The new Moneyball

The Dodgers and Boston Red Sox made what was the largest trade in MLB history, at least in nominal value. Most of the analytical wisdom was that the Red Sox did well to dump Josh Beckett and Carl Crawford’s contracts on the Dodgers along with Adrian Gonzalez’s since the Red Sox also received four prospects in return, with two of them in Rubby De La Rosa and Allen Webster being arguably the two best pitching prospects in their system. Josh Beckett hasn’t displayed his former dominant stuff this year, or in recent years, and Crawford hasn’t just been a disappointment since he signed with the Red Sox, but he just had Tommy John surgery.

However, as I noted recently, I agree with Jay Caspian Kang on the absurdity of lauding owners of our favorite sports teams for being frugal. What the Dodgers did, and what they’ve indicated they will continue to do under their new ownership, is spend like mad, luxury tax be damned. Instead of the old Oakland A’s Moneyball strategy of finding cheap, inefficiently priced assets, the Dodgers will pay top dollar for more proven commodities. It’s more akin to the Yankees strategy in the past two decades.

Owning sports franchises has been a great investment for a long time now. Despite cries of poverty from owners when it comes to renegotiating collective bargaining agreements with the players, almost every baseball franchise that has sold in recent years has sold for far more than it was purchased for. So don’t be fooled. The owners cry poverty, but it's a negotiating tactic to extract even greater control over their largest cost: payroll. Unlike other vanity investments like financing movies, owning a sports team is a lucrative game.

So why, as fans, should we feel sympathy when our favorite sports’ team’s owner claims poverty and slashes payroll, trading or letting go of some of its best players? If I were a Dodgers fan, the only concern I’d have is if this deal with the Red Sox meant Dodgers ownership wouldn’t resign other assets like Clayton Kershaw. After all, the Dodgers committed payroll for 2013 is already over $190 million, and that’s without resigning some of the free agents or finding out what some players will earn in arbitration. But everything the Dodgers ownership has said indicates they plan to continue to spend if necessary. In doing so, they won’t be going into poverty. They have a massive TV deal windfall coming. What it means is the Dodgers ownership is willing to live with less profit to be more competitive.

If this sounds familiar, it’s because this is a common strategy in almost every other industry. At Amazon.com, we were willing to live with lower margins on product and shipping in an effort to be the everyday cost leader and to give customers no reason to go elsewhere. Thin the margins and you thin the air your competitors can breathe in, and in that game, the guy with the bigger oxygen tank (Amazon) wins.

That a sports team might employ the same strategy is refreshing, if not as inspiring as the underdog narrative Americans tend to favor. If the Dodgers jack up their ticket prices by a lot, some fans might complain. But if they don’t and just absorb the costs of their new strategy by accepting lower profit margins, Dodgers fans should be thrilled. The emotional return on their loyalty towards the club, all the dollars they’ve spent on tickets, and all the hours they’ve spent watching the team’s games has suddenly increased, and it’s on ownership’s dime. You can still try to be smarter than all the other clubs, but many of the inefficiencies spotted by the A’s are now known and exploited by other teams, so the willingness to spend more money and make less profit than the next guy is still a form of comparative advantage. Consider this the new Moneyball, and kudos to the Dodgers for daring to try it. 

If the Dodgers really wanted to spend this much, is this the wisest way to spend it? That I doubt, but I also doubt they’re close to any real financial constraints. They can likely continue to try to spend their way to further improvement. I was glad when my beloved but beleaguered Cubs brought in Theo Epstein and Jed Hoyer and company to run the team because I think they’re smart baseball guys, but I also want to see Tom Ricketts let them spend as much as they need to get the Cubs a World Series. If they win one in my lifetime, I can honestly say it won’t impact my happiness one bit if they have to spend a fortune (especially Ricketts') to do it.

Contrast this with the Chicago Bulls, another of my teams I’ve followed most of my life since growing up in the Chicago suburbs. Last season, they had the best record in the NBA, but their season ended in the first round of the playoffs after star Derrick Rose blew out his knee at the end of game 1 (I was at that game, and I saw Derrick Rose being carried out just 25 to 30 feet in front of my seat, out a corner tunnel; I blew out my left knee playing basketball in 1997, and as soon as I saw the way they were carrying him out, I knew they were carrying any chance the team had for a championship out the door). One of the strengths of the Bulls last season was their depth, but this offseason, ownership gutted the roster. They claimed that business interests wouldn’t affect their basketball decisions, but everyone knows that they’ve decided largely to punt next season while Rose is rehabbing. They let Omer Asik, C.J. Watson, Kyle Korver, and Ronnie Brewer all leave so they could stay under the luxury tax threshold.

Yes, it would be tough for them to win it all next season without Rose for most of the season, but why should I care if Jerry Reinsdorf and the other owners avoid paying some additional salary and luxury tax this season? It’s not as if they’ll return those payroll savings to fans in the form of reduced ticket prices. No, the astronomical prices will stay, and they’ll simply send out an inferior roster, and United Center will continue to sell out.

Investing our hopes and loyalty in a sports team isn't like investing in stocks. If you own a stock and the company is more financially efficient, your shares tend to be worth more. In contrast, return on invested capital doesn't affect the value of a championship from our favorite sports team. The returns are binary in nature: my team wins a championship, I'm overjoyed. They fail to win, I'm disgruntled.