Michael Lewis on the Hidden Economics of Baseball and Football 1/29/2007
What this covers
Michael Lewis and Russ Roberts examine how sports industries systematically misprice talent by overlooking contributions that are not immediately visible. Lewis draws on his books Moneyball and The Blind Side to show how Oakland's poverty forced the A's to innovate using statistical analysis, particularly by valuing on-base percentage—a skill that includes the ability to draw walks—which was historically underpriced because drawing walks was mistakenly seen as something pitchers did rather than a hitter's achievement. He traces the same logic through football, explaining how free agency revealed the left tackle's true value: when teams had to make explicit financial decisions, they reckoned the off-camera protection of a quarterback's blindside was worth the second-highest salary on the field after the quarterback himself. Michael Oher's personal transformation from a homeless, illiterate teenager into a top prospect illustrates that human value is similarly context-dependent rather than fixed by appearance or circumstance at birth.
The conversation moves into how these insights expose inefficiency across multiple domains. Roberts highlights how football coaches systematically underestimate the value of fourth-down attempts and two-point conversions because the personal cost of bad luck outweighs the strategic edge in an industry with scarce jobs. Lewis and Roberts both address college football's corruption, where NCAA amateurism rules function as a wage ceiling that drives recruiting violations underground while leaving only the players unpaid in an otherwise fully professionalized system. They discuss why such inefficiencies persist: in baseball, the league structure shields incumbents from competitive pressure; in movies and Wall Street, human biases seem to generate mispricings regardless of competition. Lewis argues that the A's were able to experiment precisely because Oakland's low media scrutiny provided protection, whereas a similar approach in Boston would have been destroyed before proving itself. The conversation also touches on how statistical analysis has shifted power dynamics—front offices now dictate strategy in ways that diminish managers' authority—and why some arbitrage opportunities like defensive measurement are more durable than on-base percentage, which the market eventually corrected.
Lewis argues that supposedly competitive sports industries systematically misprice talent because they value what is visible (batting average, stardom) over hidden contributions (on-base percentage, the left tackle's blindside protection), and that the same blindness extends to undervalued human beings whose worth is determined more by context and circumstance than innate flaw.
- Billy Beane exploited the market's failure to price on-base percentage, a hidden skill, because Oakland's poverty forced innovation
- Free agency revealed the left tackle as football's second-highest-paid player precisely because his contribution is off-camera and unseen
- Michael Oher's transformation shows that value is hidden and context-dependent, not fixed by birth or apparent character flaws
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Free agency caused the NFL left tackle's relative pay to jump dramatically—from being indistinguishable from and below other offensive linemen to the second-highest-paid player on the field after the quarterback—because when forced to make explicit valuation decisions, teams reckoned this off-camera position was that important.
“the left tackle on the offensive line had become the second highest paid person on the football field after the quarterback”
On-base percentage—which includes the ability to draw walks—was the single statistic most closely correlated with scoring runs, yet it was undervalued because historically drawing walks was seen as something pitchers did rather than a hitter's skill; the A's exploited this by acquiring players with high OBP but ordinary batting averages and little power, since conventionally attractive stats were already properly priced.
“the A's figured out that that on-base percentage was the single most important statistic in evaluating hitter and that it's the arm base percentage was the most closely correlated with the scoring of runs and so since nobody else was value it they set out to go acquire players with higher on-base percentages”
Football coaches systematically take too little risk—economists show going for two-point conversions and fourth-down attempts wins more games—because the small edge from being right is outweighed by the catastrophic personal cost of a bad run of luck in an industry with only ~30 jobs, where one cannot expand by founding a new franchise.
“economists have shown that that it's it's good to go for a two-point conversion it's good to go for it on fourth down in the sense that football coaches... don't take enough risks”
NCAA amateurism rules function as a wage ceiling that creates a black market: because top high school players are worth far more than the tuition, room and board colleges may legally pay, the suppressed competition does not disappear but spills over into coaches' salaries, lavish facilities, and illicit recruiting—every aspect of college football is professionalized except the pay of the players.
“The NCAA rules that created a black market and done for high school football with the Soviet police had once done for Levi's blue jeans a market doesn't simply shut down when its Goods become contraband it just becomes more profitable for the people willing to operate in it”
Michael Oher's transformation—from an illiterate, effectively homeless 16-year-old whom society had written off into a 3.9-GPA Chancellor's-List student and projected first-round NFL draft pick—demonstrates that human value is determined by context and circumstance rather than innate character flaw; removing people from pathological situations and placing them in healthy ones reveals how quickly they adapt.
“what it really is is a story about power of context and the power of of circumstance... if you remove people from pathological situations and put them in healthy ones it's amazing how quickly they adapt”
The Oakland A's used statistical analysis to the near-exclusion of traditional scouting because, operating with far less money than competitors, Billy Beane realized that without a better way to assemble a team he was doomed to lose—necessity forced the innovation, not profit-seeking ideology.
“it was because some years ago Billy had figured out that he didn't find a better way to put together a baseball team he was doomed to lose because the Oakland A's would always be operating with less money than the competition”
On-base percentage was empirically undervalued before 2002, but after Moneyball was published the market corrected the inefficiency through competition—by some accounts OBP became overvalued—forcing Beane to seek new arbitrage opportunities such as superior measurement of defensive ability.
“the authors concluded that um and it was indeed undervalued before 2002 and then when a money ball came out he actually was anything was overvalued”
Fielding percentage is a poor measure of defensive ability because, as Bill James showed, to commit an error a player must first reach the ball; the easiest way to avoid errors is simply not to get to the ball, so stressing errors perversely rewards limited range—which is why the A's built a new accounting of the game to measure range directly.
“to commit an error you have to get to the ball in the first place from an S and so the the easiest way to avoid committing errors is not to get to the ball if you it makes real no really no sense to to stress errors in that way”
The left tackle commands premium pay because he protects the blindside of a right-handed quarterback dropping back to pass; a quarterback hit from behind is more likely to be injured and to fumble, and since the passing game has grown steadily more important than the running game, protecting the blindside became the linchpin of the offense in a way the right tackle is not.
“that left tackle is protecting the back of of a right-handed quarterback when he goes back to pass... a quarterback who's hit from behind or doesn't know what coming from behind is the first place very jittery quarterback”
The offensive line is actually asymmetric: because most running backs run right, the right side gets an extra blocker, and because the best pass rushers line up across from the left tackle, the right tackle faces less ferocious threats—so the asymmetry compounds the left tackle's higher value.
“because most running backs are right-handed they tend to... run right... so they usually have an extra blocker over on that right side so that right tackle has more help”
Statistically-inclined teams use analysis not just to value players but to dictate strategy (less sacrifice bunting, less base stealing), which lets the front office intrude on the manager's traditional turf, leaving the manager a more recessive figure whose diminished authority is visible to players—making his people-management job harder and less pleasant.
“the method becomes a tool for the for the front office to intrude on what is traditionally the managers turf and the manager in those organizations is were much more recessive character”
The persistence of inefficiency in industries with low barriers to entry (movies, Wall Street) suggests, as behavioral economists would argue, that human-judgment biases produce inefficiency even in highly competitive businesses no matter how competitive they are.
“this was an example that behavioral economists would seize on and say look this... really does show you that biases in fact human judgment and and supposedly competitive businesses and they'll always be inefficiency no matter how competitive it is”
Like Chilean professional soccer clubs that openly carry university names without pretense, American football factories such as Oklahoma and Alabama already are professional teams; abandoning the amateurism pretense and openly paying players would not damage fan identification, since cities identify with teams like the Raiders regardless.
“it's what the University of Oklahoma already is... they are professional teams but in Chile they don't pretend they just give it the name and everybody's professional and paid a salary”
The student-athlete romance forces a costly, harmful fiction: colleges build infrastructure to pretend unqualified football players are normal students (taking tests and homework for them), players can graduate without learning to read, and those not canny enough to game the system are weeded out before college, leaving them no easy path to the pros except a sham education.
“it forces lots of people to lie and pretend that the football players they're bringing in are actually qualified like every other student to be there... it's quite possible for these players to get through college without actually learning how to read”
The A's were able to innovate radically precisely because they operated in Oakland where there was effectively no media scrutiny; the same innovation attempted in a high-media market like Boston would have been crucified before it could prove itself, making low-scrutiny environments a structural advantage for experimentation.
“what they did they did in Oakland where no one paid any attention at all if you try to do this if you tried to innovate radically in Boston be the first to do something you'd be crucified by very loud and obnoxious media”
Baseball's inefficiencies persisted because the absence of entry—you cannot start a team without a league—protects old-boy networks; in an ordinary industry the more efficient operator (the A's) would have acquired rivals or private equity would have bought and reformed underperforming teams, but league structure shields incumbents from competitive elimination.
“because there's no entry you can't just start a team on your own you need a league it allows these old boy networks and and traditional ways of doing things to persist”
The colleges effectively function to make temporary failure permanent: dysfunctional families and public schools create the initial failure, and the eligibility system then keeps the failed kid from ever getting out, locking in the disadvantage rather than remedying it.
“it's almost as if for the colleges are there partly to ensure that the failure that's created by dysfunctional families and dysfunctional public school systems the kind of temporary failure... remains permanent”
Power in throwing or hitting is generated by shifting weight through the hips, so an athlete begins at roughly a right angle to the target and ends facing it—which is precisely why a right-handed quarterback drops back facing the sideline and ends up exposed on his blindside.
“the correct way to do it in almost every sport is through your hips so if you think about a golf swing a baseball swing or throwing a football you basically are going to be at right angles to where you want the thing to go”
The NCAA seriously investigated whether the Tuohys' adoption of Oher was a new recruiting workaround in which wealthy white booster families adopt star ghetto athletes on behalf of a university—since once adopted as family there is nothing the NCAA could do to stop money flowing to them—illustrating how distorted recruiting incentives had become.
“their concern was was that this was the latest newest thing in fcc recruiting that it was a way around the rules that white rich white booster families we're going to go into the ghetto and adopt the star athletes on behalf of the university”
A baseball manager's job is far easier than a football coach's because it is mostly people-management rather than strategic complexity—an untrained person installed as Yankees manager might not lose many more games, whereas an untrained head coach of the Patriots would be a disaster because he genuinely would not know what he was doing.
“if you or I were made the manager of the New York Yankees and it didn't cause social disruption... the York Yankees would do really well next we”
The New England Patriots succeed by treating players strategically like commodities—letting glory players go once they become overvalued stars and replacing them with cheap substitutes, going for it on fourth down more than other coaches, and reportedly valuing roster depth (the 38th–51st players) because injuries accumulate over a season.
“what they're doing... not paying for stars when a player becomes a star basically is valued by the market of the star just going and finding some substitute cheap substitute”
Defensive ability metrics are a more durable arbitrage edge than on-base percentage because they are harder to copy and more proprietary—reliable defensive measurement is more of an art, requires more time and energy, and yields a smaller per-player benefit, so the market will be slower to catch up.
“getting a reliable measure of defensive ability is going to is a little going to be a little bit more of an art presumably a little bit more of an art also the if some if it's a less some it's less lucrative than long on base percent”
Professional athletic careers have huge arbitrary components beyond injury luck: a productive player like Scott Hatteberg, picked off the refuse heap, would have been out of baseball entirely had the A's not recognized that his ability to get on base was valuable.
“Scott Hatteberg... will tell you that if they had recognized that his ability to get on base was valuable if they hadn't been out there finding a different way to value baseball players his career would have been over”
Beane granted Lewis access because he saw no downside—most of the A's knowledge was freely available off the web, so secrecy was never the protection; Beane believed baseball management was so set in its ways that no book would change how rival front offices thought.
“look I've been sitting here exploiting this market inefficiency for the last six years using information and tools using anybody could grab off the internet and use themselves”
The change in baseball came not from front offices reading Moneyball and converting, but from team owners—prompted by Wall Street friends who read Lewis's other books—pressuring their general managers; the pressure to adopt the new methods flowed top-down from ownership feeling let down by management.
“the owner just walked into the GM's office with a book and said you read this or else so the pressure to change came from ownership because they felt they felt let down by their management”
George Mason's economics department follows a Moneyball strategy, deliberately departing from the standard way of building a department by hiring undervalued professors whose work the profession underrates—an irony given that the profession is generally hostile to the idea that markets can be inefficient.
“we look for undervalued assets and particularly those assets... professors who we think are doing great work but the profession for whatever reason is not valuing the way we think they should be valued”
Leeanne Tuohy's care for Michael Oher was driven not by abstract altruism but by encountering an extraordinary, concrete depth of need plus a practical, hard-bitten evangelical theology that treated helping him as a test from God; and once she began genuinely caring for him she grew to love him, as anyone who truly takes care of something does.
“she just had not experienced in her life... she sees them get off a city bus during Thanksgiving break in the middle of a snowstorm he's wearing shorts and a t-shirt”
If a conspicuously gifted athlete like Oher—6'5", 350 pounds with all the physical gifts of an NFL left tackle—could have his value completely ignored by the world at 15, it raises the question whose value cannot be ignored; he is therefore a parable for the systematic undervaluation of human resources.
“if that person can be can have his value completely ignored by the world you kind of wonder whose value can't be ignored and so he is a parable”
Lewis predicts the Colts will beat the Patriots, the Saints will beat the Bears, and the Saints will win the Super Bowl.
“I think the Colts are going to beat the Patriots and go to the Super Bowl and I think the Saints are going to beat the Bears and I think the Saints are going to win the Super Bowl”
Billy Beane believes the manager role is so minor that an outsider could run the Yankees without losing many games, whereas only social disruption would prevent it.
“the York Yankees would do really well next we I don't know if we'd win any fewer games”