Monday, September 28, 2009

Brief on American Needle vs. NFL

Over at The Sports Economist, Brad Humphreys has a link to an amicus curiae brief by a number of highly regarded Sports Economists including Roger Noll, Andrew Zimbalist, and Rod Fort. All this law lingo messes with my head, so I had to look up what amicus curiae was (thank you Wikipedia). Anyway, it's a private/independent brief that highlights a lot of significant research in the field regarding antitrust and league structure in sport. If you've ever been interested in why there are salary caps, luxury taxes, revenue sharing, league level licensing, and so on, it's a good advanced introduction to these topics. Be forewarned that knowing who Coase is and a very basic understanding of microeconomic theory or policy will help with the reading.

I see a lot of debate by 'message-boarders' over these topics at ESPN, CBS, and other sites without much real understanding of what they're talking about. The discussion pretty much goes nowhere. I generally get annoyed at the misunderstanding of league policies and people pretending to know what they're talking about with such assured arrogance. If you have an opinion, present it as such. Don't act like everything you say is a fact. At this point, I ignore those discussions. If there's one thing I've learned in graduate school, it's that I don't know a damned thing and I try my best not to present myself in a pompous way. If those people annoy you as well, then I'd suggest checking out the brief. It's very informative. The brief is here.

Thursday, September 24, 2009

Disco Hayes

A couple weeks ago I had a post here about Disco Hayes, the 78 mph throwing reliever that's been dominating throughout the ranks of Kansas City's farm system. Well, he apparently writes his own blog at Greg Maddux better start writing something cool or he's going to drop a slot in my Favorite List thanks to this guy. The articles are very knowledgable and articulate. Start with the hilarious fake interview with Matt Wieters.

(Hat Tip: The Book Blog)

Non-Sports Post

Non-Sports posts should be sparse on this site and I plan to follow that rule. However, today I read one of the more articulate explanations I've heard on incentives and investment. I'm generally not a fan huge bailouts of the auto industry or investment firms that take bad risks. What does this really do for us? Responsibility is simply shifted away from those firms and no one learns their lesson. While the bank failings are bad, bailing them out doesn't make us better off in the future, and that's what we should be focusing on now. That is the general idea behind Harvard Professor Jeffrey Miron's Testimony before the House Financial Services Committee. While it's not sports, I think it's an important lesson that can be broadened to numerous places not only in society and democracy, but also the incentives in sports and sports business. Dr. Miron also has a great blog called Libertarianism, from A to Z.

Wednesday, September 23, 2009

Guest Post at Fantasy Ball Junkie

As I had mentioned in my previous post, I had a little something brewing for a new post. However, I guess now I should mention it's a link to my Guest Post over at the Fantasy Ball Junkie. It was posted quicker than expected.

Basically, I tried to develop a statistical category-based ranking system for Head-to-Head Roto-Style Scoring leagues that was independent of schedule strength, luck, and other factors that can plague these types of leagues in certain cases. This isn't an attempt to discredit the league structure, of course, as this throws in a lot of fun with the league and I love the very competitive league I'm in.

While the Composite Z-Score isn't necessarily distributionally sound, I think it can be fairly useful to gauge where luck and schedule strength altered standings in the fantasy leagues. Last year, I got the shaft in my H2H Rotisserie Style League (20-team, 8x8 scoring) and wanted to know why, despite having a fantastic team, I didn't even make the playoffs. This year I had better luck, but there was one team in particular in our league that seemed to end up with the short end of the stick. I really think it's important to understand why your team may or may not have missed the playoffs, as this can help with understanding where improvements in your strategy and roster-building can be made.

Check out the post here.

Busy Week: Interesting Links for Now

So the last week or so has been pretty busy and it's only going to get busier. The lack of posting was probably a pretty good indication of that. I have something in the works coming up for The Prince of Slides, so no worries. For now, I'll stick you with a couple links:

1. Dennis Dodd gives an interesting take on Swine Flu I hadn't thought about before over at CBS. I'd suggest not bothering to read comments by CBS readers...they're generally moronic, offensive, and/or terribly racist. While I'm not a huge Dodd fan, I'd be interested to know the economic hit the school takes by losing a BCS Championship to H1N1.

2. The Sports Economist's Brad Humphreys provides a resource for the ongoing saga that could allow NFL to be given extended antitrust exemption. I haven't followed this very closely, but probably should. The story is here.

3. My San Diego Seduction took the biggest first week loss in the Lingerie Football League, losing to the Seattle Mist 20-6. Get'em next week, girls.

4. Being a sports fan and a nerd rolled into one, I thought this story at ESPN about FBS Quarterbacks transferring to the Ivies was kind of cool. I didn't really hit my academic stride until after college and I really admire kids that look at college athletics like these guys do.

That's it for today. I have to go manage my fantasy baseball team. I'm in the Championship against our 2-time defending champion editor of Fantasy Ball Junkie and THT Fantasy Writer, Eriq Gardner. Wish me luck...I'm going to need it!

Wednesday, September 16, 2009

Business Venture: Lingerie Football League

I don't have much to say, other than: How the hell did I not know this existed? I'm really curious what kind of following this actually has or if it's even a viable business outside Pay Per View television. It's apparently an extension of a successful Super Bowl Halftime ritual. I guess I'm not creepy enough to have heard of it. The website even offers fantasy football using its players. I don't really think this is the best time, economically speaking, to have a start-up arena football league. But I hope I'm proven wrong. I think it would be more entertaining than Arena League. Here's my favorite excerpt from the Wikipedia page dedicated to the newly minted league:

"Play style is full-contact and similar to other indoor football leagues. Uniforms consist of helmets, shoulder pads, elbow pads, knee pads, sports bras, and shorts."

I'm going to choose to root for the San Diego Seduction. You think they have a line on this league in Vegas yet?

Play on, ladies. Play on.

Monday, September 14, 2009

Dallas Stars and Dynamic Demand Models

I found this story the other day on the 'Bizjournals' network. Apparently the Dallas Stars (NHL) have an advanced ticket pricing system that can be updated daily based on things like standings, the opposing team, day of the week, etc. The topic is something I am very interested in: determing dynamic models of demand for sports leagues and how they could be beneficial to both fans and teams as well as league policy. I think this is an important advancement in non-season ticket leagues (basically all but the NFL); however, I'm not sure it's that new. Teams have been known to vary their prices based on the visiting team, as well as offer deals to fans when attendance is not so great--for example, special promotions. The idea is that the team now knows when demand for their product shifts in and out. Perhaps this easily updatable ticket pricing model is more advanced than past ones. I don't really know. I'm curious to see if after the season (or multiple seasons) we could see a change in Stars single game ticket buying behavior.

But that's not really my point here. The team claims that this type of pricing, "offers great benefits to the team and its fans". I don't totally disagree with that. The first part is definitely true: a pricing model like this could be very beneficial to the team. The reason for implementing something like this is not only to find a single ticket price--which could be lower and allow more fans in the gate, or higher, which could maximize profits for the team, especially in a relatively non-competitive atmosphere where the team is a price-setter of sorts--but also so that they have the ability to price discriminate. That's what airlines do when you go to their website and you see the different levels of prices. If given the choice, I take Southwest's "Wanna Get Away" rates. It's the same damn seats for about 1/6th of the price. But as you get closer to the day of the flight, prices increase dramatically, and you might be stuck with "Business Select". They know they can do this because business trips are almost invariably planned closer to the flight than a family vacation and thus are demanded very highly right away.

Airline pricing systems are obviously more complicated than just that--in fact, airline pricing is the most advanced in pretty much any industry--but that's probably the most telling example of what these models do. They find the groups that are willing to pay more, and sell tickets for more to them, ultimately cutting into consumer surplus--or the difference between what you paid and what you were willing to pay for a ticket. That's not necessarily a benefit to the fan since the model will attempt to charge each fan the maximum they are willing to pay. As I said before, the Stars can also gauge when their demand function shifts out (for playing well, playing a popular opponenent, or whatever reason) and raise prices based on this more quickly than they were able to beforehand. More on that later.

So how does this possibly help the fans? Well the other effect the pricing model and price discrimination can have is cut into deadweight loss--or the tickets that could have been sold at a lower price, but were only offered at a 'single' price that maximized profits for the team when they were less able to gauge variation in demand among different people. Deadweight loss happens when pricing is not truly competitive or output is artificially limited. A company (monopoly) ensures the maximization of profits from a single price that is set (this is a generalization in terms of ticket pricing), which does not allow for everyone to purchase the product (assuming they cannot perfectly price discriminate). I'd argue it is the case here to a certain extent given that the Stars are the only NHL team in Dallas and comparable entertainment venues aren't perfect substitutes. There are competitors: basketball, football, and other entertainment. However, we're going to assume that the Stars can sell more seats at essentially $0 marginal cost since the seats are already built. Setting a single ticket price significantly above the marginal cost will limit output--or the number people who can come to the game if the Stars charged a lower price, but still above their cost.

Cutting into the deadweight loss is good for both fans and the team. They can do this by lowering all ticket prices, or by offering lower prices only to people that weren't attending because they didn't value the tickets so highly. The latter allows the teams and fans can come closer to reaching an efficient outcome: the team makes more money AND more fans are happy because more of them were able to attend within their budget. Fans that were already there, however, may not be getting as good of a deal when price discrimination takes place over setting a single low price.

I'd like to state here that I'm assuming the number of seats at the stadium is the maximum that could be built. Or in other words, the marginal cost of building new seats is higher than the amount team could make off of them. We'll just say the 'last fan' values the 'last seat available' too low to consider build a seat for the next fan.

Since the team already sold its season tickets to 'high-demand' fans, they don't have to worry about giving those 'high-demand' fans tickets too cheaply. They likely already have an idea at how to suck as much money out of these fans as possible. So these fans are not necessarily better off--but not necessarily worse off. And everyone that really wants single game tickets will probably buy them at the preseason price to ensure they get to attend a game. So they're not really better or worse off either. The rest of the fans are a 'mystery' (kind of). This model reduces the mysteriousness of these fans in the same way the airline pricing does. The aim here is to target different groups of fans that are still willing to pay more than $0 to attend the game, with each group placing a different value on that attendance. Since there is no real marginal cost--a generalization--to putting butts in the seats, if the model is efficient, the stadium will sell out every game and each fan will more or less pay exactly the full amount they value that ticket. But is the 'perfect' gauge of demand better for fans in all cases? Not necessarily. While more fans get to attend those games, the in-season ticket buyers that were already in attendance--and valued the ticket higher than the price--are likely going to have to pay more to go.

This model also does something else: it estimates when the value the same people place on attending changes in some way. This refers to a "shift" in demand: when everyone suddenly places more (less) value on attending a game. This could happen because of winning, the quality of opponent coming to town, or a number of things of that sort. A pure shift out in demand will cause the team to raise ticket prices to (likely) all of the groups.

Because of the limit on the number of seats, the stadium or arena could have already been selling out at a lower price implemented before the team could quickly gauge the demand shift. In this case, all the advanced demand model will do is tell the Stars to raise their ticket prices to fans. The advanced model allows the team to ensure they're not charging too low of a price to anyone.

Going from the unadvanced to the advanced model in a sellout situation--and assuming no change in demand--no more fans are getting tickets. This reduces the consumer surplus and only the consumer surplus. The only thing happening here is that certain fans are having to pay higher prices for their tickets. The same thing happens if there is a shift in demand. Higher prices to everyone that suddenly values the tickets more. While more 'efficient' economically, I wouldn't consider that to be a benefit to the fan.

So do we see "great benefits to the team and its fans"? Well, it depends. If the team wasn't selling out, and now is, new fans could benefit by getting a chance to see the team for cheaper. That's good for both the team (who marginally spends $0 on getting new butts into the seat) and the new fan (who didn't get to go before, despite having some demand for doing so). However, single ticket fans that were originally getting a 'great deal' aren't necessarily getting that anymore. So while it's more efficient, it's not necessarily 'better' for the fans.

My gut here tells me the model will gauge more about the ‘shift’ in demand, rather than the different groups to price discriminate toward. If that is the case, we still may have pricing that limits output (attendance), despite the fact that the cost to fill the additional seats is $0. Perfectly discriminating is very difficult and I doubt the model will do it perfectly. In the end, I think there may be both increased attendance from those who value tickets lower, with increased prices to certain buyers that the team can pinpoint. Whether or not you feel this is better as a fan likely depends on which of those 2 groups you consider yourself part of.

ESPN and Local Coverage

Tossing it up to JC Bradbury at Sabernomics on this one. Apparently, ESPN is getting into the local sports business through their market-specific websites. The first launch was Chicago, with Boston, LA, and New York to follow. JC has some interesting points about where the local writers will end up.

One thing I'm curious about that I don't see mentioned is whether this is a first step for ESPN to get into the local RSN business. Currently, local markets like Boston have networks such as NESN (partly owned by the Red Sox)--or WGN in Chicago--that do most of the local sports coverage. Given the resources ESPN has, and the already dominant expertise in the sports broadcasting business, I wonder if it's feasible for them to buy out companies like NESN. It would have to be worth the teams' while (especially the Red Sox or other team-owned local networks) to give up significant local advertising revenue in exchange for a contract from ESPN. Then again, ESPN would be quite a tough competitor and have some leverage to buy them out in that way. If ESPN has most of the local beat writers or announcer-types on their staff (as Bradbury suggests), I don't see it being completely out of the question for them to branch out in that way.

One concern I have is the way contracts are currently structured with the Big 4 Leagues and ESPN. I'm not read up on those, and local broadcasting could be limited for them. It would be interesting to see how an ESPN Boston Brodcast (televising Bruins and Celtics games) could legally compete with NESN while currently having contracts with MLB and the Red Sox. I guess in theory ESPN already competes with NESN for viewership. However, it's currently at a more general level, as it's not necessarily regional-specific competition. Anyone have more information on that?

Wednesday, September 9, 2009

Tampa Bay Rays and Sunburst ET

The Tampa Business Journal announced that the Rays will launch a new business marketing venture called Sunburst Entertainment Group (SEG). They have taken on responsibility to push for more events in the Trop, as well as provide sports marketing consultation. I think there's a lot of teams that could benefit from a structure like this (the Red Sox have already done it). Teams like the Indiana Pacers have claimed large losses on Conseco Fieldhouse and are begging for help from the local government. While I'm sure they overstate their losses, their attendance is way down and they are even suggesting that they may have to leave. Can you imagine? No basketball in the Hoosier state? The business model developed by the Red Sox and Rays in baseball (as well as other teams in other sports) seems like a good comprimise between receiving support from local governments and creating other sources of revenue for the team to operate on. In these times, $10 to $20 million a year is a lot of money to keep up an empty stadium 200 to 300 days of the year. Having deals that incent teams to take responsibility filling public stadiums for events other than their own sport seems like it could be beneficial for both parties.

Tuesday, September 8, 2009

Healthcare Through the Lens of Major League Baseball?

I've been busy today with the first day of classes and putting together some paperwork for advancement so I'll toss it up to Craig Calcaterra at Shysterball who provides a link to a discussion of healthcare regulation. This is an issue that I have some opinions about, but won't discuss here. A sports blog isn't the place.

The fact that the analogy is Major League Baseball is the only reason for its posting. That and because I get to add "Stupidity" to the Keyword Labels at the bottom of the post.

This article, however, is something I will present my opinion on: IT STINKS. I'm actually completely lost in trying to decipher the author's point. All I got from it was: We need to change something. Okay. Great. I don't totally disagree with that. But give me a little substance. I'm not sure he understands the workings of MLB's regulatory structure either, and stretching it like this isn't helpful to understand anything. Perhaps he's suggesting insurance companies should look to gain antitrust exemption and territorial rights? Create barriers to entry? I think Dr. Lee missed the ball on this one.

Friday, September 4, 2009

Proof That Dan Snyder Has No Soul

This morning I stumbled upon this article in the Washington Post while trying to collect some data on season ticket offerings in the NFL. Now I'll be the last one you hear whining about 'high ticket prices'. Generally, attending a sporting event (especially one like a baseball game) is a relatively cheap outing. The FCI is a load of crap in my opinion. Yes, if you take your wife and 2 kids to the Yankees game, buy 4 beers, a whole Pizza, a Jeter jersey, and a signed baseball, you're going to spend that $400 or whatever it is. But let's be realistic. I've landed weekday front row bleacher seats at Camden Yards for $15...and they came with a FREE $8 Boog's BBQ sandwich. Camden Yards is not Yankee Stadium, but they sure play (and lose to) the Yankees a lot.

Anyway, 'high' ticket prices are a separate issue from the article above. It turns out a 72 year old woman had signed a 10-year contract to purchase season tickets to Redskin games through 2017. She's a real estate agent and asked for the Skins to let her out of her contract because of obvious slow sales due to the economic downturn. They refused and sued her for $66,000+, forcing her into bankruptcy. The woman is a long time season ticket holder. I understand the need to enforce a contract, but this seems like a bad position to put yourself in when it comes to Public Relations.

Apparently the Redskins have sued 125 season ticket holders in the last 5 years that tried to get out of their deals. Perhaps many of them didn't have the forsight not to sign such long season ticket contracts (not surprising to me, I've met a lot of idiot Redskin fans growing up in the DC area). The team claims that, "For every one we sue, we make deals with half a dozen." That seems reasonable to me. Contracts are there for a reason, and you can't let just anyone jump ship on you. I know this is simply a heart-felt news story, but it's one that an owner or PR executive should pay close attention to. It seems to me that this is one they should have let go.

Given her situation, I feel like Hill could have gotten out of her contract had she fought this in court--or at least could have been required to pay significantly less. From what I know, getting season tickets to Redskins games is not easy. Those contracts (even in these times) could be replaced fairly swiftly. At least the Redskins could sell them for less and require those that backed out of the contract to simply pay the difference. And the Skins sued Hill not only for the tickets, but also interest, lawyer, and court fees. Quite a smackdown! Unfortunately, she feels that she must always pay her debts, does not 'believe in bakruptcy', and did not fight the situation. The court ruling was of course in the Redskins favor because of this.

The article gets into a lot of other details that I'll leave for everyone else to read. They get into Hill's finances, which she didn't seem to plan very well for to begin with (why does a 72 year old woman have a $5,000 mortgage and no money in savings?). Anyway, I just like to rag on Dan Snyder.

Wednesday, September 2, 2009

Baseball Helmets, Binary Choices, and a Nobel Prize Winner

Watching Baseball Tonight last night, I caught a glimpse of John Kruk and others discussing the new helmet that David Wright is wearing. The helmet is a little bit bigger and heavier, and the consensus (of the former players) seemed to be that they would definitely wear it when they played. Kruky says that now, but I suspect back in the early 90's he wouldn't have been as willing to do so. Why? Well, because they had safer helmets than they were wearing then, and as far as I know, he didn't wear them.

Anyway, I think the players should be required to wear the safer helmets (I believe they already will be in the Minor Leagues next season). There's not too much of a disadvantage to doing so, as it seems like you would be more comfortable at the plate wearing a safe helmet than one that is not so safe (Kruk mentioned comfort is a lot about safety up at the plate). So why haven't players decided to use these before? Does it really take a hit in the head to only a superstar to influence this type of change (and/or the change made that base coaches must wear helmets now). And why were base coaches so against wearing a helmet at their on-field stations even after such a tragedy? turns out this isn't such a new problem. Back in the 1969 we saw a similar situation to the Wright or Coolbaugh one in baseball today: Boston Bruins player Teddy Green took a hockey stick in his brain. Green stated vehemently that he would wear a helmet upon his return. He didn't. Was he insane?

I'm not going to go any farther with this. But the current situation is similar to the problem Hockey had for a while, and why even in the 1990's players were allowed to play without a helmet. The reason I mention the Teddy Green incident is this can be modeled as an economic problem. Nobel Prize Winner, Thomas Schelling, a Harvard Economics Professor at the time, wrote an in-depth paper that began with the Teddy Green incident called "Hockey Helmets, Concealed Weapons, and Daylight Saving: A Study of Binary Choices With Externalities" (Journal of Conflict Resolution, 1973). The paper was recommended to me by one of my labor economics professors when I asked about steroid use in his class. I'll recommend the same, but I can't say I would know about this without the help of that professor (who is probably one of the smartest people I've ever met...he's a Harvard PhD...and a hell of a pitcher on our softball team). The guy is a human library. I'll warn that the Schelling paper can get pretty dense, but the sports anecdote makes it catch your attention right away.

Anyway, just thought it was interesting given last night's BB Tonight and my recent discussion of externalities that come up in fantasy keeper leagues. This paper is another fun application, and even gets into ostracism by other players for wearing helmets, disadvantages with peripheral vision, and so on. Good stuff.

Tuesday, September 1, 2009

Fan Demand and the Milwaukee Brewers

Rob Neyer links an interesting story on ESPN about the Brewers seeing interestingly large attendance numbers this year, despite being out of the playoff race. Here's a quote from his post:

"I believe that attendance can basically be explained by four things: market size, performance, ballpark, and payroll. But one occasionally finds anomalies, and I believe those anomalies are worth more study. Because I don't think anyone's yet explained why the Brewers, an unexciting team in the 39th biggest metropolitan area in the United States can outdraw all but seven teams in the major leagues."

Neyer asks some very interesting questions here. While market size does describe a lot of variance in attendance, it's an arbitrary term. Market size is only one part of the equation here. But, there are different fan interests in different cities. Why would a hockey team do better in Hamilton than Phoenix? Putting aside any differences in population/metropolitan area size, Hamilton is a hockey town, Phoenix is in the desert. There are differences there. You also have to look at the substitutes. Milwaukee has no other teams playing in the summertime. Their basketball team is terrible. Brett Favre is gone from Green Bay. In addition, it's likely that fans in different cities respond differently to winning (just look at the Cubs!). Finally, ticket prices could have an influence on the number of tickets sold (aka Attendance). We've got to remember our old Price vs. Quantity demand function and optimization pushed into the back of our mind from Intro to Econ (though, I don't know if it's a factor here, and guaging actual ticket prices is trickier than you'd think).

I mostly agree with Neyer, but I'm working on some stuff in 'school' that we might want to check out when investigating demand in sports (not ticket pricing ifself, though that should be included). Unfortunlatey, much of it is not for me to say on a Blog. I just wanted to point out the success Milwaukee is having and how anomolies can really be fun to ponder.

Replacement Players And An Apparent War: Sabermetricians vs. Economists???

When I think about statisticians, economists, managers, and sports enthusiats, I think compatibility, co-workers, discussion, working together, etc. That doesn't seem to be the case when it comes to the debated Replacement Player metric often discussed on sabermetric websites. I had a post dedicated to that discussion, as I am somewhat stuck in the middle on the issue. However, I wasn't planning on posting it without some discussion with economists way smarter than me or with sabermetric folk way smarter than me as well. Below, I'll just say my general thinking on the topic (though, I'm not an Economist or a Sabermetrician, so take it with a grain of salt).

I definitely don't agree that a Replacement Player should be paid $0, but I also DO NOT think the idea of valuing zero-sum outcomes using a replacement metric is outlandish. I mostly think the disagreement comes when converting the replacement metric(s) into valuations or salary (which are different things). I also believe that there are some differences between valuing players in a fantasy model vs. valuing players in real life. The Replacement Player works great in fantasy, but not when revenue is coming from an external source (or, is not a totally zero sum occurrence). Anyway, what prompted this was a recent generalization by JC Bradbury on Sabernomics (one of my favorite Blogs) that claimed Garrett Anderson is a league average player (I really think readers blew this out of proportion, as Bradbury was mostly speaking as a Braves fan). The Book Blog has a thread about the issue, and I posted my opinions as follows:

"From my experience with economists, I’m not totally convinced they all ‘flat-out reject’ the idea of the replacement player [a claim made earlier in the comments]. In fact, I think the replacement theory has its foundations in a good economic place (despite my mentioned qualms with it in the past). I generally just think it goes astray with the assignment of $0 value to a replacement level player and the fact that paying $0 this just does not happen in the world of competitive bidding where players can choose to play or take on another profession.

I think the fact that the player is contributing production at the MLB level inherently creates significant value for that team and therefore more salary to that player (like when we see a good player go from a small market to a large market). It may not be value above other teams, but while the Game of Baseball is asbolutely Zero Sum, the revenue function is not necessarily so. I feel this is where the real-life valuation diverges from using the Fantasy Model, where ‘revenues’ come directly out of other fantasy owners’ pockets.

I also feel there is the general disagreement from most economists (and I have to mention here that Fort and Bradbury don’t seem to have the same view, as exemplified by the discussion at Phil’s site, linked above...I can speak for neither) because of the competitive bidding process and what the value of maintaining the ‘absolute’ level of talent in Major League Baseball is. There is going to be a larger cost to having players like Willie Bloomquist rather than a team of high school players on the field. MLB makes millions of dollars precisely because they are able to pay the highest prices for all talent, and get the best talent available. The reason the level of replacement player exists for MLB where it does is only because MLB pays the highest price for talent. Otherwise (for example, if it paid $0), the talent would go elsewhere or find something else to do.

In addition, there is significant time and money spent playing baseball for those who are at the minor or major league level. I’m willing to bet a lot of money that the ‘Reservation Wage’ is a lot higher than most people suspect.

This time/money is spent specifically for the reasons mentioned above: the players are expecting a ‘payout’ and ‘probability of reaching that level of payout’ that maximizes their return on investment. This level of payout (like in a tournament or promotion model) needs to be significant enough to continue to attract that talent and induce players to put forth effort to produce the highest absolute level of baseball play (at least in its simplest form). Otherwise, the expected payout would not likely come out above players’ reservation wage (as averaged over his career).

From the standpoint of replacement player, it almost seems as though many people who advocate $0 value see fielding the 25 player minimum as a sunk cost of sorts, or a fee to participate in MLB (25*$400,000, or $10,000,000 payroll minimum). If there is no expected return on investment into that $10,000,000, then I guess that would be the case. But I think that’s a VERY hefty price to pay ($300,000,000 for 30 individual owners in MLB) to simply be able to negotiate with the Players’ Union.

With that said, I tend to think values from the past year on JC’s site are pretty inflated and agree that a team of Jeff Francouers being paid $12 million each would be hard pressed to see a profit [I will insert here that I love JC's site, and his book is one of the main reasons I got into statistics, economics and sports research]. While I feel that there is value simply by being an MLB club, it doesn’t go all to the players. But given that they are the product, a significant amount probably should to maintain the product quality. But that’s a completely non-analytical point of view at this point (I’m just ‘eyeballing’ it). I can’t really criticize without knowing anything more myself.

I really don’t think the above reasoning is totally incompatible with the Replacement Player metric. I think the disconnect simply comes from the conversion to value or salary and how Marginal Value is assessed (as MGL mentions above) at that level. Does anyone think those concerns are completely out of line? I really like the topics discussed here, and mean no harm at all in any questions I pose. I am simply a curious person and think there are plenty of smart people here.


That seems like a silly and misleading question. *Most* people intelligent enough to be involved in analyzing sport performance (I say most, because I know it’s not all) recognize that the use of a .100 batting average as 1/3 production of a .300 average is an incorrect assumption. But then again, I’m just a recently converted Wolverine, so you should probably ignore me."

I guess I'll mention that Patriot has his own Blog (Walk Like A Sabermetrician)as well, and is a thoughtful reader in my opinion. He's got a fun to read Blog, and i like it. Unfortunately, he's a Buckeye. But I'll let that slide.

The reason I post this here is I'm curious about others' opinions on this topic (whether you be a casual observer, a stat nerd, an economist, or just smarter than me in general). The idea that a replacement player is valued at $0 and paid $0 doesn't take into account opportunity cost and the need for the league to maintain a certain quality level to continue to attract fans. I feel like there is a lot of hostility and rash generalization toward Economists from Sabermetricians (and sometimes the other way around as well). I'd love to hear input from any angle other than "You're a stupid idiot, idiot!", because I get that a lot already.

ADDENDUM: It seems that in the past, I have been grossly misinformed about the $$ value conversion of a 'replacement player'. According to Tango, there is not an assumption that the replacement player is paid $0. However, in the past, I had been told the value is $0. Period. And salaries are generated from a baseline of $0. It still can be an arbitrary metric, with plenty of uncertainty, but I have much less problem with it if this is the case. I think overall, it's a productive discussion here. The $400,000 intercept is much more reasonable, in my opinion and I either made a mistake, or was misinformed. Either way, the intercept (in terms of where it lies on the talent distribution) is up for debate/uncertainty (I think most would agree), but not to the extent of millions and millions of dollars.