Running Head: ECONOMICS IN MLB 1

Economics in MLB: An Old Game in a New World

Jared Atamanchuk

University of Victoria

V00892920

ECON 225 A02

February 14, 2019

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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.

Keywords: ​MLB, statistics, maximizing utility

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Economics in MLB: An Old Game in a New World

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

baseball is evolving and its effects on the league.

In “​Moneyball​ After 10 Years: How Have Major League Baseball Salaries

Adjusted?”, Brown, Link and Rubin (2015) delineate the change in MLB salaries since the

post-​Moneyball​ era starting in 2003. The post-​Moneyball e​ ra refers to the modernization of

baseball after 2003. They analyzed specific stats to determine their effects on point scoring

and winning.

In “In Pursuit of Pennants: Baseball Operations from Deadball to ​Moneyball”​ Armour

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

article for its examples and proof of the game evolving.

Getting “on base” in baseball is essentially becoming available to score a point.

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,

where as ERA and Strikeouts have greater correlations.

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.

Word Count: 1030

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References

Armour, M. L., & Levitt, D. R. (2015). ​In Pursuit of Pennants: Baseball Operations from

Deadball to Moneyball.​ Retrieved from https://ebookcentral.proquest.com

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

Slowinski, S. (2010) What is WAR? Retrieved March 17, 2019, from

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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