Moneyball and the Evolution of Information
The much anticipated release of “Moneyball“, the film adaptation of the Michael Lewis book of the same name, has spurred many into taking a retrospective look at how exactly the Oakland Athletics of the early 2000s achieved their success. Before going into it, a quick recap: Starting in the early 1990s, but beginning in earnest in the late ’90s and early ’00s, the Oakland A’s began to take a more systematic approach to evaluating players. This new approach, which was rooted in scientific research from baseball outsiders like Bill James, allowed the A’s to have a sustained run of success despite working with a shoestring payroll.
How did they do it? The short story is that they figured out two things–one, that On-Base Percentage (OBP) was more indicative of a player’s offensive contribution than any other stat, and two, that the rest of the league had no clue that this was true. Other teams throughout the league were doing what they had always been doing to score runs, which was paying money to bring in players who produced a certain number of home runs, runs batted in, stolen bases, etc. These teams put a monetary value on each of these statistics, and paid players according to them. What the A’s did was re-think how players contribute to scoring runs for the offense, and came to the conclusion that simply getting on base was the most important thing. While other teams were paying for home runs and runs batted in, the A’s were placing a high value on things that other teams didn’t–getting on base. With other teams valuing players the way they had been doing throughout history–that is, incorrectly–the A’s had an opportunity to place their own monetary values on each player, and extract value from places where it had not previously been realized.
The basic tenet of the book–the search for undervalued assets–is often lost among the community at large. The A’s have been ridiculed for years by traditionalists who believe that the “Moneyball Philosophy” simply doesn’t work. But the principles found in the book apply just as well to the real world as they do to baseball. The fact that the A’s have NOT been successful the last several years is because of how widespread their philosophies have become. Today virtually every baseball team, and even several hockey and basketball teams, employ statistical analysts to help in the correct valuation of players. To quote the article: “the fundamental principle espoused by the book is that businesses, especially those at a financial disadvantage, need to find market inefficiencies to succeed.” When Michael Lewis wrote Moneyball, the ideas that came out of it instantly became mainstream in the sports world. Any edge that the A’s had soon disappeared, and they were left searching for the new inefficiency.
The speed at which the network of baseball front offices adopted these principles is the very reason that the market for talent has never been more efficient than it is today.
Reference: http://www.slate.com/articles/sports/sports_nut/2011/09/more_moneyball_same_problems.single.html