## The Extortion Game

I always enjoy reading Eric McErlain’s thoughts over at Off Wing Opinion, and something he said the other day got me to thinking.

…Washington is simply more valuable to MLB without a team, as a bargaining chip to blackmail other cities into paying for publicly funded stadiums, than it is as a home for the wayward Montreal Expos.

I have heard this explanation for the lack baseball in DC many times, but I am not sure if the explanation holds water. (BTW, do not take this to be an indictment of Eric’s site, he just got me thinking. Off Wing is one of the best sports weblogs on the web. If you are not reading it daily, you should be. Eric does a fantastic job.) While MLB might gain subsidies for threats to leave to DC, MLB is certainly losing something, the revenues of having a baseball team in DC. The question is, do the revenues generated by the extortion threat exceed the revenues lost from not having a team in DC? Let me set up a bare bones model to see what is necessary for extortion to work.

When there is an available market for a MLB team the league has two options:

1) sell an expansion team to the new market or

2) use the market to extract subsidies for current teams in the league.

The expansion team will sell for the net present value of the future revenues of the team (V) and be divided equally among all (N) teams. Thus each team will receive V/N from the expansion team. When extracting subsidies the amount any team can extract is equal to the probability (P) that the team will leave for the open market multiplied by V. Since only one team could move to the target market, the probability that a team will leave will be 1/the number of marginal teams threatening to move (M), or 1/M. For example, if ten teams threaten to leave for DC the probability than any team relocates is 0.1. Therefore, the total amount of subsidies each marginal team can extract is equal to V/M, with a total value that will sum to V for the entire league.

If every team in the league can threaten to leave its current city then the owners will receive subsidies equal to the gains from expanding to the new market. However, there is a problem with this. Expansion threats by existing teams must be credible. The Yankees and Red Sox may get public subsidies but no politician would seriously believe these teams would move to another market. Teams that cannot credibly threaten to leave a market receive none of the benefits of extortion, while M teams will receive more subsidies and prefer extortion to expansion.

So now we get down to the nitty-gritty. The current MLB rule is complicated, requiring ¾ of the affected league and a simple majority in the other league for approval of relocation and expansion. Basically, this means the league needs 20 teams to approve either relocation or expansion. Let’s assume all M teams would vote for relocation (because it makes their threats to leave credible) and all non-M teams vote would vote for expansion. If the number of M teams were greater than 19, the league would choose to use an available market for extortion rather than expansion. Twenty teams could credibly threaten to move to the new market with each receiving 1/20th of the value of hosting a new team in the target market. If the number of non-M teams were greater than 19, then the league would choose to expand into the new market with each team receiving 1/30th of the value of the new team. But we have some indeterminate space. What happens if neither faction has the required supermajority? Well it depends on bargaining strength, and I think the non-M teams will have a stronger position. Why? The status quo, with no team receiving any fraction of V, is the fallback position. M teams have something to gain from V (V/30), but non-M teams do not receive anything from relocation. No non-M teams would have an incentive to deviate from the status quo, but M teams do have reason to deviate. So what does this mean? Well, the choice of expansion versus extortion is determined by number of M teams.

Likelihood of reality about the number of M-teams:
–10 or less: Most realistic (like at Radio Shack)
— Less than 20 but greater than 10: Possibly realistic
— 20 or greater: Not realistic

This leads me to believe that MLB is more likely to use available market for expansion rather than extortion. Now, before you start flaming me for all of these “assumptions” I will grant that the model is very basic. It is just a starting point for my thinking on this issue. I am happy to receive suggestions. I think the most troubling unstated assumption of my analysis is that cities with teams properly perceive the threat of a team leaving. If the probability of departure is perceived to be greater than the actual probability, then extortion may be preferable to expansion. But, if cities overestimate the probability of team relocation, then leaving a city open for extortion is not necessary. Owners can extract subsidies by threatening to move the team to unqualified markets AND obtain revenues from expanding into a qualified market.

## Braves Notes

While this is not a Braves weblog, I am a Braves fan. From time to time I may want to just want to say stuff about the Braves or other random baseball stuff that is one my mind. I’ll use “Braves Notes” to do this. If you are interested in Braves stuff, check out the Braves Blogs on the left sidebar for some excellent links.

— So, I was worried about DeWayne Wise for the Braves? I don’t think Cox has yet used him as a defensive replacement for Chipper, as I hypothesized, and he has played pretty well so far (.944 OPS, but I expect some mean reversion). I think I now see what Schuerholz and Cox like in this guy, despite his poor hitting in the past, speed. Did you see this guy truck around the bases on Saturday night for a triple off a right-center gapper? If Jimy Williams were coaching third he would have waved him in…and he might have made it. I am still not sure if it was a good roster move, but I now understand why this guy is still hanging around the majors. BTW, check out the comments on the original Wise post to see some interesting analysis by Tangotiger.

— Reasons for concern about the Braves. Smoltz has already given up 3 HRs. JD Drew is already “day-to-day.” Ortiz and Hampton are hitting better than they are pitching (although Ortiz looked good last night). I hope Furcal is OK. Nitkowski and Cunnane have been dreadful.

— Reasons for optimism about the Braves. Marcus Giles is the man! Chipper has 3 HRs. Julio Franco’s at-bat against the Cubs last week (13 pitches, I think). John Thomson has looked good. Alfonseca has not been himself.

— I happened to catch the latter innings of the past two Cubs/Reds games and they have been worth it. Both involved dramatic 9th inning comebacks by both teams. It was also funny to see Kerry Wood to show up the umpire 3-times before getting tossed. I am curious how that will affect his close calls all season. Cubs fans don’t worry, Dusty says Prior will play in 2004. Uh oh! If you have to announce that someone will play this year that is not good news.

— How bad is the NBA? Yesterday, I chose to watch MLS soccer over the NBA playoffs. This is from a guy who used to know every NBA roster 5 years ago. Maybe it’s just me, but I just don’t care.

Update: Oh no! Chipper’s down! Hopefully, it is not as bad as it looked. The Braves have to put either Chipper or Drew on the DL. Who are they going to bring up? Hessman has played in the outfield before, but I hope they go another way. Langerhans and Hollins would appear to be the next options. Unfortunately, they are hitting .217 and .120 in Richmond, but Langerhans is putting up a respectable .367 OBP. I don’t know much about Russell Branyan but he has walked 12 times in 33 PAs with a big fat .529 OBP, so I guess he is also a likely candidate. I think there is a decent chance that Schuerholz might make a deal. I had a feeling that he had one more deal in the works when he picked the roster, so now would be a good time to pull the trigger.

## Campaign Spending Again

Last week I posted a link to some data on MLB owner campaign contributions to Presidential candidates, so I thought I would point to this article in the NY Daily News that has some more information. Basically, the story indicates that sports figure giving ranges across the political spectrum.

The Daily News analyzed campaign contributions from dozens of sports figures – owners, players, coaches, managers and legends – from the past three election cycles to see where the money is flowing. It shows a world of folks who lean toward the conservative side, but are pragmatists at heart.

For more, see the discussion on Primer.

## Stats on Paper

Well, the new low price of \$25 induced me to purchase The Baseball Encyclopedia by Pete Palmer and Gary Gillette. I’d never really thought it was worth it to pick up a copy of a book of stats that I can get online from Baseball-Reference. But after getting my hands on it I can see how wrong I was. My feelings are similar to Bill James’s comment on the cover,

Sure, you can stumble across Cliff Dapper in cyberspace, but what are the odds? If you don’t have a print encyclopedia, what are your real chances of discovering that Milo Candini could actually hit? Major league players don’t deserve the wispy, ephemeral immortality of buzzing electrons; they deserve the cold, marble permanence of black ink on white pages.

Well, it only took me a few hours after my purchase to have my first Cliff Dapper experience. I started looking for players who played only one year, but who in their one brief moment in the majors performed well. It didn’t take me long to run across the name of someone I hadn’t thought of in a long time, Tom Dodd. Tom Dodd made only a brief appearance for the Baltimore Orioles in 1985. In his 16 trips to the plate he reached base successfully six times with three hits, two walks, and was hit by a pitch once. And one of the hits was a home run — the only time he ever got to touch home plate at the major league level. His career OPS of .837 is not something to be ashamed of, but he was never able to get back to the big leagues which is sad.

The reason Tom Dodd makes me smile is that I got a good look at him when he played for the AA Charlotte O’s. A few O’s went on to be more famous than Dodd (see Cal Ripken and Eddie Murray) but there was never a better O than Dodd. In 1987 he was the MVP of the Southern League with 37 home runs and 127 RBI. Not surprisingly he was always a fan favorite. I guess his numbers were just not impressive enough to make the jump. The O’s stadium, Crockett Park, was so tiny that I actually played games on the field in 13-year-old ball. The park was ugly with mostly make-shift bleachers that replaced an historic stadium that burned to the ground. It was owned, as was the team, by the family that brought you WCW (formerly NWA) wrestling with Dusty Rhodes, Magnum T.A., and Ric Flair. The stadium is now a subdivision in the Sedgefield/Dilworth/South End area of Charlotte. The park was within walking distance of my house, so I spent a few summer evenings there. When I was 5 I got to throw out the first ball at a game by winning a contest. What a fantastic way to discover the game of baseball. I still remember my winning essay, “I can run fast and throw the ball.” The latter was a lie, because my father had to teach me how to throw a baseball after I found out I won.

To me, Tom Dodd is more than the trivia question answer to “with whom was Dale Murray (edit, see comments) traded to the Yankees for Fred McGriff?” He is a gateway to a fond memory of my youth. Thank you Baseball Encyclopedia. I still need my e-stats, but there are just some things they can’t do. Only 25 bucks…I think I got some consumer surplus.

## Welcome Slate Readers

I just checked my web traffic and noticed a bounce today. Well, it turns out Sabernomics was listed in an article on baseball blogs by Josh Levin at Slate. Levin has a pretty good list of Baseblogs in the article, which is worth checking out.

If this is your first visit, thanks for stopping by. Hope you will continue visiting. Thanks to Josh Levin for the plug.

## Winning and Attendance in MLB

Both Doug Pappas and The Sports Economist link to a study by the Star-Telegram (free registration) on MLB team attendance from 1999-2003. The studies findings are startling:

High-scoring games and big-money players are more important than wins in drawing fans to major-league baseball games, according to a Star-Telegram analysis of all 30 teams over the past five years.

— Every increase of 100 runs scored brought in 273,160 fans.

— Every \$10 million increase in payroll brought in 130,000 fans.

— Every \$10 increase in the cost of attending a game brought in 51,372 fans.

Wow! Especially interesting is the interpretation of a violation of the law of demand, about which Skip notes, “Ahem. Higher prices “brought in” fans? I believe we have a specification issue here!” Clearly, higher prices do not increase consumption, so I decided to further investigate the study. Maybe there is something else wrong with the study.

Since the article does not list the exact methodology I tried to reconstruct it on my own as best as I could. I gathered five years worth of data on attendance, winning percentages, ticket prices, fan cost index (FCI), runs, era, HRs, and opening day payroll by team.* All of this data is available at MLB.com, Doug Pappas’s, and Rodney Fort’s websites. I looked at these variables for all 30 teams from 1999-2003 for 150 total observations (although the observations will be reduced to 120 because of my empirical technique to control for autocorrelation). I estimated the model with dummy variables for each team to capture team-specific factors, and I controlled for detected autocorrelation. If you are familiar with Stata, I used the xtregar command to estimate the model. Here are the regression results.

Variable Coefficient T-stat
Win% 1480091 1.48
Payroll 0.01 3.26
Runs 371.10 0.48
ERA 3418.86 0.03
HR -95.92 -0.06
Ticket 28244.04 1.45
FCI 5411.56 1.37
R-sq 0.37
Obs 120

My results are a little different from the Star-Telegram estimates, but this can be explained away by some small specification issues. But importantly, winning percentage is not statistically different from having no effect on attendance, so I feel like I am on the right track. In fact, only team payroll is statistically significant. So I decided to investigate further. Check out the bivariate relationship between attendance and winning percentage.

This seems pretty real to me, but it might not be. What could be wrong? Well, let’s take a look at the original specification. The model includes winning percentage along with runs and era. This is not much different than including runs scored and runs allowed, which would correlate with the Pythagorean win percentage. This is almost like putting win percentage in the regression twice. This creates a problem known as multicollinearity, which can bias the standard errors upwards and lower t-scores. While I am normally hesitant to drop potentially collinear variables, I think it is the right thing to do in this instance. When these redundant variables are dropped from the analysis the coefficient changes very little and the t-statistic rises. This gives me even more confidence that this is the right thing to do.

Variable Coefficient T-stat
Win% 1680622 3.16
Payroll 0.0085859 3.3
HR 373.26 0.32
Ticket 27977.48 1.46
FCI 5660.11 1.46
R-sq 0.37
Obs 120

Now, that is a little more like it. To put the winning percentage estimate in perspective, a 0.1 increase in winning percentage (e.g., going from .500 to .600 team) is associated with increasing season attendance by about 170,000 fans per year, or about 2,000 fans per game. So, I don’t think it is time to throw out the notion that winning improves attendance just yet.

*(Note: I would like to point out that I did not include a dummy for whether or not a team made the playoffs like the Star-Telegram study, because I think this would only exacerbate multicollinearity the problem…plus it would be a pain to gather.)

Update: Skip takes the critique further. The Star-Telegram study is looking even worse. Check it out. He also calls me a “regression maestro.” Thanks Skip, but you can just call me Bob Cobb. 😉

## The “Decline” of Foreign Players in MLB

According to and AP report the percentage of international players on MLB rosters has declined since last season.

The percentage of major leaguers born outside the 50 states declined slightly to 27.3 percent after six straight seasons of increases. Of the 830 players on rosters and disabled lists as on Sunday, 227 were born outside the 50 states, the commissioner’s office said Thursday. That was down from 230 players (27.8 percent) last year.

Are you kidding me? A drop of half of a percentage point (3 players) generates a headline declaring falling numbers of international players in MLB? Come on guys! At least say the number has not changed, stabilized, or stopped increasing. What is important is the magnitude of the change and the current level of international participation, not solely the direction of the change. I am not sure whether this is the fault of the AP or the person who wrote the MLB press release, but this is ridiculous. Now I am going to have to spend the weekend listening to sports announcers discuss the falling number of players in the majors whenever they get bored.

## Owner Politics

Dave Pinto points to an interesting post by Philip Michaels at Idiots Write About Sports (their name not mine) on owner donations to Presidential campaigns.

The conclusion:

People rich enough to own ballclubs tend to give money to Republicans. Who would have figured?

While on the whole this is true. By my calculations from his reported numbers George Bush received \$45,864 while all Democrats received \$27,000 (I include even his asterisked numbers). So of the 22 teams making donations 63% of the donations went to Bush. 5 teams contributed to both parties. While Bush does get a majority of the donations it is not a huge majority, especially considering his close ties to baseball as a former owner and he is the sitting president. What I find more interesting is the paltry sums these guys give. The average donation was \$2,000. Are you kidding me? That won’t even get you invited to cocktail- weenie reception for intern staffers in the basement of the Capitol. Maybe this has something to do with campaign finance laws, but that doesn’t explain the 6 American teams that gave jack-squat to both parties.

Props to Michaels for gathering the data. That is some interesting stuff.

## Are Defensive Replacements Net Beneficial?

I was reading Rob Neyer’s latest column about the lack of offense from Braves reserves DeWayne Wise and Mike Hessman when I began to wonder why Schuerholz and Cox would put them on the team. Neyer makes a convincing case that these guys don’t have big league offense, but what about their defense? Well, Wise seems solid — at least as far as our sorry defensive metrics can tell us. Though his career has been short he has never committed an error. In addition his range factor is above the league average for outfielders. (Hessman’s MLB career has been too short to learn anything about his fielding from the stats, so I won’t focus on him.) Wise may be a lefty, but he is only a .490 OPS lefty who has probably only platooned in his carrier, so knock him down to a .400 OPS everyday player. He had a good spring (.318 BA), but this is not comparable to MLB numbers due to the weaker competition. Therefore, I think it is really pushing it to say he made the team for any reason other than good defense in the outfield. When the Braves have a one-run lead going into the ninth I expect to see Wise replacing Chipper in left…but is this a good idea?

This leads me to the more interesting question, are defensive replacements good baseball strategy? The general baseball wisdom is that when you have a small lead you will sacrifice offense for defense to protect your lead. But I am not convinced that this is a good idea. Let’s assume that Wise is a better fielder than Chipper (although their ZR’s are very close). Bobby Cox has to maximize the net difference in runs between the Braves and his opponent. If he leaves Chipper in game there is a slight chance that the other team will hit a ball that Chipper will miss but Wise could get. Of all the possible places a batter could hit the ball, the chance that it lands in a “marginal zone,” where Wise can convert a ball that Chipper could not into an out, is very low. I suspect the chance that the Braves lose the lead is not much affected by Wise being in the game. But, if Chipper is still in the game after the lead is gone his bat is available to produce runs. Putting Wise in the game decreases the likelihood that a ball in left-field will fall for a hit, but if more runs are needed (as they might be in a close game) you might be better off pinch-hitting Russ Ortiz.

The point is, I don’t think this tradeoff is a good one. My hunch is that there is a greater chance of needing Chipper’s contribution on offense than the chance of needing Wise’s small improvement on defense. And in a one-run game, Chipper’s offense is very valuable, so I would not take him out for a defensive replacement. Also, this might vary by position. While I think most outfield defensive replacements are not worth the trade-off I would guess that infield replacements ought to be more valuable. If anyone out there knows of any studies on this issue, I would be interested to know about them. I have found nothing on this in my web searches. I am toying with a method to test this, but I think it will be difficult.

Update: Just after I posted this I saw that Mac at Braves Journal has a good post on this topic.

## Labor Strikes Don’t Hurt Attendance

I just received my latest issue of the American Economic Review (AER), which has a nice article by economists Martin Schmidt (Portland State) and David Berri (Cal. St.-Bakersfield) titled, “The Impact of Labor Strikes on Consumer Demand: An Application to Professional Sports.” I thought I’d summarize their findings, which are interesting. For those of you who don’t know the AER is the main journal of the American Economic Association. Even for economists it is pretty dull reading; however, it is highly selective, prestigious, and operates according to rigorous peer review. Therefore, I am not going to nit-pick about empirical methodology or other criticisms that often bog down interesting discussions. I am going to assume that that discussion has already taken place between the authors and referees. I think the empirical conclusions are valid and worthy of discussion.

Schmidt and Berri attempt to examine the impact of work-stoppages in professional sports on permanent attendance. The general impression I get from the media is that owners and players both seek to avoid long labor disputes to keep from alienating fans from watching the game. How many interviews do we see a typical American saying, “I’ll never watch another game” in the midst of strike? The problem is to see if these fans do what they say they are going to do. Using data from MLB, NFL, and the NHL Schmidt and Berri look at attendance before and after strikes in all three sports while controlling for various factors that might bias the results. There analysis is particularly good for baseball due to the greater availability of data. They actually look at changes in attendance for individual teams in MLB. Here is a summary of their results.

Our analysis offers historic evidence that suggest the consumers’ threat has not been credible. In general, none of the events we examined had a permanent impact upon attendance in these sports. In fact, in almost all instances attendance immediately rebounded in the year following the labor conflict.

So all those commentators who claimed that the McGwire-Sosa home-run chase was responsible for the resurgence of baseball following the 1994-95 strike were wrong. Certainly baseball received an attendance boost, but the game was already on the rebound before the 1998 season. While average MLB attendance has yet to reach its 1993 high (thanks to expansion) MLB attendance by 1996 had already returned to its 1992 level and is still climbing.

You might think this is a good thing until you realize the incentives this creates for owners and players to avoid strikes.

This explains why strikes and lockouts are happening with increasing frequency in professional sports. If the levels of attendance in the postconflict era are equivalent to the preconflict time period, only short-run costs are imposed upon conflict participants. Given the millions at stake in each dispute, our analysis would indicate that labor conflicts that disrupt the regular seasons of these sports are likely to occur again in the future.

Uggg, which explains Harry Truman’s desire for a one-armed economists — who doesn’t follow up good news with “on the other hand.” I would be curious to see if this holds for the NBA as well. I know attendance is down, but I attribute this to some other problems with the game. I used to watch the NBA quite a bit, but I don’t care about it any more. And this has nothing to do with my aversion to labor strikes.