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August 2, 2007

Lies, Damned Lies

Baseball's New Underclass

by Nate Silver

In an essay for the forthcoming It Ain’t Over--which you should all have in your hands in a week or so--I wrote about the permanent underclass of baseball teams that existed more or less continuously from the end of the deadball era to the start of World War II. These teams--the Phillies, Senators, Browns, A’s and Boston Braves--combined between 1919 and 1943 to have just 32 winning seasons and two World Championships in 125 tries. My argument is that this wasn’t merely the result of incompetent management (though surely that played a large part in their failures). Rather, the economic incentives of the time, particularly the prevailing practices in the scouting and development of young players, tended to favor the rich over the poor and reinforce any differences in the standings.

I was reminded of this when the Red Sox’ trade for Eric Gagne came over the wire, for that was another case of the rich getting richer. The trade embodied all of the things that make the Red Sox so dangerous: they have the financial wherewithal to pay the balance of Gagne’s contract, the excess prospects to trade, and the shrewd GM to execute the move and steal a player out from under his rival. Those are basically the three inputs in your long-run baseball production function: brainpower in the front office, manpower in the minor leagues and the power of the purse.

Right now, there are five teams that are head and shoulders above their competition in the American League--the Red Sox, Yankees, Tigers, Indians, and Angels--and they all appear to have at least two of those advantages working in their favor. How frustrating it must be for the Royals when the Tigers draft Rick Porcello, or the Orioles when they see the Yankee farm system getting stronger every year. Before, there were two reliable ways for the financially-challenged teams to compete: they could go the old-school route and outscout them, or the Moneyball route and outthink them. But now, the big guys are doing that stuff at least as well as the little guys.

So just what will the American League look like five years from now? Let’s return to the three potential sources of comparative advantage that we discussed a moment ago: financial, scouting and management resources.

Financial