The underlying concept of Moneyball really wasn’t about money.Ã‚Â It was about smarts.
Michael Lewis’ influential book Moneyball: The Art of Winning an Unfair GameÃ‚Â (2003) chronicled the use of advanced statistical analytics by Oakland A’s General Manager Billy Beane. Beane’s basic premiseÃ‚Â was that small-market teams could compete against the big money stacks in baseball by using what Lewis called Moneyball.Ã‚Â 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.Ã‚Â 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.