Monday, June 20, 2005

Mysteries of the New York Mets

Although I remain a New York Mets fan, as I apparently have no psychic choice, I have now reached the point, as I do nearly every year, where I start rooting for them to lose so that they will not make more insanely self-destructive trades near the trading deadline. Since I am scarcely alone in viewing the Mets management this way – the entire vast army of Mets bloggers has the same view, and is proven right, while the management is repeatedly proven wrong, year after year after year - we have a puzzle on our hands, related to the “Moneyball” puzzles that have attracted much attention (including in the legal academy) lately. The question is why baseball owners, who have strong incentives to act rationally in terms of winning cost-effectively, are usually so much stupider than interested fans.

Briefly on the Mets, taking their set of player contracts as given, they have good reason to want to win. But while they treat their best pitcher (Martinez) as their #1, their second best pitcher (Heilman) is used strictly in mop-up situations where the game appears to be out of hand, even though he has a streak of shutout innings that’s been going on for several weeks. Their third best pitcher (Seo) is in the minor leagues. Yesterday, their philosophy of doing this was really tested, when they put Heilman in a game they were losing 6-1, but then scored 4 runs to make it close. Not to worry; manager Willie Randolph was equal to the challenge. He pulled Heilman and put in the team’s worst pitcher (DeJean), who promptly gave up 4 runs to put the game out of reach. It’s a good thing that pitchers who have been removed aren’t allowed back in, or Randolph might have reinserted Heilman once the game was safely out of reach. Meanwhile, he bats his best hitter (Wright) seventh, and has been quite vocal at times about his eagerness to bat Wright eighth. The reason for this, he says, is that Wright is still young and needs to earn a higher spot. (Never mind that in about a full season he has vastly outperformed everyone else on the team.) Meanwhile, the equally young Reyes is kept for months in the lead-off spot (he has finally been dropped to #2), notwithstanding that he has the lowest on-base average on the team and that on-base average is vital at the top of the order.

A couple of broader Mets-related (but not just Mets-related) mysteries are the following. One reason so many New York teams are persistently bad is that they are wildly impatient and grab at fading big names for too much money. They refuse to take the short-term hit and rebuild. The reason for this, we always hear, is that the New York fans are too impatient; you can’t make them wait. Leave aside for the moment that actually the New York fans, so far as I can tell, continually lament their teams’ not rebuilding properly. Taking it from a rational choice standpoint, the claim is that you need to have a higher discount rate in New York than, say, San Diego because success this year is more important and valuable. But if success NEXT year and the year after is also more important and more valuable, then the discount rate for owners in the two cities should be the same. The only explanation I can see is that myopia and hyperbolic discounting are harder to resist when the current year stakes are absolutely (albeit not relatively) higher. But baseball owners have a pretty strong incentive to get it right. Not only is there a lot of money at stake, but in a city like New York they get pilloried in the press if they fail to build a winning team.

A second, related mystery is baseball teams’ inability to grasp the admittedly counter-intuitive but fundamental economic idea that sunk costs are sunk. If you can’t do anything about them, you might as well move on and optimize given where you stand. Yet we always hear that teams can’t “afford” not to play the guys to whom they are paying huge salaries (e.g., Tom Glavine). Needless to say, they will be paying these guys huge salaries whether they play them or not (and in Glavine’s case they will owe him a way above value salary for next year if he pitches enough for his option to vest). So you would think it would make sense to use the players who give you the best chance to win, regardless of past mistakes in offering high salaries to the wrong people.

Michael Lewis’ “Moneyball” became a hot item in legal academic circles due to people’s interest in the limits of rational choice, since one of Lewis’ main points was that Billy Beane was succeeding with a low-budget team by exploiting market irrationalities, in particular under-appreciation of the importance of on base percentage. An interesting point here is that the Athletics seem at the moment to be failing, although maybe by the end of the year they will be moving back up again. To some extent this may be chance, but if enduring it can also be explained on two main grounds: that Beane’s financial disadvantage has grown even greater over the last couple of years, and that this particular market irrationality has narrowed because his success (and that of the book) has helped to correct the market’s under-appreciation of on-base average. The guys at Long-Term Capital saw their arbitrage advantages shrink, too, although frankly (Nobelists or not) I would expect Beane to show greater shrewdness in adapting than they did.

In terms of why the Mets and so many teams would be so persistently irrational, despite the market forces pushing towards rationality, I would offer two main explanations. The first is the weakness of competitive market forces. With barriers to entry, a cartel making it harder for anyone to go out of business, and the difficulty of buying a team (especially with owners having non-economic reasons for ownership), the forces instilling discipline are not very strong. (Although perhaps strong enough to create very slow movement towards more accurately valuing on base average.) Corporate governance types in the Chicago school like to emphasize the takeover market, but I personally would put greater relative weight on the fact that really bad businesses fail or at least experience enormous reduction in their market share and economic significance. Second, rightly identified by Michael Lewis, especially in his afterword in the paperback version, is agency costs. The insiders in baseball have a stake in self-perpetuation and much less stake than the owners in whether a given team succeeds, and owners who lack expertise have a hard time overcoming this.

Still, it’s hard to explain why Willie Randolph, after thirty years in baseball, lacks the elementary sense that a nine year old with Strat-o-Matic cards would almost certainly have. Call it the New York Mets’ special mojo.

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