I think that Moneyball by Michael Lewis is one of the most important books ever written on baseball and sports in general.  It drives me absolutely nuts when I hear baseball announcers circa 2005 who admit, almost brag, that when a player like Kevin Youkilis comes to the plate that “He was a prominent characters in the book about Billy Beane, although I haven’t read it.”  This is especially true of a former Reds second baseman who does Sunday Night Baseball games on ESPN.  For a baseball analyst, this should be grounds for immediate termination.  I am all for those who believe in old school, heck I consider myself old school, but his is not about old school vs. a new fad.  Moneyball is about common sense vs. stubborn bureaucracy.

Let me start by saying that I find Lewis’ writing entertaining, but his conclusion, at times, questionable.  This is somewhat offset by the almost surreal fact that he is married to Tabitha Soren, one of MTVs all-time hotties.  Back when MTV used to be watchable.  I digress, Lewis’ blueprint for the future of Solomon Brothers in Liar’s Poker didn’t work out so well, but it was a very entertaining book. I served as CFO of a company that had Jon Gutfreund on its Board of Directors which made the book that much more interesting.  His novelette Coach was a wonderful reflection of the effect of sports on our lives and the influence that a coach can have and is a must read for anyone who has the benefit of coaches who help shape people’s lives or those that do it themselves.

Secondly, despite those of you who haven’t read may think, Billy Beane does not come out of this smelling like a rose.  It is impossible to finish that book without coming away thinking that he must have more than a few screws loose.  His OCDish behavior with his pager while the A’s were about the set the major league record for consecutive wins was enough to make you cringe.  The interesting part of moneyball to a beancounting geek like me is the convergence of economic theory and talent evaluation.  This played right into my love of sports and my expertise attained as a finance professional, specifically my MBA in finance.  Disclaimer: My comments from  hereon are not meant to be arrogant or condescending, but I think, based on my discussions with people as the inefficient markets that Lewis described have evolved, is that Lewis’ audience didn’t necessarily have the background to understand how the market for talent and, more importantly skills, would evolve post-Moneyball.

First of all, the moneyball concept is not about getting players with high on base percentages.  While much of the book was devoted to Jeremy Brown, Scott Hatteberg and Youkilis’ on base prowess, these were examples of how the traditional baseball mentality under values these skills and what Beane and his Ivy-league staff saw in each of them that made them a target.  The book was about capitalizing on inefficient markets or arbitrage.  Arbitrage theory is a complicated sounding name for a simple concept, basically that if A is willing to sell something for less than B is willing to pay for it, you should buy as much from A as you can and sell to B until A raises his selling price and B lowers his buying price to an equal point or an efficient market.

This happens in high finance everyday and the efficiency is usually found in seconds or minutes but vast amounts of wealth can be created in the interim.  What Lewis discovered that in Beane’s world of valuing statistics and talents that other GMs ignored is that these market inefficiencies have been allowed to exist indefinitely.  What brings the concept the most credibility is that Beane blue chip status as young phenoml in the Mets system was a product of the exact old school system he is now tearing down.

The theory that a teams’ wins per season can be based on their run differential (runs scored minus runs allowed) is widely accepted and a long term trend that have proven itself throughout baseball history.  Balancing his franchise’s future on a bare bones payroll, Beane & Company set out to determine based on statistical analyses, what would be the cheapest way to put together a team that would win enough games to make the playoffs (90+ wins per season)?  The complex run creation statistical analysis gives high marks to hitters who get on base and pitchers who keep players off of base, but these attributes were not valued by the traditional school of thought as batting average, home runs, RBIs, etc. 

In Jim Collins’ business novel Good to Great, he describes how successful organizations break larger goals into seemingly unrelated subgoals or components.  He used, as an example, a very successful high school cross country that stopped evaluating its runners by time and started to evaluated how many runners each passed, since the ultimate goal was to win the race and not put up the best time.  In a similar components based approach, Beane didn’t worry about results oin terms of statistics, but what those statistics told about process of achieving his ultimate goal - wins.  “You score a run if you don’t get to first base” would be a fitting phrase for Moneyball believers.

What Beane found during his years of building the A’s into an unlikely powerhouse is that players who maximized at bats and had high on base percentages relative to their batting averages, were not just available, but many times for the league minimum.  Beane sucked these players up and has had an amazingly successful during an age of reckless spending on better known free agents.  Statistical analysis for pitchers showed moneyballers that a ball hit in play being an out or hit was, with average defensive players, a someone random occurrence, so the A’s put a premium on a pitchers who had low walks and home runs allowed and high strike-out ratios led to unkown such as Chad Bradford and Corey Lidle becoming key members of title runs.

As moneyball disciples spread out around baseball (and the book was released, leaving many GMs Red faced), the market for the above skills became more efficient and new arbitrage opportunities were experimented with and uncovered.  In 2004, then Red Sox GM Theo Epstein traded away the most popular Boston sports personality since Larry Bird, Nomar Garciaparra, armed the knowledge that he would save more runs by improving his infield defense than acquiring a lackluster pitcher and turned a .500 team into World Champs three months later.  This offseason, the media deemed the rose being off the Beane bloom, when he signed Esteban Loaiza a three year contract, but a statistical analysis showed him to be the equal of A’s star Barry Zito over the past three years, but at half was Zito will demand on the open market and is likely to be traded by the A’s at a premium prior to opening day.

This has already caused a dramatic shift in how we, or I at any rate, use baseball statistics.  Batting average is a meaningless statistic in my head and is only useful as a component of on base percentage.  When a pitcher comes in a game, I focus on his innings pitched, walks and hits allowed and strike-outs and do a quick mental calculation of his WHIP and strike-out to walk ratio.  If his ERA is impressive and these stats aren’t, chances it is an aberration and his ERA will rise and vice versa.  If you look at stats of someone like Alfonso Soriano, you realize that his quest to do the statistically impossibility and make his on-base percentage lower than his batting average completely devalues him and, although they have been criticized for their trade with the Nationals, the Rangers were very lucky to get what they did.  The Nationals GM, Jim Bowden, is the personification of old school and sub .500 teams and soon will be the personification of unemployed.

The next area of arbitrage I believe will be for productive outs and bases added without the benefit of hits or walks.  I think that stats that measure how many runners are productively advanced (i.e. Second to third with no outs instead of one out) during a season and net stolen bases for offensive players and passed balls and net stolen bases allowed for pitchers will seed arbitrage opportunities.  In any case, efficient markets theory will continue to dominate more and more of the front offices of major league baseball teams and I don’t expect the run on GMs who get carded to end anytime soon.

What’s up with the Yankees?

I know there the Yankees are touting that they lost $50-$75 million last year.  I don’t buy it, the YES network is bringing in huge revenue streams and the deal between the Yankees and YES is less than an “arms’ length” transaction, with all the money winding up in the same pocket.  How much King George opens that ####ket has little to do with economic reality.  So I personally find the Yankees inactivity this offseason somewhat surprising.

Based on history, we know that when George decides to take the backpage back, he would love to it at the expense of the Mets or, even better to him, the Red Sox.  The Nosemar to first base rumors may satisfy his Boggs, Clemens, Gooden, Strawberry desire to embarrass his rivals, but Garciaparra AM (after Mia) is just a shell of his former self and, I believe, will be an insignificant factor by season’s end. 

No, the splash that accomplishes many of George’s goals is signing Johnny Damon.  At once, the Yankees will clean up their centerfield situation, embarrass the Red Sox, allow them to bat Jeter second and move Rodriguez into an RBI spot in the order, hurt the Red Sox, expand his viewing audiences to girls who like guys that look like cavemen and did I say pick on the Red Sox?  The longer the Damon thing drags on, the more likely I believe it will happen.

As a Red Sox fan, I am actually okay with it.  Damon’s best production with the Bosox came as he reached his walk year, but I have no doubt that the team that signs him to a five year contract will be kicking themselves by the end of year three (In no way comparable to the disaster that was Rent-A-Wreck).  I think Damon will ultimately realize the potential dollars on the table if he can parlay his media savviness from the large market that is Boston to the colossal beast of a media market that is New York.

The biggest problem will be that the Red Sox will be completely naked at the two hardest everyday roles to fill in baseball today, center field and a lead-off hitter.  Without an answer for either of those, the Red Sox may have to pay Damon/Boras’ ransom.  If they are going to ultimately do it anyway, they should do it quick, before the Yankees realize they care.

Greg

Just caught this on the foxsports homepage; no sources or facts to back it up, just someone trying to draw attention to his pessimism.  The post would have a bit more credibility to me if the writer knew that the Tampa Bay game was on Saturday and not Sunday... but, hey, that's just me.

The message board posts I love the most are when the writer gives some outlandish idea and then says "What does everyone think?"  I now have an almost bullet proof rule of thumb that any post that solicits an opinion at the end is, by definition, an awful post... if I could bet on this, I'd be cleaning up.

I was listening to WFAN radio's Steve Summers on my commute home today and he had Ron Guidry, ex-Yankee phenom and new Yankee pitching coach on.  When I was in maybe my sophomore/junior year of college, some high school friends and I used to bust on Louisiana Lightning's southern roots by saying that the depth of his pitching intellect was "I throw fastball, I throw slider."  Well listening to him today, I could see we weren't far off.  Summers, one of the funniest listens on the radio (see below) says "Ron, I think I speak for all Yankee fans when I say the best thing you could do is make Randy Johnson and Mike Mussina each five years younger."  Guidry, no lie, starts off his incoherent dribble of an answer by stating, in his best Southern drawl, "You can't make them younger, Steve."  Laughed so hard, I almost ran off the road.  I have a great Guidry story from the pennant race in 1988 involving him, me and a truckload of cheap beer at Daisy Buchanans on Newbury Street in Boston, but that will have to wait for another time to properly set-up.

Summers' best quality is how quick he is on his feet.  He had one comment years ago when a Giant fan called and said he was going to Dallas to see a Giants-Cowboys game that he "hope they do better in Dallas than Kennedy did."  But the best quote, and one the FAN uses as a trailer what must be ten years later, is a caller calling up and going "Steve, I am on my way to a Bris, but first I wanted to talk [Jets] football," Summers interrupts him and deadpans, "[Adam], I am surprised at you, going from pigskin to foreskin."  That's why all these years later, we are still "smoozing under the covers" with him.

In the spirit of Milton Bradley trade,  I am going to cover some Moneyball misconceptions and misunderstandings in my next post tonight or tomorrow morning and speculation about what the Yankees are scheming while they lay in the weeds this offseason.

Greg