Alex Rodriguez

Microeconomics
Professor Smith
5-9-11

Microeconomics in Baseball
Baseball has been around for a long time, and throughout its years of existence many
owners have spent so much money on players that in the end dont live up to the expectations.
That all came to an end in 2002, when the Oakland Athletics made an astonishing discovery.
Rigorous statistical analysis showed that on-base percentage and slugging percentage are way
better indicators of success. The Oakland As saw this and were convinced that these two
qualities were cheaper to obtain on the open market than the usual speed and contact qualities.
You have $40 million to spend on twenty-five baseball players. Your opponent has
already spent $126 million on its own twenty-five players, and holds perhaps another $100
million in reserve. (pg 119 Lewis) The As used the concept known as sabermetrics to have
success against these large market teams. The concept of sabermetrics is the analysis of baseball
through objective evidence, especially baseball statistics that measure in-game activity rather
than industry activity such as attendance. As a result of the teams smaller revenue, they are
forced to find undervalued players with undervalued baseball skills. This also affected the way
they do their prospect selection. The As said that it was risky to spend your high draft picks on
prospects coming straight out of High School. When the As released the list of their signed
players and most of the fans made remarks of Ive never even heard of half these guys. (pg 123
Lewis) The As were very successful and as of 2002, they finished 2
nd
or better in their division
6 of the last 9 years. As a result of their studies and discoveries, the As were able to increase
their productivity despite having one of the lowest payrolls in the major leagues in the year 2002.
They even managed to increase their attendance as they began winning and beating the top
market teams in the league.
In 2003 the Toronto Blue Jays had a little dilemma in their hands. They had to make the
tough decision of either signing Jose Cruz for $5,000,000 plus 5 minor leaguers or they could
sign 6 professional and use up there remaining $6.5 million on them. In class we learned that the
opportunity cost is the highest valued alternative that must be forgone when a choice is made. So
as Mike Moffatt states, the opportunity cost of choosing the A set of players is the foregone
Alex Rodriguez
Microeconomics
Professor Smith
5-9-11
opportunity to sign the B set of players. Similarly, the opportunity cost of the set of players B
is simply the set of A players. The Blue Jays ended up not signing Jose Cruz and instead
signed Frank Catalanotto, Mike Bordick, Doug Creek, Greg Myers, Tanyon Sturtze and Jeff
Tam. When teams decide not to retain the services of any player they always receive the money
it would have taken to retain that player and the spot on the 25 man roster that the player would
have taken.
These moves encouraged the rest of the baseball world to make microeconomic
decisions. Eight more teams have joined the Blue Jays and As in using sabermetrics analysts
and microeconomics to make decisions. Surprisingly, the New York Yankees were one of the 8
teams that joined the As and Blue Jays. It would be amazing if more sports team would follow
these steps to make managerial decisions. It would save them more money and it will allow the
opportunity for the fans to understand the decisions that there owners have to make.


Alex Rodriguez
Microeconomics
Professor Smith
5-9-11

Works Cited
- Lewis, Michael. Moneyball: the Art of Winning an Unfair Game. New York: W.W. Norton, 2003.
Print.
- Moffatt, Mike. "Baseball Players and Opportunity Costs." Economics at About.Com -- Your Portal
to the World of Economics. Web. 09 May 2011.
<http://economics.about.com/cs/sportseconomics/l/aa021903a.htm>.