Why you should care

Because apparently in baseball, it’s not all about the Benjamins, baby.

This is a very weird championship series. Three out of the four teams still in the game rank outside the top 12 Major League Baseball payrolls, meaning they should be the David to the big guys’ Goliath. But that trend may be reversing — and because of something unlikely. Though it’s all the rage to bash payroll imbalances these days — from the corporate workplace to MLB — the truth of it, says moneyballer Martin Kleinbard, is that salary distortion and the increasing prominence of young, relatively inexperienced players may actually have made it easier for the underdogs to succeed.

Kleinbard, a 28-year-old Columbia MBA graduate, is the author of a bigwig academic paper, presented at MIT Sloan’s major conference on sports analytics — and it sure sounds like more fun than any of our term papers ever did: “Can’t Buy Much Love: Why Money Is Not Baseball’s Most Valuable Currency.” Now a credit and collections manager for American Express, Kleinbard continues to do sports analytics blogging on the side — and he got into the crux of his research with OZY.

This interview has been edited and condensed for clarity.

OZY:

First, how on earth did you get to write a paper like this?

Martin Kleinbard:

It started out as a project in school for an applied regression class. When you’re doing a statistics project, sports are always one of the first things you think about because there’s just so many public statistics available. We were looking at, you know, what’s the relationship between money and wins, and we found this really interesting relationship. We presented a pretty cursory version of that in class.

But then I took it a little further and took a look deeper in the data, more years and then looking at it from the angle of the youth dominance and how that compares, and I said, like, “I’ve actually got something pretty interesting on my hands here.”

OZY:

The conventional wisdom goes like this: Increasing payroll disparity between big- and small-market teams makes it harder for the small guys to compete. Your findings suggest otherwise. Tell us a bit about the conventional wisdom you were upending.

MK:

I think any time you have a belief that’s so steadfast but proven so anecdotally, it’s rife for investigation. And in this case, basically the whole argument was: “Well, the Yankees spend a lot of money. The Yankees win a lot. Therefore payroll inequality is bad.” And as an extension, “Baseball is light-years more unequal than the other sports and if only they just adopted an NFL-style salary cap, that would fix all their problems, and that’s why they’re trailing the NFL in popularity.” And it just spirals out of control, and you get these ridiculous arguments that have nothing to do with each other. So I wanted to take a look at it and see does the relationship hold, and if so, how strongly and how much over time has it changed?

“Money can hide mistakes very easily.”

OZY:

And what did you find?

MK:

Contrary to popular belief, the ability for baseball teams to buy wins is grossly overstated on an absolute level and relative to historical norms, and that is mostly due to the fact that young, pre-free-agency eligible players have become more and more valuable since 1996, and, conversely, older free-agency eligible players have become less and less valuable, which erodes the relationship between players’ salaries and player performance.

OZY:

What’s behind this shift?

MK:

In an earlier era, it was not common to trust younger players with lots of playing time, and now it is. Basically, it turns into a vicious cycle or virtuous cycle, depending on how you’re thinking of it, where younger players are becoming more valuable and older players are becoming less valuable, and you can argue that’s steroids; you can argue that’s a million things. And because there are fewer really good free-agent eligible players, it’s just supply and demand. The price of those goes up a lot. So if you’re in the market for somebody, you’re just gonna say, “Screw it. I’m gonna pay whatever I have to for this guy.” Well, that begins to distort the relationship between spending and winning. You’re not paying the guy what he’s worth. You’re paying for what he used to be worth last year or two years ago or even four or five years ago.

People love examples even though anecdotal evidence can be a little shaky sometimes. Look at the Yankees signing Brian McCann and Jacoby Ellsbury and Carlos Beltran this last year, and paying for past performance. And that always happened, but it hasn’t happened to the degree that it’s happened in the last 15 years. In the previous 15 years, the teams were much more measured and restrained when they made free-agent acquisitions.

a baseball player enters the field of play

Carlos Beltrán of the New York Yankees

OZY:

But doesn’t a big-market team still have a larger margin for error than a team that’s in the, say, $80-million range and has to be a lot smarter with its decision-making?

MK:

Absolutely. No doubt. Money can hide mistakes very easily, and every big-spending team is an example of that. The Red Sox won the World Series with a couple of guys who were really overpaid. The Yankees, when they won the World Series a few years ago, had a couple guys who were really overpaid. When you’re the Rays and you’re locking up Longoria, he really better be damn good, and he better be good for the entire length of that contract. People have asked me, “So are you saying that money doesn’t matter?” No, absolutely not. The model does state something; it just doesn’t state as much as we thought it said.

OZY:

Toward the end of your paper, you offer some recommendations for Major League Baseball that would, in your view, do a better job than the current MLB Collective Bargaining Agreement of further weakening the relationship between money and winning. Tell us about them.

MK:

The free-agent compensation one is really big, because stockpiling those first-round draft picks is a huge advantage for small-market teams — or for anybody, but as we talked about, small-market teams have a greater incentive to stockpile them; if you reduce teams’ ability to do that, you’re really hurting their chances. If you look at any big study of draft picks, you’ll see that just like in every other league, the first round is better than the second round, which is better than the third round overall, so having first-round picks is a big, big advantage.

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