By Michael Lewis
Author Michael Lewis is a fantastic observer and his previous work Liar’s Poker amongst others indicates great insights into the financial world.
In Moneyball he tells the story of how Billy Beane, general manager of Oakland Athletics, could for several years win more games than anyone else with a team payroll a fraction of the majors.
Major league baseball is a big money game. At the opening of the 2002 season top teams like the New York Yankees had an annual payroll of $126 million dollars. Oakland Athletic had a payroll of about $40 Million. Despite the disparity, the two teams tied for the best record in baseball, each winning 103 games, though both lost in the playoffs.
Lewis was fascinated as to how Billy Beane assembled a winning team of young affordable players and an inexpensive cast of veterans. In a nutshell this is the story of how superior research, some counter intuitive insight and being prepared to look beyond conventional wisdom can enable an organization to succeed against the odds.
Conventional wisdom was that baseball talent scouts had some sort of superior eye for baseball talent. They believe that they could look at a High School player and predict future success. What Billy Beane and his team of statisticians figured out was that performance in the minor leagues (that is after High School) was a much greater indicator of success than performance at High School. There are probably a lot of reasons for this including different maturing ages of players and different levels of competition at High School level.
(Including the dramatic effect of birth dates on age based competitions as described by Malcolm Gladwell in Outliers)
So Billy and his team worked out that the key metric for batsmen was safe on first base percentage, rather than their own batting average.
They determined that someone who (for any reason) was more likely to get a walk regularly to first base may practically be more valuable than someone who regularly or occasionally hit home runs.
This is because if they get to first safely, then by definition every player on a “superior” base also moves to the next base or Home.
Similarly Billy and his team determined that pitchers who get lots of ground outs are also highly valuable.
So using these new metrics they were able to apply valuation models against known player values and determine which players were bargains. They soon discovered that some players who have unconventional techniques, or were physically unappealing were ridiculously undervalued by the market.
This book not only explains this process of realisation but also outlines the story of the summer 2002 as Billy and his team went about buying numerous players to assemble their hard performing but cheap team.
Of course now that the secret is out of the bag and now all the clubs understand his evaluation techniques, the values of this previously very cheap players has risen. This is really one of my all time favorite books it combines a ripping yarn about professional sports but also brilliant strategic insight with great technical implementation.
This book has great relevance for every organisation in sports or business. In any case it is just great fun looking over Billy Beane’s shoulder and seeing how the smart little guy beats the lazy, traditional big guy.