April 13, 2009


What Moneyball Missed: The blockbuster book that has transformed sports did not give baseball enough credit for creating the conditions that the A’s were able to exploit. (Adam Fleisher, April 3, 2009, American)

Moneyball missed something. That something is known as the reserve clause.

The problem with likening the market for baseball players to an equity market is that the former is not a genuinely free market. The reserve clause binds players to the team that drafted them for the first six years of their career; during this time they cannot become free agents and sell their services to the highest bidder. So the intrinsic value of a highly productive player will rise, but he will not necessarily be paid his market value until he has completed his “indentured servitude” (as Lewis termed it). Thus it is not surprising that while payroll cannot tell us anything about wins, it does a pretty good job of predicting a team’s average age: young players are much cheaper.

To understand how much the reserve clause matters, let’s look at the young talent on the Oakland squad Lewis chronicled. Shortstop Miguel Tejada hit 30 home runs for the low, low price of $290,000 in 2000. Two years later, when he won the American League MVP, he made only $3.5 million (I know, but it’s all relative). His free agent contract, which he signed with the Baltimore Orioles after the 2003 season, was for $72 million over six years. Eric Chavez (whom the A’s actually did sign to a long-term market-value contract in 2004) produced 32 home runs in 2001 for $625,000.

Mark Mulder, Tim Hudson, and Barry Zito, the A’s “big three” pitchers, led the team to the 3rd, 2nd, 1st, and 1st American League ERA ranking, respectively, from 2000 to 2003. In 2001, when the A’s won 101 games, the combined salary of Tejada, Chavez, MVP-runner up and all-star first baseman Jason Giambi, Mulder (21 wins), Hudson (18 wins), and Zito (17 wins) was under $8 million. In the first year after each player’s “indentured servitude” ended, the six made a total of $43 million. The A’s won even though they were poor because they did not have to pay their young players what they were worth.

Giambi, who won the MVP in 2000, epitomizes the economics of baseball. He joined the Yankees as a free agent after the 2001 season. In that first year with his new team, he made more in salary than in the seven years he spent in the A’s organization combined. This turned out to be some deal for Oakland. As the San Francisco Chronicle’s Vlae Kershner recently pointed out, Giambi produced about half of his career home runs and RBIs in an A’s uniform. For that output, the team paid about 9 percent of his career earnings (up to the end of last season).

Just as the A’s could not have afforded to compete without the reserve clause during their “moneyball” run, no small-market team could compete without it today. [...]

Moneyball was not wrong, necessarily. It just did not give Major League Baseball enough credit for creating the conditions that the A’s were able to exploit. And when Beane took over in Oakland there were indeed an embarrassment of inefficiencies. With the reserve clause, the A’s were not only able to buy and hold young talent, but were also able to find undervalued mid-level free agents because the rest of the league threw their money at the latest huge stars to finally hit the market.

Also, thanks to the reserve clause, it did not matter when everybody eventually caught on to what the A’s were doing. Last year, as the A’s were suffering through their second mediocre season in a row, Baseball Prospectus’s Christina Kahrl argued that it was finally happening—there were no more valuable players whose market value had dropped. “Scaring up useful players from among journeymen and minor league veterans… gets a lot more difficult when everyone knows to fish those waters,” she wrote. At the time the A’s were jettisoning veterans and getting younger.

And look where we are today. As we have seen this offseason, teams are hoarding young players and are less interested in pursuing free agents. As a result, a number of older, potentially productive players were available at a discount. The A’s have been able to scare up useful aging veterans to plug holes in their lineup. They signed, for example, Jason Giambi, of all people, after he was let go by the Yankees.

In fact. one of Bill James's signal findings was the frequency with which almost any player has his best year of his career, or at least his breakout year, when he is between the ages of 26 and 28 with a thousand at-bats in the majors. This confluence of circumstances is extremely likely to have occurred before a player ever becomes a free agent. Take a young guy who earns a starting job at age 24, after a couple of trials, he'll have his thousand at bats as he's headed into his age 26 season and will be very nearly as productive as he's capable of being for the next three years. He's basically establishing a value as he heads into free agency that buyers ought not expect him to maintain. And yet they'll pay him for it....

Posted by Orrin Judd at April 13, 2009 7:34 AM
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