Is Moneyball Still Working After 20 years?

The book Moneyball: The Art of Winning an Unfair Game was written in 2003 by Michael Lewis. The book chronicled the Oakland A’s and their general manager Billy Beane’s quest to compete against the big market teams. The A’s used statistical analysis of players to “buy” wins by creating a lineup with undervalued players who would produce more wins with a small budget. This book is a must read for any baseball fan.

I decided to do an analysis of MLB team wins over the last 20 years using opening day payroll. I totaled up all the wins and 20 years of opening day payroll data and the results were very interesting. All the teams spent over $1 Billion in payroll and the Tampa Bay Rays spent the least and as expected the Yankees spent the most with $3.5 Billion. The Rays spent the least per win with about $670,000 per win. The A’s spent a little over $700,000 per win. Unsurprisingly, the Yankees paid the most per win at $1.9 Million and the Red Sox were second and $1.6 Million.  I ran correlations between payroll and wins and there was a 68.75% correlation.

In Moneyball, Billy Beane says nothing matters unless you win the last game of the season. He is talking about winning the World Series. If you look at World Series wins, only 13 teams won a series in the last 20 years. Boston won the most with four, the Giants were second with three and the Cardinals and Yankees had two wins. Boston had the lowest cost per World Series win at $725 Million, next the Giants came in at $763 Million, the Cardinals were next at a little over $1 Billion. I ran correlations between payroll and World Series wins and there was a 57.16% correlation which was lower than just wins vs payroll.

The question remains: Does Moneyball work? It seems to work very well in the regular season with the Rays of late winning with on a low budget. The A’s continue to crank out wins year after year. Neither team has won a World Series in the last 20 years. In addition, there are a lot of 90-win teams that get to play one wild card game. Obviously, anything can happen in a one game play wild card game and the best team doesn’t always win. Another problem with the playoffs, is that you only really need three great pitchers but during the regular season if you have five very good pitchers you can rack up a lot of wins. If you are the team with 3 great pitchers, you can beat the team with five very good pitchers.

Here is the link to the data I used for this analysis and it is sorted by cost per win.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

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