The baseball revolution

Billy Beane is transforming baseball
September 19, 2003

Book: Moneyball
Author: Michael Lewis
Price: (WW Norton, $24.95)

Michael Lewis chronicles American revolutions. In the 1980s, he wrote Liar's Poker about the Wall Street revolution and, in the 1990s, The New New Thing about the internet revolution. Now he has written about a revolution in baseball. But Moneyball: the Art of Winning an Unfair Game is about much more than that. It is a gripping tale of human psychology, imperfect markets and the impact of tradition.

As in his earlier books, Lewis has found an enthralling subject. His hero is Billy Beane, general manager (GM) of the Oakland Athletics. Beane spent ten years of his life as a failing professional baseball player, languishing in the twilight zone between the minor and major leagues. Despite being a scouts' dream at 18-tall and handsome, with a successful high school pitching and hitting career behind him-he never made it.

Beane's playing history is fundamental to his management approach, for it taught him a lot about the baseball marketplace. His performances as a teenager did not justify the feeding frenzy that took place for his services. And it helped him to realise the baseball market is founded on imperfect information: a system of recruitment and valuation which privileges instinct over rigour, hand-me-down mythology over fact, and the wrong statistics over the right ones.

Beane's revolution shares a certain similarity with those of Wall Street and the internet that Lewis wrote about in earlier books. His central insight was to recognise irrationality in the marketplace, and take advantage of it.

To understand Beane's genius, one needs to know a little about the sport. The budget constraint in baseball is the wage bill of the players. After six years all players become free agents, available to the highest bidder, but until then, they are effectively the indentured slaves of the team that drafts them. (The draft is the annual process when professional teams select college and high school players.) So, the market is in drafting players in the first place and trading for free agents. The challenge is being able to afford a winning team.

In 2002, Beane's Oakland Athletics could only afford to spend $40m on salaries. Three other teams in their division outspent them by between 50 and 150 per cent. Yet the Oakland A's won their division, broke their league's record for the longest victory streak by winning 20 games in a row, and made the end of season playoffs. They achieved all this against expectations in a year when three star players had become free agents and promptly signed for teams who could pay them more.

The Oakland A's excelled because Beane applied a logical system, rather than a hunch, to the game. He started by questioning the central statistic on which baseball players had been judged for 150 years: the batting average. This measures the number of times a player gets on base by hitting the ball, against the number of times he actually bats.

According to Lewis, Henry Chadwick-a British-born cricket reporter who ended up revolutionising baseball scoring-made a defining decision about the batting average. He excluded the "walk" (when a batter receives four balls outside the strike zone, he automatically walks to first base) from the batting average. So despite the fact that a walk has exactly the same effect as hitting the ball and getting to first base, it does not count to the batter's credit. After all, there are no walks in cricket.

Beane realised that the market would therefore undervalue players who received lots of walks. And it wasn't only walks that the market didn't take into account-it didn't properly price the value of players who could wear out a pitcher by making him throw a lot of balls to get them out. Nor did it value people who were good at hitting but were slow. Nor players who had talent, but were fat or short or threw the ball in a strange way. Conventional wisdom underestimated these sort of players. For Beane, prejudice and market imperfection represent opportunities to buy players on the cheap, and stay competitive with the expensive teams.

How did Beane acquire his insight? Enter Bill James, amateur statistician, who in 1977 started up a yearbook, Baseball Abstract: Featuring 18 Categories of Statistical Information That You Just Can't Find Anywhere Else. James set out to disprove the conventional wisdom about success in baseball, but the closed circle of baseball ownership and management did not welcome him.

Beane read all 12 of James's abstracts and in 1998 a young Harvard economics graduate he had hired persuaded Beane to employ a team of former Wall Street traders, who used computers to deconstruct the game as never before. Every event on the baseball field was given a "run value," based on thousands of previous similar episodes, so proper value could be put on each player.

It is not just Lewis who thinks Beane's methods are worthy of attention. This spring, the Boston Red Sox offered him $2.5m a year to become their GM, the most ever offered to a manager. Beane accepted, then changed his mind, saying the only reason he would be going was for the pay, and he had vowed after his playing career never to be led by money again. And "Beane-ism" is starting to spread. Toronto hired Beane's number three to be their GM, and Boston has hired a Yale graduate and Beane acolyte, Theo Epstein, who became at 28 the youngest GM in baseball history.

If Beane is leading the revolution, most of his shock troops seem to be Ivy League graduates, who haven't played the game professionally, and whose computers and spreadsheets diminish the influence of scouts, who are often ex-players. Remarkably, Lewis tilts the story in such a way that we resent the old scouts and admire the fresh-faced college nerds. He portrays Beane and his followers as counter-cultural figures, going against the crowd and beating the market. Unlike other GMs, Beane never watches a game from his luxury stadium box, but hangs around with the players and, curiously, likes to discuss European history during games.

In his earlier book about the dotcom boom, Next: the Future Just Happened, Lewis portrayed internet anarchists, such as the founder of Napster, as anti-establishment pioneers who were revolutionising the distribution of music and intellectual property. For Lewis, Beane, too, is a disrupter of the natural order of things, an iconoclast whose revolution will ensure that players previously dismissed because of market irrationality will get a chance. Of course, once his revolution extends throughout baseball, the "natural" order of things will reassert itself and the team that spends the most will likely win the most. But until then, Billy Beane can continue to buck the market. And as we approach the climax of the 2003 baseball season in October, his Oakland A's are, once again, right up there with the big spenders.