Moneyball: Twenty Years On – Part One

Unbelievably it is twenty years ago this month since Michael Lewis’s book, Moneyball: The Art of Winning an Unfair Game, was published. (The subtitle is really important as I’ll discuss later.) It is a book, along with the spin-off Hollywood movie starring Brad Pitt, that has had a massive impact on elite team sports around the world and fundamentally changed the way that teams do things. And it has been hugely significant to me, personally. Moneyball quite simply changed my professional life.

              I’ve told the story so many times of how I came to read Moneyball for the first time. I was visiting the University of Michigan at the end of September 2003 to talk about the work I was doing in professional team sport both academically and as a practitioner. I had developed a player valuation system to estimate transfer values of football players. I was being driven to Detroit airport on the Friday afternoon at the end of my visit when the prof who had invited me said “You must read this new book, Moneyball. It’s you but baseball.” I purchased it in the airport at 6pm that evening and, partly due to a delay in my flight to Edmonton to visit a dear friend and fellow academic, the late Dr Trevor Slack, I completed my first read by 6am Saturday morning. I was blown away. I had been advocating a more data-based approach to player valuation and here was someone, Billy Beane, actually doing it at the elite level and creating a winning team on a very limited budget. A real-life case study of what I came to call a “David strategy” – a smart and financially sustainable way of competing against financial giants. Remember those were the days where my local club, Leeds United, were on the brink of bankruptcy thanks to a financial strategy based more on a roll of the dice than rational calculation. Smart thinking wasn’t much in evidence in that particular boardroom.

              It’s no surprise really that Moneyball is a baseball story in the sense that the first analytics-based approach in a team sport was always most likely to occur in a striking-and-fielding sport such as baseball or cricket for one very simple reason – the ease of data collection. At the core of a striking-and-fielding sports is the one-on-one contest between pitcher/bowler and batter, easily recorded by paper-and-pencil methods. Hence, the essential performance data for baseball and cricket have been widely available from the earliest days. As a consequence, you do not need to be an “insider” working at the elite level of these sports to be able to analyse the data.  Any fan with an interest in analysing baseball and cricket data has been able to do so. For example, Stephen Jay Gould, the evolutionary biologist who developed the theory of punctuated equilibrium (and, incidentally, was a visiting undergraduate student at the University of Leeds), devoted a whole section of his book Life’s Grandeur: The Spread of Excellence from Plato to Darwin (Jonathan Cape, London, 1996) to the evolution of performance in baseball, particularly focusing on why no one has posted a batting average over 0.400 in the MLB since Ted Williams in 1941. Of course, the baseball fan par excellence with an interest in analysing the data is Bill James and it was his analysis more than anything that inspired Billy Beane and the Oakland A’s.

              The technical essence of Moneyball is the use of on-base percentage (OBP) as the primary hitter metric for player recruitment. James had shown that OBP is a much better predictor of game outcomes than the two traditional hitting metrics – the batting average and the slugging average – which both only allow for the batter’s ability to hit their way to base and take no account of their propensity to be walked to base. James actually proposed combining OBP and the slugging average i.e. On-base Plus Slugging (OPS) as the preferred hitting metric. Effectively, conventional baseball wisdom treated walks more as a pitcher error or a pitcher risk-averse tactic rather than allowing for the hitter skill of selecting which pitch to swing at and which to leave. It was this perception of walks that opened up the possibility of a “free lunch”. In economic terms, by using hitting average and slugging average to value hitters and ignoring OBP, the baseball players’ labour market was being inefficient. It would be possible to buy runs more cheaply by targeting hitters that had good hitting/slugging averages but with a high propensity to be walked to base. If this latter skill was not valued by the market, it could be bought for free.

              Moneyball soon found its way onto many business school reading lists as a real-world example of the efficient market hypothesis (EMH) which proposed that there is an inherent tendency for markets to eliminate informational inefficiencies where available information is being used incorrectly. As soon as one trader recognises the inefficiency, they will exploit it by buying under-priced assets and making a profit. In the case of Billy Beane, he acquired under-valued hitters that meant that Oakland could punch way above their financial weight, buying more runs from their limited budget by being smarter than other teams in valuing the win contributions of players. And, in retrospect, it is no surprise that it was Michael Lewis who wrote Moneyball since he started his professional life as a financial trader, well aware of how to use information to profit in markets. No wonder the story of Billy Beane and the Oakland A’s appealed to him. It is a story of enduring appeal not only for baseball but all team sports and, indeed, for any organisation trying to find a David strategy to gain a competitive advantage by being smarter in their use of data. I will discuss this enduring appeal further in Part 2 next week.

Read Other Related Posts

• Applying Moneyball to Football: The Science of Valuing Footballers, Dec 2004
• Taking on the Sporting Goliaths, Jan 2005
• Beyond Moneyball, 3^rd Sept 2015
• The Real Lessons of Moneyball, 7^th Sept 2016