The Baseball Economist: The Real Game Exposed (12 page)

According to the Blue Ribbon Panel, the owners feel that it is important for every team to have “at least periodic opportunities for success,” in order to keep maximum interest in the game. If some teams have inherent advantages due to the markets they serve, this standard may be in jeopardy. I can use the previous analysis to generate metrics that separate out the influence of market size on winning.

Using the estimate that every 1.58 million people in a city generate an additional win for the teams in that city, let’s subtract the total number of wins due to the population from each team’s actual average win total to create
population-adjusted wins
per season. Population-adjusted wins are the estimated wins of teams due to factors other than population size. I also calculate
predicted wins,
which is the number of wins a team should have based solely on the impact of market size. From this I calculate a third metric,
wins above predicted,
which is the difference between actual wins and predicted wins. This metric measures how well teams performed above/below the wins predicted by population size.

Table 13 lists MLB teams ranked according to population-adjusted wins and includes the other metrics and total postseason appearances from 1995 to 2004. It is as if each team played in a locality of equal size and, outside of luck, only the skill of the owners, managers, coaches,
and players determines the outcome. The Yankees cannot gain more population-adjusted wins than other teams because of a market-size advantage, only due to skill or luck.

Even without their big-market advantage, the Yankees are fourth. While the Yankees may be second in average total wins, it is clear that any big-market advantage is only a small part of the success of this organization in modern baseball history. The Bronx Bombers have won 8.5 more games than predicted given the population of New York. It’s true that the Yankees operate in a big market, but they have done many other good things to attain success, just as the small-market Royals have done many bad things that have contributed to their failure. In contrast to the Yankees, the Royals have won 8.4 games below their population-predicted wins. In fact, the top and bottom clubs in population-adjusted wins, Atlanta and Detroit, have nearly equal predicted wins. And the eight clubs that never made the playoffs during the sample years are clustered at the bottom of population-adjusted wins.

Though the overall picture seems to indicate that market size had a very real but small impact on the performance of teams, small changes in wins can make huge differences in terms of making the playoffs. After all, baseball is a game of inches. Using the population-adjusted wins for every team in every season over the sample, we can see if any teams missed the playoffs due to differences in market size. When we look at each team’s population-adjusted wins by season, it turns out that market size was a factor in keeping some teams out of the playoffs. Twelve times teams that missed the playoffs would have qualified if the cities were equally sized. Table 14 lists these teams along with their league, population ranks, and the number of post-season appearances over the sample period.

Again there is a counterintuitive story here. The losers are not necessarily the bottom-dwellers of the leagues or small-market clubs. Of these teams, only Montreal never made it to the postseason during this time period. And only the Braves and Yankees appeared more frequently in the playoffs than Cleveland, Houston, Oakland, San Francisco, and Seattle. Boston made five playoff appearances and won
the 2004 World Series. Cincinnati is a small-market team that has not been very successful compared to the others in this group; however, the Reds did win the World Series in 1990.

It is true that some clubs have missed the playoffs due to market size, but I am not sure that this is any more disheartening than teams that miss the playoffs due to playing in a strong division. It is quite common for the winner of a weak division to make the playoffs, while a team with more wins in a good division will be sent home. Over this time period four teams that did not make the playoffs had better records than at least one team in the playoffs. That is the structure of the game, and few complain about it. I am not sure that these teams missing the playoffs due to minor differences in market size merits any more complaints.

Another interesting aspect of the data presented in Table 13 is that it is hard to find much correlation between market size and “periodic success” in making the playoffs. The relationship between market size and postseason appearances is quite weak. Additionally, appearances in the postseason are not all that rare over these eight seasons. Eight teams (25 percent) did not make the playoffs over this span; but only once in these ten seasons did a club miss the playoffs because of its small population (Montreal in 1996). And even these poor teams have seen their share of success if we look a little further into the past. Montreal had the best record in baseball in 1994, but was not able to go to the playoffs because of the strike-shortened season. In 1992 and 1993 Toronto won back-to-back World Series, and they played the Philadelphia Phillies in the latter series. From 1990 to 1993 Pittsburgh played in three straight National League Championship Series. Even the real losers of the bunch had some share of success in the 1980s. Milwaukee played in the World Series in 1982, while Detroit and Kansas City were World Series champions in 1984 and 1985. Only the lowly Devil Rays failed to ever make the postseason, but the team has only existed since 1998.

“But,” many will say, “what about the Yankees?” It is very true that the Yankees have had unprecedented success in the late-twentieth and early twenty-first centuries, not to mention the team’s glorious past, but it is important to remember that the Yankees missed every one of thirteen playoffs held between their 1981 and 1995 postseason appearances. Where was the big-market dominance of that era? And we cannot blame the difference on free agency, where George Steinbrenner likes to spend big bucks, because free agency came into being in 1976.

While big-market teams may have an advantage over small-market teams, the advantage appears to be slight and virtually meaningless. The bigger problem appears to be inept management of a few clubs that happen to be small-market teams. Any attempt to improve the performance of these teams ought to focus first on creating incentives for owners of these teams to make better managerial decisions, before moving on to fixing any inequities that arise from differences in market size.

But one question remains: why is it that large-market teams do not have much of an advantage over small-market teams? If bigger markets offer more potential fans to generate revenue for the teams in that area, why do these teams fail to further exploit this advantage?

First, there exist several rules that allow small-market teams to compete at a lower cost. The reverse order draft lets the worst teams pick new players first. The drafting team holds exclusive rights to any player it drafts, and therefore it does not have to compete with large-market teams who might be willing to pay more for the player for a short period of any player’s career. After signing their initial contracts, these players are ineligible for arbitration for three years and free agency for six years. And small-market teams can also trade these players to big-market clubs for a more suitable bundle of players or cash to be used to hire free agents. Small-market teams that manage their rosters wisely can compete by identifying good talent early when it is relatively cheaper.

Second, the big-market advantage does not necessarily mean that the biggest market will always sign away all of the game’s top free agents. Each player a team signs brings less value than the previous player (as a team improves, it values the additional player less); thus, are diminishing returns to signing additional free agents to the same team. For example, the two top free agents in the 2004 off-season were Carlos Beltran and Adrian Beltre. The Mets only signed Beltran, while Beltre signed with Seattle. Big-market teams may get the first crack at free agents, but there are plenty of good players to go around.

Third, we routinely overestimate the advantage big markets have over small markets. Though big cities hold more potential baseball fans than small cites, those people aren’t necessarily freely available to watch baseball. Big cities also have more distractions. New York offers many more opportunities for entertainment than Milwaukee. Because New Yorkers have more to do, a win in New York may not generate as much fan interest as a win in Milwaukee. So, though wins may generate more revenue in big markets than small markets, the effect might not be as large as we think.

It’s important to remember that attempts to limit the big-market advantage are not without risk. Revenue sharing, the most popular solution to the problem, while giving low-revenue teams more cash, also creates a disincentive for winning. Tying revenues to winning creates a strong incentive for management to put winning teams on the field. A small-market owner who receives a share of big-market earnings may prefer to live off this wealth transfer rather than put together a good team. Thus, proposals to minimize competitive imbalance must be crafted with caution, especially considering that competitive imbalance may not be the large problem many people suppose it is.

7

The Marlins and Indians? C’mon.

—P. K. WRIGLEY, FORMER CHICAGO CUBS OWNER

WHICH TEAM has the best organization in baseball—not historically, but
right now?
It’s a question that can rile up baseball fans whenever they meet. I might argue it’s the Atlanta Braves, my favorite team. After all, the Braves won fourteen division titles, five NL pennants, and one World Series from 1991 to 2005. But New York Yankees fans could argue that eleven playoff appearances with four World Series titles from 1995 to 2005 is better. Furthermore, some fans of the low-budget Oakland Athletics and Minnesota Twins have a case that their combined seven postseason appearances from 2000 to 2005 on much smaller budgets is the more impressive feat. What might seem like a simple question isn’t.

The answer to this question depends on what you want to know. I’m concerned with the present as opposed to the past, because I’m looking for something practical: a gauge of which franchises are likely to rise to the top in the coming years. A good organization ought to be able to generate sustained excellence for years to come. There is no doubt that the teams mentioned above have excelled in the past and may continue with some success in the future; however, maybe there are some organizations that are just getting things in order now and are primed to join or replace the reigning elite. How do we find them? In this chapter, I’m going to evaluate organizational track records over the past three seasons (2003–2005). My approach provides several observations of each team, without digging too far into the historical record, and thus avoids contamination by past organizational structures no longer in place. It’s reasonable to expect recent history to be a guide to the future. If an organization is doing things right, it will probably succeed in the near term as it continues doing the right things. Poorly managed organizations may also have some inertia, but they are not likely to plod along with the same failing methods. It’s not surprising that seven of the nine teams that I identify as below-average organizations experienced front-office shakeups during the period of analysis.

Good baseball organizations should get the most out of their playing assets. To keep things simple, let’s focus on these two relatively noncontroversial characteristics of well-managed baseball clubs to evaluate management:

An organization that expects to win must put a good team on the field. Good teams win, which brings fans to the park and generates revenue for owners. However, sometimes teams win and lose games not because of the way they are composed, but due to luck. Obviously, poorly constructed teams will typically win fewer games than well-constructed teams; but teams sometimes experience a series of good or bad bounces that give or take away a few victories over the course of the season. This is not management’s fault, and therefore we shouldn’t punish or reward teams for results beyond their control. To evaluate the quality of play, I use the total dollar value generated by the players of a team and listed in Appendix D. These values— generated using the method detailed in chapter 13—reflect the revenue that the players bring to the team through the number of wins that their performances generate. Good play brings in more money; bad play brings in less.