the 9th is when a relief pitcher would be used and a save would be accumulated, the chance of winning is above 95%. One strategy that Beane used was to have an above average relief pitcher accumulates saves then sells the player off at a rate where the player is clearly overvalued. We see situations similar to the uselessness of the save in instances such as the stock market. We see companies, along with underwriters, when filing for an IPO generate an inordinate amount of hype to surround the company in attempt to garner excitement and pump up the price of the stock. Or in other cases such as previous stock bubbles i.e. dotcom burst when investors exhibited irrational exuberance and were hyping up tech companies, further driving stock prices up. Another such example would be the recent debacle with the Facebook

Molloy 6

IPO. But in that case all the hype essentially backfired when the IPO was listed and the market determined the stock to be way overvalued when it was initially listed. It is clear that baseballs labor market is terribly inefficient. Teams were buying overvalued, underperforming players and selling average players at a discount because of irrational beliefs about the player. Quite possibly in no other market can an employer see, quantitatively, the productivity of a potential employee. Teams can use the previous data on a player to forecast the potential impact that said player would have on a team. From there they can develop whether or not they should spend money on purchasing this the players services. The statistics used to measure productivity cannot be found in any other market outside of sports. So if we were to look at the labor market for any other profession would find that there is a very high probability that that labor market is very inefficient. One could argue if the baseball market is this inefficient and they have all of these productivity values available to them it would be hard to believe that other labor markets could be more efficient. I believe this solely because when hiring an individual, there is nothing throughout the entire hiring process that is quantitative. By this I mean that there isnt any previous record that the potential employer can use to predict future success like they can in baseball. In a possible hypothetical situation a possible employer at a restaurant cannot measure the efficiency of a potential waitress because there isnt any data available to quantify a potentially efficient distribution of wages in comparison to productivity. Furthermore, since the employer cannot forecast the productivity of a potential employee just go off of qualitative characteristics it is very hard to determine the appropriate wage for the given level of productivity. I think that what happened over a decade ago was undoubtedly due to the great system developed by Beane to get these players together but at the end of the day mathematical models

Molloy 7

dont win games. At some point numbers have to stop having meaning because the human element is far more important than determining the expected number of runs that will be scored by a group of players. It could be said that All else being equal, if the members of the 2002 Oakland Athletics roster absolutely despised each other, I would expect to see a decrease in the total number of wins produced by that team. Further if the models instituted by Beane were the most efficient we would have expected to see a more consistent record from the Athletics over the past 10 years. This didnt occur which would lead me to believe that the explanatory power of his models cannot attribute for something and I believe that to team chemistry. I believe that human interaction has a large role in determining the success of a team rather than just what a predicted model has to say.