Paul is correct that sports team are not necessarily focused on
winning. Perhaps the greatest irrationality was the exclusion of
blacks.
This particular article points to something else -- namely, the
irrationality of executive salaries. Beane refused to accept Macha's
money demands, whereas corporations give the executives whatever they
want.
I don't know how much managers add to baseball teams. I suspect that
they are not nearly as important as good players. I am under the
impression that they mostly act as babysitters for spoiled
millionaires.
On Thu, Oct 05, 2006 at 02:42:06PM -0400, Paul wrote:
> What am I missing? Moneyball has quite a following among neoclassical
> micro-economists and many of its founders and proponents were
> economists. Yet, like neoclassical micro, it seems to miss the elephant in
> the room and is more about ideology than actual practice.
>
> As I understand it, advocates of Moneyball, sabermetrics and the rest see
> large discrepancies between their statistical models of optimum baseball
> team strategy and what teams actually do. They say that most of this
> difference is due to an outmoded mix statistic priorities/models and that
> their technocratic techniques can fix this.
>
> No doubt some of the discrepancy is due to their better statistical
> ideas. But it seems to me there is a far larger divergence from "optimum
> efficiency" because baseball is a business - "irrational" decisions are
> taken so as to increase total profit (or sometimes just shareholders
> profit). And, in many cases, the old fashioned mix of statistical
> priorities (which largely included the same factors but in a different mix)
> more closely reflects the goals of the teams' owners (although not the fan).
>
> Profit partly comes through winning games ("optimum efficiency") which can
> boost revenue. BUT it also comes through other considerations such as
> boosting market appeal by favoring play that is exciting albeit
> "sub-optimal". AND one can just lower costs (rely on revenue sharing,
> drafted young players who, like "illegal" immigrants or workers in an
> outsourced location can't "feely" negotiate, etc). Each team's market has
> its own conditions that produce that team's profit maximizing mix of such
> factors (winning games, flashy play, low costs, etc).
>
> So, for example, Moneyball is right to emphasize the value of walks rather
> than just hits ('on base percentage' rather than 'batting average'). But
> *in some markets* the excitement of extra hits will bring in more revenue
> than if the team moves from 15 games behind 1st place to 12 games behind
> through gaining extra walks. Likewise, it may be true that trying to steal
> bases is not smart, but for teams adopting low-wage strategies, having an
> aggressive running game helps cover up the fact that your business plan is
> to finish last. Similar caveats apply to "small ball" and "forcing high
> pitch counts vs free swinging home run hitters.
>
> For my purposes, baseball analogies offer the opportunity to show how the
> profit motive can force on us losing and "inefficient" overall
> strategies. "Moneyball" when its pretending to be the owner's best
> strategy misleadingly distracts from that point.
>
> It reminds me of the "Capital Controversies". The real point is that it
> shows how normal market forces will routinely lead companies to choosing a
> mix of production technologies that produces less for society as a whole -
> but gives the owners greater profit - i.e. capitalism inherently gives us
> sub-optimal technologies. Instead, the insiders of Cambridge England,
> enamored with their math, emphasized "reswitching" - an insider's
> technological point that, by itself, just initially focuses on how
> marginalist capital theory is wrong. No surprise that the debate died out
> without much impact.
>
> Paul
>
>
>
>
> At 06:00 PM 10/4/2006 -0700, you wrote:
> >This article is interesting for what it says about executive wages and
> >what it didn't
> >say. If you scroll down to the reference to $400,000, the article says
> >that the
> >higher executive wage will hurt the team by reducing the money available
> >for the
> >workers. I wonder they are teaching this at the Stanford Business School.
> >
> >Leonhardt, David. 2006. "Why C.E.O.'s Aren't Sitting in the Dugout." New
> >York Times
> >(4 October).
> >"Just over a year ago, the man who held the purse strings at a private
> >company
> >outside San Francisco began negotiating a new employment contract with the
> >executive
> >who ran the day-to-day operations. The company had recently turned
> >around, thanks in
> >part to the executive, and the company, understandably, wanted to keep
> >him. It
> >offered him a salary of almost $1 million a year, which it considered in
> >line with
> >the market."
> >"The executive asked for almost $1.4 million. But the company wouldn.t
> >budge. Its
> >message was simple: We like you and we want you to stay, but that doesn.t
> >mean you
> >can name your salary."
> >.Anytime you.re running a business, you have to set a value on employees
> >relative to
> >your business,. the part-owner in charge of the negotiations told me a
> >couple of
> >weeks ago. .And before any negotiation starts, you have to consider your
> >alternatives..
> >"So the executive and the company parted ways. It started interviewing other
> >candidates, and he began interviewing for similar jobs elsewhere. Until the
> >situation took an unexpected turn -- and more on that later -- an
> >otherwise good
> >relationship looked as if it was going to be ruined by money. We know
> >these details
> >because the company in question was not an ordinary private company. It
> >was the
> >Oakland A.s. The part-owner was Billy Beane, perhaps the best-known
> >general manager
> >in baseball. The executive was the team.s on-field manager, Ken Macha."
> >"One of the many baseball fans following this story last October was a
> >retired banker
> >named Robert L. Joss, who had become the dean of Stanford Business School
> >after
> >having been a vice chairman of Wells Fargo and the chief executive of an
> >Australian
> >bank. As he read the local newspaper accounts of the breakup between Mr.
> >Beane and
> >Mr. Macha, Mr. Joss was struck by a thought: "You.d never see this in
> >corporate
> >America."
> >"It.s difficult, in fact, to come up with a single example of a company
> >and its chief
> >executive splitting up over pay. Chief executives retire and are
> >fired. But as long
> >as they remain on the job, they evidently don.t end up disagreeing with
> >their boards
> >about how valuable they are. The negotiation over a chief executive.s pay
> >is one
> >that never seems to fail, which, of course, means that it isn.t much of a
> >negotiation
> >at all. It.s more like a friendly conversation."
> >"But the Ken Macha story is a wonderful allegory because it highlights a
> >more subtly
> >human problem with pay. When directors at a big company think they have
> >found the
> >right person for the job, they persuade themselves that no one else on
> >earth could do
> >it as well. They basically fall in love. Once that happens, almost no
> >price seems
> >too high."
> >"The Oakland A.s, however, can.t afford to fall in love. Their modest
> >budget allowed
> >them to spend just $62 million on players this season, compared with the
> >Yankees.
> >$200 million payroll."
> >"The contrast between this hard-headed approach and corporate America.s
> >cult of
> >personality was especially clear to Lewis Wolff, the A.s 70-year-old
> >managing partner
> >who was both Mr. Beane.s and Mr. Macha.s boss. Before buying the A.s last
> >year, Mr.
> >Wolff ran 20th Century Fox.s real estate division for a time, and he now
> >sits on the
> >boards of two New York Stock Exchange companies. .At my advanced age,.
> >Mr. Wolff
> >said, laughing, .I.m learning from Billy..
> >"Billy -- as Mr. Beane is almost universally known -- understood that Mr.
> >Macha had
> >real value as a manager. He helped the A.s overcome a dreadful start in
> >2005 and go
> >on a late-summer run that nearly won them another division title. But Mr.
> >Beane also
> >understood that the additional $400,000 a year his manager wanted was
> >$400,000 the
> >team wouldn.t be able to spend on a player who could make the difference
> >between
> >second place and first."
> >"So the team held firm, and one year ago this week, after the 2005 regular
> >season
> >ended, Mr. Macha returned home to the Pittsburgh suburb of Export, where
> >he began
> >looking for a manager.s job with another team. On the plus side, the
> >teams with
> >openings generally gave their manager more of a say than Mr. Beane.s
> >carefully
> >proscribed system did. But these other teams also weren.t very good, and
> >there was
> >no guarantee that Mr. Macha would get one of the jobs anyway."
> >"A week later, Mr. Macha received a handwritten note from Mr. Wolff.
> >.You.ll be
> >successful at anything you do,. it said, according to Mr. Macha. .Thanks
> >for a great
> >season.. The letter caused Mr. Macha to reconsider. That night, he
> >called Mr.
> >Beane, and they had a conciliatory conversation that ended with Mr. Beane
> >saying,
> >.What can I do to help you?. Within a few days, they signed a deal very
> >similar to
> >the one the A.s had originally offered."
> >"This season, despite a rash of injuries, the team built by Mr. Beane and
> >run by Mr.
> >Macha won its division again. While the Boston Red Sox (payroll: $120
> >million), Los
> >Angeles Angels ($103 million) and San Francisco Giants ($91 million) have
> >all been
> >eliminated, the A.s beat the Minnesota Twins, 3-2, in the first game of
> >the American
> >League playoffs yesterday. The two teams play again this afternoon."
> >[The A's won again.]
> >"As Mr. Joss, the Stanford dean, sees it, there is more than one lesson to
> >the story.
> >Certainly, board members should realize that no employee is
> >irreplaceable. But they
> >should also remember that they have great leverage in pay negotiations,
> >because being
> >a chief executive -- like being a big-league manager -- is an enormously
> >appealing
> >job."
> >.Not only is it good economically, but it.s meaningful work: The executive
> >is doing
> >something he loves, and he is part of something,. Mr. Joss said. .You
> >wonder how many
> >C.E.O..s would really leave these jobs..
> >
> >
> >
> >--
> >Michael Perelman
> >Economics Department
> >California State University
> >Chico, CA 95929
> >
> >Tel. 530-898-5321
> >E-Mail michael at ecst.csuchico.edu
> >michaelperelman.wordpress.com
--
Michael Perelman
Economics Department
California State University
Chico, CA 95929
Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu
michaelperelman.wordpress.com
