Overselling Competitive Balance

Balanced BaseballThe New York Times has a piece out trumpeting competitive balance in baseball and highlighting the fact that “the 2013 baseball playoffs include more teams from the bottom 10 in payrolls than the top 10.” Big spenders include the Dodgers, Red Sox and Tigers while the Pirates, Indians, Rays and Athletics are play-off teams despite being relative penny-pinchers. The Yankees, perennial spending leaders with a payroll in the range of $230 million this season, are watching at home while the Rays (spending very roughly a quarter of that amount) are still playing. The conclusion from the Times: “Market size matters, but not as much as shrewd management.” That analysis isn’t quite wrong, but it is more than a bit incomplete with respect to the data and leaves out a crucial element to the story: luck.

Not to quibble, but the top-seeded Cardinals had a top 10 payroll at the start of the season, the Rangers (only eliminated on Monday in an extra game 163) were #11 and the Reds (play-off losers last night) were #13. Higher spending teams generally outperform teams with less money. The success of some lower spending teams this season is remarkable. But the longer-term view isn’t quite so positive for the parity argument. As The Washington Times reported earlier this year, top five payroll teams have won eight of the past 18 World Series and the only Fall Classic winner that wasn’t in the top half in spending was the Florida Marlins way back in 1997. Pittsburgh returned to the post-season this year, but it’s for the first time since 1992. It’s a simple fact: higher spending teams tend to outperform lower spending teams.

This year’s results, while heartening to those of us in small markets, in no way contradicts that reality. A longer term perspective is necessary in part because of the amount of luck involved in deciding which team wins a game, a divisional race or a World Series. For example, Texas and its big payroll would have been in the post-season had the Rangers not lost to an overpowering David Price and the small market Rays in a single extra game Monday evening. Conversely, the Rays would be out (there goes the story!) had they not won that one game. A bounce or two here or there (even earlier in the season) could have meant a very different outcome – one the Times couldn’t have used to push the competitive balance meme.

A 90-win season is excellent and usually good enough to play in October, but a 90-win season means that a team still lost 45 percent of the time. Since reversion to the mean establishes that the expected value of the whole season is roughly 50:50 (or slightly above or below that level), a 55 percent success rate being quite good means that there is a lot of luck involved in winning baseball games. To emphasize the role of luck, recall that over shorter stretches, it’s not unusual to see significant winning streaks, even by bad teams.  My Padres finished well below .500 and out of the money in 1999 but still won 14 consecutive games at one point, providing us fans with a lot of false hope. The idea that luck plays a big part in baseball success makes intuitive sense too – the difference between ball four and strike three can be tantalizingly small (even if and when the umpire gets the call right). So can the difference between a line drive being caught or falling in for a hit.

The Times accurately points to how some smaller market teams have managed to succeed, at least in the spirit of Moneyball. Being more astute can be enough for smaller market teams to succeed. It’s just harder for them (for example, they can’t “buy their way” out of mistakes, which are inevitable) and can’t be expected to be consistent (because their margin of error is much smaller). Being creatively smarter can allow a team to find cheap value in unexpected places and ways to help them succeed. But luck helps a lot too. Some of it is the randomness of a few particularly good (outlier) seasons clumping together on one team in a given year before mean reversion takes over subsequently. Some of it is being lucky health-wise in that smaller payroll teams cannot afford to be as deep as their bigger spending competitors. Some of it may be having a pretty good year when your rivals are struggling a bit. Luck matters. A lot.

Because of the level of randomness involved, baseball will always have some surprisingly successful teams in any given season. Being smart and skillful is crucial to that success. But so is luck. So don’t play the parity card too strongly just yet and think that small market resources are no great handicap. The big market teams still have a huge advantage over the small fry and should be expected to win more than their fair share of games, playoff spots and titles. Just not all of them. We small market fans can at least be grateful for that.

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