The Value of Major League Baseball Players an Empirical Analysis of the Baseball Labor Market
Total Page:16
File Type:pdf, Size:1020Kb
HAVERFORD COLLEGE The Value of Major League Baseball Players An Empirical Analysis of the Baseball Labor Market Chris Maurice 4/29/2010 The goal of this thesis was to test the efficiency of the baseball labor market. To analyze the market, I found models to estimate the marginal revenue products of Major League Baseball players. I then compared the estimated marginal revenue products to the actual terms of players’ contracts in the 2009 season. Through this analysis, I was able to find the most over and undervalued players in the 2009 Major League Baseball season. I also was able to identify certain skills that were over or undervalued by the labor market. I noticed considerable differences in market strategy between teams with high payrolls and teams with low payrolls. I was also able to find that players who played above average defense were consistently undervalued. Table of Contents I. Introduction .......................................................................................................................................... 4 II. Literature Review ................................................................................................................................. 5 I. Baseball Between the Numbers: Is Alex Rodriguez Overpaid ........................................................ 5 Ticket Sales ............................................................................................................................................ 5 Concessions ........................................................................................................................................... 7 Luxury Suites and Club Seats ................................................................................................................ 7 Postseason ............................................................................................................................................ 8 Merchandise ......................................................................................................................................... 9 Local Media ........................................................................................................................................... 9 Revenue Sharing ................................................................................................................................. 10 Linear Model ....................................................................................................................................... 10 dTwo Tiere Model ............................................................................................................................... 11 II. Are Baseball Players Paid Their Marginal Revenue Products? ..................................................... 11 Winning Percentage and Revenue Models ......................................................................................... 12 MRP Models ........................................................................................................................................ 13 Conclusions ......................................................................................................................................... 13 III. Salary Evaluation for Professional Baseball Players ................................................................. 14 Home Attendance Model .................................................................................................................... 15 Winning Percentage Model ................................................................................................................ 15 Player Valuation Model ....................................................................................................................... 16 IV. An Economic Evaluation of the Moneyball Hypothesis ............................................................. 16 Batting Statistics .................................................................................................................................. 17 Conclusions ......................................................................................................................................... 17 III. Data ................................................................................................................................................. 18 IV. Model .............................................................................................................................................. 18 Winning Percentage Model .................................................................................................................... 18 Revenue Model ....................................................................................................................................... 20 Page | 2 Marginal Revenue Products for Pitchers and Position Players ............................................................... 22 V. Results................................................................................................................................................. 23 Completed Models .................................................................................................................................. 23 Interpretation ......................................................................................................................................... 23 The Top Ten Undervalued Position Players ............................................................................................ 24 The Top Ten Undervalued Pitchers ......................................................................................................... 27 The Top Ten Overvalued Position Players .......................................................................................... 28 Top Ten Overvalued Pitchers ............................................................................................................... 31 Chone Figgins? The Value of Defense .................................................................................................. 31 VI. Conclusions ..................................................................................................................................... 35 tLow Budge Baseball ............................................................................................................................... 35 tBig Budge Baseball ................................................................................................................................. 36 Undervaluing Defense ............................................................................................................................. 37 Continuing ............................................................................................................................................... 37 VII. Appendix ......................................................................................................................................... 40 VIII. Bibliography ........................................................................................................................................ 57 Page | 3 I. Introduction The intense speculation into the efficiency of the baseball labor market reached a peak with the central claim of the 2004 book Moneyball. In this book, Michael Lewis asserts that Oakland Athletics’ general manager is able to consistently compete with teams with much bigger budgets because the baseball market systematically overvalues certain statistics and undervalues others. While many baseball “insiders” scoffed at this notion, assuming that the authors who used evidence based on math and statistics could never understand the game in the same way and with the same depth as them, a strange thing began to occur. The specific inefficiency pointed out in Moneyball, which is that teams were overvaluing batting average and undervaluing on‐base percentage, started to be corrected. Teams began looking at new and different statistics in order to try to gain a competitive advantage over others. With no salary cap and a growing disparity between the payrolls of the “haves” and “have nots” in Major League Baseball, the value of information that could give a team a competitive advantage is at an all time high. The objective of my thesis is to empirically investigate the efficiency of the baseball labor market. In theory, there are many different ways to accomplish this, but I will focus on finding whether players are paid in line with their marginal revenue products. In an efficient market, players would be paid equal to their marginal revenue product. By doing this, I hope to first find the oplayers wh are most over/underpaid in Major League Baseball. Second, I hope to find some trends in my results, such as that young players are consistently underpaid or superstars are consistently overpaid. The last thing I hope to find in my results is whether certain skills are systematically undervalued in the baseball labor market. For example, if I find that players who play above average defense are consistently underpaid, I could make the conclusion that the market is undervaluing defense. Page | 4 In completing this thesis, I hope to improve on the work of economists before me. By tweaking their models to use more advanced and current statistics, I will add existing work and hopefully add to the debate on the efficiency of the baseball labor market. II. Literature Review I. Baseball Between the Numbers: Is Alex Rodriguez Overpaid By