Defying the Economics of Baseball
By DAVID LEONHARDT
Jonah Keri is a former stock-market columnist for Investors Business Daily and now a writer for The Wall Street Journal and FanGraphs. Hes the author of a new book, The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team From Worst to First, about the Tampa Bay Rays.
In 2005, a group of investment bankers with little baseball experience took over the Rays and have since turned the team into one of the sports best. (For more on the Rays and their owners, you can read Landon Thomass 2006 article from The Times.)
My conversation with Mr. Keri follows.
Q. A decade ago, Major League Baseball was still pretty hostile to basic economic thinking, like the idea that teams should use data to find undervalued players. But the success of the low-budget Oakland As and Michael Lewiss best-selling book about them, Moneyball, helped change that. Today, some of the biggest-spending teams, like the Yankees and Red Sox, are infused with analytical thinking.
So how did the Rays (with a 2010 payroll of about $72 million) finish ahead of the Yankees (2010 payroll: $206 million) and Red Sox (2010 payroll: $162 million) in two of the last three seasons? What is their edge the extra 2 percent in your title?
Mr. Keri: The Rays look for that extra 2 percent absolutely everywhere. There are all the basic baseball ideas, of course. They dream up ways to build an optimal lineup and they put relief pitchers in position to succeed against certain types of hitters, just like every other team does. But in the Rays case, they go much deeper. The manager, Joe Maddon, is more open-minded and intellectually curious than any other manager in baseball. He regularly meets with the quant guys in the organization, and is willing to make substantive, enduring changes based on their input.
One great example is something called the Danks Theory. Its named after a left-handed pitcher named John Danks, a change-up specialist whos often tougher against right-handed hitters than left-handers, which is unusual in baseball. Erik Neander, the teams co-head of R.&D. (the fact that the Rays even have an R.&D. division, as if theyre Google or Apple, says a lot), met with Maddon and suggested that the Rays start same-handed hitters against pitchers like Danks. And it worked. Maybe strategies like these amount to two or three wins a season. But when youre competing against the two biggest, baddest, richest teams in the sport in the Yankees and Red Sox, every little edge counts.
Its really much more than an on-field idea, though. For instance, the Rays hold more postgame concerts than any other team in baseball. There are some fairly significant costs to staging a concert, but theyve crunched the numbers and found that the attendance boost makes it well worth the added cost, and hassle. The Rays also offer free parking for carpools of a certain size; that has the double effect of enticing extra fans to the park and making sure the roads and parking lots around the stadium arent painfully crowded.
People have asked me, What do the Rays do that absolutely no one else does? Its tough to pinpoint one thing. But its that collection of 2 percent edges that adds up to a lot in this case, two AL East titles in the past three years, and a ball club whose franchise value has skyrocketed in the five-and-a-half years since Stuart Sternberg and his partners took over.
Q. You explain in the book that the Rays were one of the first teams to take seriously all the new measures of fielding ability. Traditionally, fielding skill had been extremely hard to measure well. But the new metrics seem to do a pretty good job, and the Rays used them to help them build a great defensive team in 2008.
Can you think of any similar situations in the stock market or finance generally or the economy? That is, are there forces we know are hugely important even if we dont yet know or are still learning how to measure them?
Mr. Keri: The thing about the Rays, or any baseball team worth its salt, is that theyre two steps ahead of whatever new measures people are discussing in public even ahead of some of the best think tanks like FanGraphs or Baseball Prospectus. A financial world comparison would be how the stock market responds to economic conditions well before those conditions are obvious to the masses. The Dow hit bottom in early 2009, then started this huge uptrend thats still going strong today. At the time the market hit bottom, everything looked terrible. Unemployment was rising, the housing market looked awful, and of course we were just coming off a Wall Street meltdown that, were it not for government intervention, might have torpedoed the entire world economy. But the market sees things that you and I cant.
Q. Should Tampa even have a baseball team? Yes, the Tampa/St. Petersburg/Clearwater metropolitan area has the 23rd biggest economy in the country, according to the Commerce Department. But some metropolitan areas without teams, like Portland, Ore., and San Jose/Sunnyvale/Santa Clara, Calif., have larger economies. And the Rays have not drawn well 22nd out of 30 home teams in attendance last year, despite being so good.
Mr. Keri: There are many reasons not to move the Rays out of St. Petersburg. For one, the team has seen marked improvement in attendance over the past three seasons, as compared to the franchises down years. For another, there may be reason to believe attendance will continue to improve in the ensuing seasons, as casual fans finally come around to the idea that the team doesnt stink anymore, and more importantly, as local unemployment retreats from 12 percent, which ranks among the highest in the nation.
If you want to specifically discuss the ones you mention: San Jose might get the Oakland As soon anyway, at least as soon as Major League Baseball relaxes its asinine territorial rules (which give the San Francisco Giants the right to veto an As move to San Jose). Portland has been down this road several times with no success, and it just lost its Triple-A team. Its tough to see Portland suddenly turning around and packing a big league ballpark.
Q. What are the lessons from the Rays success for other small-market teams? If you were a fan of the Pittsburgh Pirates or Kansas City Royals perhaps the two worst teams in recent years how would you want your team to find its own edge over those with more resources?
Mr. Keri: The Pirates and Royals are actually on the right track; you just have to squint a bit to see it. The major publications unanimously voted the Royals farm systems to be the leagues best this year. The Pirates, meanwhile, own a strong core of young hitters already on the major league roster, with a pair of front-line pitchers drafted out of high school with the potential to help down the road. So yes, basic, meat-and-potatoes scouting and player development should play a pivotal role in both teams potential revival.
Beyond that, both the Pirates and Royals need to keep their eyes open for opportunities to gain those 2 percent advantages. The core of the Rays roster right now isnt just David Price, Evan Longoria and other high draft picks turned homegrown stars. Its Ben Zobrist and Dan Johnson and Joel Peralta and yes, even Manny Ramirez players acquired for substantially less than market value, at just the right time. Even the best farm system in the game wont be enough to make the Royals a World Series team; theyll need to aggressively seek out those other opportunities.
There is one other ray of hope (so to speak) for Pirates and Royals fans, though. They dont play in the American League East, where the Yankees and Red Sox will continue to be nightmares every year, the Toronto Blue Jays are underrated and even the Baltimore Orioles are pointed in the right direction. It might be time for Major League Baseball to abolish the divisions all together and create balanced schedules across the board. On the other hand, by leaving the divisions intact, it would be that much sweeter if the underdog Rays toppled their loaded opponents and shocked the world yet again.