2013 Reds / Reds - General

Real Moneyball

The underlying concept of Moneyball really wasn’t about money. It was about smarts.

Michael Lewis’ influential book Moneyball: The Art of Winning an Unfair Game (2003) chronicled the use of advanced statistical analytics by Oakland A’s General Manager Billy Beane. Beane’s basic premise was that small-market teams could compete against the big money stacks in baseball by using what Lewis called Moneyball. One famous example was placing emphasis on a player’s on base percentage (OBP) instead of his batting average.

But really, Moneyball was about being smart. An organization didn’t have to be cash-poor to take advantage of OBP. Smart organizations did, whether rich or poor.

And eventually, inefficiencies get solved by the market. Today virtually every major league franchise, from the Pirates to the Yankees, has adopted the specific lessons of Moneyball. Even the Cincinnati Reds (finally!) seem willing to pay for players with high OBP.

Because the OBP window has closed, teams have looked for other strategies to get ahead of conventional wisdom, such as placing value on players with above average defensive skills as a way to prevent runs. Of course, the cash-rich teams eventually outbid the rest for those players in the free agent market. After all, whether you’re rich or poor, it’s good to have money.

In the short term, the advantage goes to the team with smarts. But there’s a good chance the next Moneyball will be about money itself.

You see, baseball teams are suddenly awash with new cash, including the Cincinnati Reds. National television contracts and MLB’s advanced media arm will provide each franchise tens of millions of new dollars in the next few years. For example, MLB recently finalized the next set of contracts for its national television broadcast rights. The league signed 8-year agreements with ESPN, Fox Sports and TBS who will pay baseball a combined $12.4 billion. Split equally among all 30 clubs, the Reds share is $50 million/year, compared to the current contract’s $24 million/year.

The Reds will also benefit financially from the league’s new revenue sharing program established in the 2011 collective bargaining agreement. Attendance figures at GABP grew by 133,000 in 2012 over 2011, providing another $7 million in estimated revenues. The experience of teams like Milwaukee shows that clubs have been able to sustain attendance growth as long as they continue to put successful teams on the field. Playoff participation also generates new revenue.

As most of you know, the Reds will be renegotiating their local media contract in the next few years. Examples from San Diego and Cleveland give every reason to believe the new agreement will bring the Reds tens of millions in new revenue.

Bottom line: Over the next five years or so, the Reds can reasonably expect $100 million in new revenues. To put that in perspective, the overall estimated income for the Reds in 2011 was $185 million.

If ownership follows through on its promise to invest new revenues back into the club — and they have shown every indication they will — the Reds payroll could exceed $160 million by 2017.

Back to the next version of Moneyball – money. Every major league team will benefit to some extent by this new cash infusion. The next market inefficiency will be clubs that are slow to recognize the reality of it. The faster teams like the Reds adapt, the more effectively they will behave.

We’ve already seen important signs that the Reds get it: the Votto, Bruce and Phillips contracts; the talk of signing Mat Latos and Homer Bailey to extensions; and the expanded overall payroll from $82 million in 2012 to around $100 million in 2013. Scouting and player development remain crucial, because the Reds will continue to be outbid by the likes of the Dodgers, Yankees, Phillies and Harpers in the free agent market.

But by using their new revenues to hold on to the players they develop within the organization, the Reds will be practicing Real Moneyball.

26 thoughts on “Real Moneyball

  1. Very astute analysis, Steve. I would think any professional sports league with a global audience (MLB, NBA, Champion’s League) will see significant growth in revenues over the next 20 years. If there ever was a time to assume future revenues when making current plans, now is it.

    Time to lock up Bailey, Latos, and Mesoraco (after he tears it up this year).

    • @Sultan of Swaff: Live broadcasts are where the (advertising) money is. With destination viewing in decline due to DVRs and online programming, live events (American Idol, sports, etc.) offer advertisers the best opportunity to be seen. MLBs contracts are locked in now through 2021. I agree that it’s hard not get excited about Mesoraco given the spring he’s having. Hope he can continue it into the regular season.

  2. I’m not sure if I agree that the Votto and Phillips deals show that the Reds “get it.” Given their ages and the lengths of the contracts, they could very well end up as massive overpays whether the Reds end up with an influx of new cash or not.

    • @Aaron: I share your skepticism about the long term contracts, particularly Phillips. But on the other hand, part of the point here is that those contracts aren’t as burdensome in a world where the Reds have a $160 million payroll. We were all sort of stunned by the Phillips extension, but I think we were mostly looking at it in the context of a $100 million payroll.

      Votto’s $25 million salary in 2018 will represent 15 percent of club payroll. Compare that to Aaron Harang (16 percent in 2010), Coco Cordero (15.6 percent in 2011), Barry Larkin (20 percent in 2002) and Ken Griffey Jr. (28 percent in 2001).

      Part of the new Moneyball is recalibrating our concept of what an “overpay” is. Salaries will explode over the next few years. So will the average cost of WAR.

    • @Aaron: I agree the Phillips contract will likely haunt us in the last couple of years, but BP’s been a very consistent player and if he can make a full transition from power hitter to slap singles hitter I could see him at least being a valuable position player in those last couple of years. Worth $15-18 mil, maybe not but still a solid contributor. The Votto contract is something that could go multiple direction even predict. After he got injured last season I realized it could become a regular thing later on, especially something with the knees, but assuming he stays healthy I know Votto will still be putting up MVP-type numbers for at least three more years, and All-Star numbers for another three or four. After that, we’ll be paying for a solid contributor (hopefully), but by that time, with the way the player’s payroll is growing so rapidly, we may be paying him a league average or slightly above league average starting first baseman’s salary.

      • MikiLove: Assuming he stays healthy I know Votto will still be putting up MVP-type numbers for at least three more years, and All-Star numbers for another three or four. After that, we’ll be paying for a solid contributor (hopefully), but by that time, with the way the player’s payroll is growing so rapidly, we may be paying him a league average or slightly above league average starting first baseman’s salary.

        Exactly.

  3. That is a great abbreviated version of the article in the Annual. Imagine the enjoyment of that article three times longer with much more analysis. The Annual is worth Steve’s article alone.

    • @TC: Thanks. I wrote the article for the Annual back in December and part of the deal was we had to refrain from covering the same ground at the blog. I’ve been anxious to start the discussion of the Reds financial situation, because the changes in the past year or so have been profound. I’ll post again soon about the upcoming local media contract. Cleveland’s new deal has become finalized since I wrote the original piece, which gives us another data point for guessing where the Reds will end up with Fox Sports Ohio (assuming that’s our ongoing broadcast partner).

  4. Nice post, Steve. Especially about the money part, IMO. That’s one reason why, IMO, I don’t think we will see BP here for his entire current contract. I myself can’t help thinking, not knowing of every single player in the organization, Henry Rodriguez has been coming along in recent years. Not unless there is another 2nd baseman coming up behind Rodriguez, if Rodriguez continues his development, with BP losing a little bit of speed and power each season, I can’t help thinking how could you eventually keep Rodriguez off of the major league team?

    Don’t get me wrong. I am a BP fan. But, if there is a player coming along with just as good numbers (definitely should have these first) that would cost so much less, allowing us to put that money elsewhere, I can’t keep from thinking how they will let BP go somewhere and bring up Rodriguez. I’m not talking it will be this season. Possibly next season. But, by 2015, if Rodriguez has kept up his development, how could you not pull the trigger somehow with this?

    • @steveschoen: See my above reply about BP. But I agree that it may make sense in the future to look to trade him. Rodriguez is going to have to learn how to catch the ball if he’s going to be the one. But if not him, it could be someone else.

      • @Steve Mancuso: You’re not kidding on Rodriguez learning to catch the ball. His defense has been brutal when I’ve seen it… As far as BP, I think I’m right there with you as far as your thoughts above.

        • @LWBlogger:
          Oh, geez, yes, you both are correct. I just saw his fielding percentage this ST, 0.821. Not too hot. To put some hope there, for his career in the minors, his fielding has been 0.961, much more respectible. Don’t know if he is experimenting with something or if he has even worked on any defense.

        • @steveschoen: Yeah, not to pile on about the kid, but from what I’ve heard during the broadcasts, his lapses haven’t been just physical, either. He failed to cover first on a sac bunt, so Arroyo’s throw to first went down the right-field line. He also has been unable to complete a few DPs because of poor throws to first.

        • @Brian Van Hook:
          Confirmed. For everyone, I perfectly understand. But, then, remember, that is why I specified “I’m not talking it will be this season. Possibly next season. But, by 2015, if Rodriguez has kept up his development. . .”

          So, don’t get me wrong. I wasn’t talking about this season at all, only possibly next season. I want BP now and I want to see him next season. But, “if” Rodriguez is ready by 2015, I would have to pull the trigger.

  5. From your article, “Scouting and player development remain crucial, because the Reds will continue to be outbid by the likes of the Dodgers, Yankees, Phillies and Harpers in the free agent market.”
    Not only is this going to be crucial as you say, it is going to be the lifeblood of all the small and mid-market teams. Scouting in the colleges and high schools, scouting in Latin America and Asia, then having a good draft resulting from that scouting, and then developing those draftees into MLB level talent as they rise through the minor leagues. Then more scouting at the MLB level. Have to have good and precise scouting reports on the teams the Reds will be playing. (Too bad Marge Schott ran the Reds like her used car lots.) And all that takes alot of money. It takes alot of good money to have good people in those scouting and front office positions. And now you have got to have good numbers crunchers in those high-tech positions that is called sabremetrics. I just hope the Castellinis never run out of benjamins ($$$).

  6. As an aside, the Reds are up 7-1 over the M’s in the bottom of the 4th. Whoops make that 7-3 and Moralas singled and Morse homered off of Homer.

    Cozart is 2-3 with 2 RBI and Phipps is 2-3 w/ an RBI… Mesoraco had an RBI knock.

  7. And just like that, the lead is gone. Clay Hensley (pitched for the Giants last year), is getting roughed up.

  8. The Reds’ local TV negotiations will be interesting. Right now, the Reds aren’t getting nearly enough. Cincinnati is unique because while the Cincinnati TV market itself isn’t all that large, the fan base includes Louisville, Lexington, Huntington, Columbus, Indianapolis, and Dayton, with some cross pollination of fans of other teams in some of those places. Almost every other team runs into another major league team (think Pittsburgh to Cleveland to Detroit, for example), or just doesn’t have that many other ancillary markets. (Atlanta is similar, but the southern cities are further away than the cities close to Cincinnati.)

    Maybe the Reds will take a partial ownership in the regional provider, rather than just take an annual payment.

    The article in the Annual was excellent, Steve.

    • @Big Ed: Thanks. The one big advantage to ownership equity (as opposed to fixed cash payments) is that media ownership profits don’t have to be shared in the league revenue sharing. MLB views revenues coming from ownership as “media earnings” not “baseball earnings.” This has allowed other clubs (Dodgers, Rangers for a couple examples) to shield part of their money from the one-third sharing provision. The Yankees’ YES Network is another example.

    • @redsfanman: I don’t know how that will effect future TV revenue streams, bit I do know that it peaves me off that I can’t listen to the games on WLW online or I Heart Radio.

      • @redsfanman: I don’t know how that will effect future TV revenue streams, bit I do know that it peaves me off that I can’t listen to the games on WLW online or I Heart Radio.

        The $20 bucks for the whole season of the MLB.com audio is one of the best deals around.

        It includes every MLB game, home and away broadcasts; and, the games are archived so you can listen to them anytime you want, not just in real time.

        I particularly like the archive feature for going back to catch the beat reporters’ second inning sound bytes plus calls that were the high point of a game. And hey, if you want to try and develop or tweak your ear for Español, the spanish language broadcasts of several teams are also included in the archive.

  9. Here’s the thing I want to know about this new moneyball concept: With all these teams being awash in cash, does this mean that player salaries are set to skyrocket as well? It just seems like yesterday when everyone was making a big deal about Kevin Brown’s contract, and now look.

    I don’t know, I just envision a lot of diminishing returns for a lot of teams in the near future if they have all this money to throw around. If you’re going to do it, then yeah, I guess you’d better be smart about it. But, this could also mean that contracts like Junior Griffey’s might not spell doom for small market clubs any longer….

    It will be interesting to see how it plays out.

    • @CI3J: It depends what owners do with the money. If most of them spend it on their teams, then yes payrolls and salaries for players will go up rapidly. In five years, contracts where players are earning over $10 million/year will be common. Every team will have one or two players earning $20 million/year.

      As long as MLB maintains a luxury cap with teeth (new post on that soon), then the flood of cash may help equalize the situation a bit. Again, it depends on if the owners spend the money on their teams or whether they pocket it. I can’t imagine the Castellini family won’t spend it on the Reds. And that means player salaries, mostly.

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