Wenz: An analysis of MLB salaries from the ivory tower

From Michael Wenz at Baseball Prospectus on December 10, 2015, with mention of SABR members John Thorn and Pete Palmer:

Michael Lewis’ Moneyball: The Art of Winning in an Unfair Game made a big splash when it came out in 2003 and shook up the baseball and sporting world. It might be a bit much to say that it caused a change in the way that executives, coaches and fans watched and understood baseball, but it certainly coincided with one. In Moneyball After 10 Years: How Have Major League Baseball Salaries Adjusted? Daniel Brown, Charles Link and Seth Rubin set out to try to identify whether insights from the book led to changes in the links between player skills and player salaries.

They focus on the contention from the book that on-base percentage was undervalued in the marketplace, and examine whether this changed after 2003. Economists don’t generally expect to see unexploited profit opportunities, especially in an industry as competitive as major-league baseball, and in fact have studied the links between pay and performance since at least Gerald Scully’s work in 1974. The importance of on-base percentage in the production of runs was documented by Bill James and Pete Palmer among others by the mid-80s. Yet along came Billy Beane, armed with some not particularly new information on the link between skills and wins, and on the link between skills and pay, and put them together to turn the A’s into a winner on a low budget.

Brown and his co-authors look at data from 1996 to 2011, both before and after the release of Moneyball, to see whether owners adjusted their behavior, bidding up the salaries of high OBP players relative to their peers, and indeed they find this to be the case. In yearly regressions, the coefficient estimate for on-base percentage on player salaries is sometimes negative, sometimes positive and not a significant predictor of player salaries between 1996 and 2002, except in 1998 for unexplained reasons. But it begins to appear more regularly as a significant predictor of player salaries for free agents beginning in 2003. OBP is statistically significantly linked to player salaries in 2003, 2004, 2005, 2007, 2010, and 2011 and has the expected positive sign in the other years.

Read the full article here: http://www.baseballprospectus.com/article.php?articleid=28039

Originally published: December 10, 2015. Last Updated: December 10, 2015.