Is offense worth more than defense and pitching? Marginal revenue product and revenue sharing in major league baseball

Justin Andrew Ehrlich, Joel M. Potter

Research output: Contribution to journalArticle

Abstract

Purpose: Sports economists have consistently found that winning positively impacts team revenue fans prefer to allocate their entertainment dollars to winning teams. Previous research has also found that fans do not have a preference for how their team wins. However, this research ignores the significant variability in revenue that can exist between teams with similar attendance figures. The authors contribute to the literature by testing whether profit maximizing teams should pay different amounts for different types of production by estimating the marginal revenue product of a win due to offense, defense and pitching. Design/methodology/approach: Using data from the 2010–2017 Major League Baseball seasons and an Ordinary Least Squares-Fixed Effects approach, the authors test whether a unit of offensive, defensive and pitching production generates differing amounts of team revenue both before and after revenue sharing. The authors then test if team Wins Above Replacement is a good approximation of actual wins while accounting for the previously observed nonlinear relationship between wins and revenue. Findings: The authors found that marginal revenue product estimates in the postrevenue sharing model for mowar, pwar and dwar are nearly identical to each other. Further, after predicting prerevenue sharing, the authors find that fans have no preference for mowar, pwar or dwar play styles. Originality/value: The findings illustrate that team decision-makers appear to be acting irrationally by paying more for offense than they do for defense. Thus, the findings suggest that team decision-makers should value defensive wins and pitching wins at the same rate as offensive wins on the free agent market.

Original languageEnglish (US)
JournalManagerial Finance
DOIs
StateAccepted/In press - 2020

Keywords

  • Baseball
  • Player value
  • Revenue
  • Salary
  • Sports
  • WAR

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance

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