Saturday, February 12, 2011

Labor and Capital

In looking at the Moneyball philosophy it's easy to see how these two factors can shape a baseball team.  Using them effectively can be the difference in a successful team and a perennial loser.  One of the many things that, in my opinion, makes baseball such a fun sport to watch is the fact that there is no salary cap and therefore each team has a very unique financial situation.  Each team has different assets to work with and different markets to try and produce revenue from.
Since the introduction of free agency in the 1970s teams have had to work much harder to find and keep talent. Rare is the player who will spend his entire career with a single club.  There are a number of reasons for that and not all of them are surrounded by pure greed.  Just like with any worker baseball players want to be paid a fair amount for the skills they provide.  Working in construction or at a factory the more difficult the skills for a particular job are typically means the higher the workers who do that job are paid.  The same is true in many ways for baseball players.  What many people view as pure greed from players demanding 10s of millions of dollars to play is really no different than an electrician offering his services for $20-$30/hr.
The skills that draw the biggest paycheck change from year to year in baseball just as they shift over time in the general work force.  A player who has the rare ability to hit 50+ HR will draw more fans to games and help produce more wins for a team than a player with similar other statistics and less power thus he is a more valuable commodity, just as a surgeon is more rare than a physician. Determining the exact value of different skills is not easy but there are numerous formulas that exist and agents and general managers spend countless hours attempting to find the systems that best fit their needs.  That is what makes agents like Scott Boras so good at what they do.
In addition to finding the best system for determining value each team has to establish, in their market, how much they can afford to pay.  In many ways that is the greatest strength of the Yankees, they have a huge market and large amounts of revenue each year to use to keep the level of talent on their team high.  Keeping a top notch product on the field keeps fans in the seats and cycle can continue, in theory.
The beauty of MLB's lack of salary cap is that each team has a different amount of money tied up in players.  Teams like Oakland have proven however, that the lack of large bank accounts doesn't mean you can't win games.  The creative use of the capital is of equal if not greater importance to the amount of capital used or available.

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