Diamond Dollars: The Economics of
Winning in Baseball by Vince
Gennaro
Baseball Meets Financial Analysis
Diamond Dollars is a fresh, provocative, insightful, and analytical look at
the business of baseball. Using the win-revenue relationship as a
foundation, author Vince Gennaro delves deeply to explain how a teams
level of competitiveness impacts the value of its players, to explore how a
well-developed farm system contributes to a teams economic value, and
to discuss some recent business trends, such as team-owned regional
sports television networks. In doing so, Gennaro answers a number of
questions that speak to baseballs bottom line. How does winning affect
revenues for each team? What is a players economic value to his team?
Why does a berth in the postseason have great economic value? What is
the economic value of a productive farm system? Does competitive
balance exist in baseball today? He also examines the differences in
small-market and large-market teams, discussing how economic and

revenue opportunities vary, and highlighting the New York Yankees and
the Boston Red Sox and their methods. The book Moneyball was a
breakthrough for baseball because it unveiled inefficiences in the way
talent was evaluated. In a similar fashion, Diamond Dollars addresses the
inefficiency in the way players are compensated and delivers an
unparalleled inside look at the economics of baseball today. A
publication of Maple Street Press, distributed by Potomac Books, Inc.
Personal Review: Diamond Dollars: The Economics of Winning
in Baseball by Vince Gennaro
I am bringing up my background because as you will see it will become
important in my view of this book. I graduated Magna Cum Laude with a
B.S. in Business Administration with a double major in Accounting and
Finance. Also, I have a M.S. in Taxation. As a result, I have a very good
financial background.
If you want to have a good understanding of the material in this book, then
I would recommend that you have a decent understanding of using basic
fundamental analysis to value a business. Finally, I would highly
recommend understanding models that are produced by regression. There
is tons of data in this book, and the researcher used a lot of regression
models. He went back 30 years, and if a team was not around for 30
years, then he used all the data they had since they started playing
Baseball. The book is broken into 4 parts.
Part 1:
Discusses how wins effect the future attendance of a team. He uses the
term "Win/Curve", and concluded that in general, attendance is maximized
when a team wins around 92 or 93 games. The latter is most likely caused
by a team in a Pennant Race. Also, the farther a team goes into the
Playoffs, the more season tickets that will be sold the following season.
Finally, there are different levels of revenue generated from the
"Win/Curve" that are broken into different revenue categories, multiple
revenue streams and multiple revenue layers. Revenue streams are the
daily revenue such as cash from attendance, concessions, local
broadcasts and sponsorships. On the other hand, multiple reason layers
are broken into 4 categories (1) Win Dollars - represents the change in
revenue from daily revenue sources when a team wins over a period of
years. (2) Postseason Dollars - Teams do not make money for just making
the Postseason because the revenue from daily operations is enough to
cover the bonus salaries for the players. Teams make their money by
increasing season ticket holders over the next 3 to 5 years. (3)World
Championship Dollars are created when a team wins the World Series.
More fans by season tickets just to have access to Playoff tickets. When
the WhiteSoxs wonthe 2005 WS their seson ticket revenue jumped 12.5%.
The 2nd Part of Diamond Dollars focuses on valuing players. One of the
techniques used to value a player is broken down in the following manner.
Lets use Vlad. His stats are used to figure out how many additional wins

he helped produce. Then, the additional/marginal wins are plugged in to
win the marginal revenue he produced. If the amount of marginal wins he
helped produce has no effect on the playoffs, then its over, but if his
marginal wins helped make the playoffs, then postseason and possibly
world series revenue is added.
The 3rd Part discusses the importance of a good Farm System. An MLB
team would be hard pressed to define a more important leverage point of
its on field and business success than its scouting and player development
system. As a result, noting a team does will have a greater impact on their
cost structure than a success or failure of their farm systems ability to feed
talent to the Major League Team. Therefore, the team with home grown
talent (aka Twins, Marlins, Tampa Bay), and does not have to waste
money on high priced free agents just a few free agents to fill in missing
pieces can maximize their revenue. As a result, a team that can make the
Playoffs or World Series under the latter situation will make a higher net
profit than a team that chooses to build their team around high priced free
agents.
Part 4 discusses the economic value of building a team brand. Some
teams such as the Cubs, Yankees, and Cardinals, realize a revenue
cushion in form of loyalty of their fans in years when the team is less than
competitive. AS a result of the latter, teams with strong brands are ore
likely to spend to win because their revues sag less in down years. Also,
there is a theory of a 3 phase program to build a brand (1) BUILD
CREDITABILITY though ownership showing a commitment to win, team
never quits, Front Office acquires several big name free agents (2)
COMPELLING ENTERTAINMENT VALUE - ownership demonstrates their
commitment to win in part 1 by adding more big name players, the farm
system begins to produce a few quality players to go with their free agents,
and as a result fans begin to feel optimism. Also, entertainment value can
be increased by a new ball park, or add attractions to the park for families
(3) CREATING AN EMOTIONAL BOND WITH FANS Fans believe that
the owners are want to win as much they do, team maintains continuity
with key players, team has several "likable" players, Ballpark has feel of a
baseball theme park, team owns their own broadcast network so they not
only have control of how information is presented they have the ability to
bring back legends to call the game
Finally, the book has some fun, and discusses some unique topics such as
the YES Network, and the effect it has had on every MLB team to
broadcast their games. There is a chapter devoted to Babe Ruth, and how
he would be valued in today's game. The author even pokes holes in the
"Moneyball" philosophy of Billy Beane. First, he believes Beane's on ego
hurt him in that he let the cat out of the bag too soon by writing
"Moneyball", and basically rubbing his success in everyone's face.
Another flaw is that Beane does not give enough credit to the players on
the team that are not homegrown, or in other words the homegrown kids
alone would not have been able to win solely on their own. Finally, Beane

lets go of his arbitration players too soon. Yeah, he gets more value back
this way, but why give up a Hudson, Zito, and Blanton when they have still
have a chance to go far in the playoffs. Is an extra draft pick really enough
of a reason to give up a chance at winning the World Series.
Diamond Dollars is a phenomenal book, and I would recommend it to
anyone who wants to understand theories about the Front Office. Its nice
to see well thought out theories backed up with real data. However, this
not a book to read on the beach or for leisure. Each section is very similar
to reading an article in an academic journal. Therefore, I would
recommend to read about 20 to 30 minutes at a time so your brain can
absorb what you just read. You can read it in one sitting, but it would be a
waste.
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