Baseball Economics: Wealth Does Equal Success

After the recent Giants' World Series triumph, America was blessed with a gushing Bud "student of history" Selig and his wonderment at the competitive balance within Major League Baseball.

As MLB enters into the Free Agent fray this offseason, it might be good to take a look at the intuitively obvious: money really does buy baseball happiness.

(Fair Warning: Very Long Post. Not for those short of attention span!)

While Bud tries to give comfort to fans everywhere by proclaiming "If our job is to provide hope and faith to as many fans as possible, this has been an extraordinary period...(blah) (blah) (blah)", the truth of the matter is, of course, 180 degrees in the opposite direction and waaaaay over yonder horizon from where we actually are.

So we all know Bud is wrong. We know it instinctively. We know it with our own lyin' eyes. But just how wrong is Bud on this issue - precisely? Have you ever wondered how much more successful an MLB team can be on the field by spending the money necessary to secure proven MLB talent? Well, wonder no more. Just click the jump to become a REAL "student of history" and learn just how much cluelessness stands at the helm of our beloved sporting enterprise...

We shall begin by discussing methodology, just to get that out of  they way. For my source I found that USATODAY has some pretty accessible data going back to 1988 for all teams. It may not completely agree with Forbes or COT's, but if we assume that their numbers are close, and consistent year over year, then we can feel comfortable about the relativity between totals. Besides, it was easy to crop that data out and park it into Excel so that we can start having fun with numbers. I stack ranked the teams for each year from highest payroll to lowest. Then, I went through the playoff results for each year and granted a points system for playoff achievement for each team. This rewards teams for being competitive enough during the full season to get INTO the playoffs, and also rewards teams within the playoffs for being more successful than other playoff teams. The bottom line here is that the more often you go deep into the playoffs, the more points you get.

Wild Card Winner = 1 point

Divisional Winner = 2 points

LCS Win = 3 points

League Championship Win = 4 points

World Series Win = 5 points

Kind of arbitrary, yes, but it's my party.

1994 was a strike year without any playoffs, but there were Divisional results. 1988 through 1993 did not include a 3 Division + Wild Card system, so WC points were not available for those years for any team, and those years rendered divisional title points redundant to getting points for making it to the LCS. Also, there were only 26 teams from 1988 through 1992, and 28 teams from 1993 through 1997, unlike the 30 teams subsequently.

But with the data in place and the formulas intact, I can carve up this information any way that the readership would like. For starters, let's just go with the above.

In summary, the systems above, for the period of time being reviewed, generates a maximum of 788 points. Because each of these points represents a moment of goodness for any team and its fans, I call them 'Happiness Points". The basic distribution of those Happiness Points, sorted left to right according to which teams spent more money on payroll, is the chart below. Pretty much what you, me, and every rational baseball fan not sitting in the commissioner's chair would suspect:

Graph0_medium Yes. The farther teams align towards the left (higher payrolls), the more Happiness they and their fans have enjoyed over the past 23 years. (Like, duh.) Now, obviously, the team with the highest payroll has not always been the Yankees (more on that later), and various teams have played a role in each of the slots over the years. At this level of information, we only expose the obvious. So let's open up the floor for those to ask the obvious questions about the obvious data, and see what surprising information pops up?

First Question: Does being the heaviest payroll spender reward a team with success? Dear Bud, that answer is ABSO-FRIGGIN-LUTELY YES. Sure, due to the vagaries of human performance, sometimes expensive talent folds like a cheap lawn chair made of origami paper. And sometimes players too stupid to know better get out over their skis and make a startling run of near-accidental success. But not over the long haul. Nope. Not happening. Here are the factoids:

Throughout the course of the past 23 seasons, the individual teams with the highest payroll pulled down 13.32% of all the possible playoff fun to be had.

The Top 2 Teams snuck off with 20.18% of the happiness.

The Top 3 Teams dashed out to 27.41%.

The Top 4 teams claimed 32.74%

Yep. 1/3 of all the flags and pennants and trophies to be handed out over the last 23 years of Major League Baseball history have been snatched up by those teams spending in the top 4 out of all of baseball, both leagues combined. Money talks. Bullshit walks. Small change stays home in September.

Second Question: But does NOT spending money on payroll inhibit sucess? Well, Bud, I am glad you asked that question. YOU'RE GODAMMNED RIGHT IT DOES!

While the Top 10 payrolls have enjoyed nearly 60% of the fun, conversely the Cheapest 10 have suffered through their recent existence with only 8.5% of that same fun. And, had it not been for three teams during all that time - the 2003 Marlins, the 2007 Rockies, and the 2010 Rangers - that number would actually be a dismal 4.88%. For the Bottom 10 COMBINED. OVER THE PAST 23 YEARS.

In fact, compared to the above data which attributes 32.74% of all baseball glee to the Top 4, The Cheapskate 4 sniffed only 1.52% of that same objective in that same amount of time and opportunity. We're looking at you, Pittsburgh.

"Parity", my left nut.

Third Question: Is there some sort of "sweet spot" whereby an investor competing within that limited pool of baseball talent should be paying in order to minimize payroll but maximize results? Uh, Bud, I have seen the body of your work and I know that last question could not possibly have come from you. Please surrender your finger paints and leave class immediately.

Now that we are alone, I can safely answer YES to this question. Here is where looking at the numbers from various angles starts to reveal very interesting information. Look at the chart below. First we take the percentage of the overall total (788) that each slot contains, and we add those values cumulatively. For example, position #1 is 13.32%. Position #2 is 6.85%. But combined they are 20.18%. And the first three positions are 27.41% of the total. We continue to run through all the slots until we reach 100% of all the possible Happiness points. Then we plot out the results.

This is an inverse chart of the actual data. High values here do NOT equal success, they equal failure. There is a really good straight line relationship starting from the single highest payroll and moving out to the 14th highest payroll. Returns appear to begin to diminish right about the 15th and 16th highest payroll, where the first "knee" occurs in the chart. Beyond that point, it appears that any savings in payroll will not impact playoff results much at all, and everything out there can be heavily influenced by just plain luck.


So what we can say, safely, is that your best bet is to get into, and remain within, the top 14 highest payrolls. Some money - at least a little money - really can start to buy Happiness. A rather interesting way to look at how a bean counter might choose to compete in Major League Baseball, no?

Fourth Question: Ok, so now we know that if we want to be serious about spending MORE on payroll with the hopes of seeing that extra investment result in SUCCESS, we have to forecast what the top 14 payrolls will look like throughout all of baseball and try to start at about 14th as our baseline, or starting point. What happens after that? Can we forecast the benefits of moving up the scale in relative payroll?

Well, kinda. Yeah. It turns out that the average improvement on the Happiness Scale as one migrates up from 14th to 1st is 4.87% per slot. This means that every time you climb above some other team in the payroll chart, you snag enough more talent to join a better table at the party, and share in the claim of about 5% more success into and throughout the playoffs year over year.

This is kind of a weird stat, so let me elaborate a little. If you are one of the Top 11 in payroll, you are inside a bucket that has yielded 65.23% of all playoff success. All other teams are fighting over the remaining 34.77% of table scraps. If you increase your payroll and move up into the 10th slot, you are now in a bucket that has yielded only 59.77%, leaving 40.23% in table scraps. This progresses until you end up the Top Dog and your bucket of nuggets is down to 13.32% of the total, and everybody else scrambles for the 86.68% balance. Got it so far?

Good. Now if we INVERT those numbers we can view the same data as a kind of percentile. The 11th place role now is in the 34.77 percentile. The 10th place is now at the 40.23 percentile. The Top Dog is the 86.68 percentile. Here is where I came up with that ~5% improvement per slot. Jumping up payroll will grant you about 5 more percentile points per slot. And dudes and dudettes, that is pretty damned linear. Here is the same chart above, but NOT inverted and back in it's normal configuration.


Let me be clear: this does not mean that YOUR TEAM will snag all 5% of that improvement. It means that you are now in a smaller circle of friends who will share in 5% more happiness than was available to you before.

I know that this information does not feel revolutionary. To anybody not named Bud Selig, it's not. But what is interesting is how easy it is to quantify the impact of The Almighty Dollar. THAT doesn't feel right, because it suggests an extremely tight correlation between how much a group of players can command from a pool of money, and how well they will actually perform relative to the other groups of players who take a lesser or greater share of money from that pool. Are organizations at the top end really so good that they can nail on-field performance over time and compensate accordingly? I dunno, but those be some interesting numbers, there...

Fifth Question: Are the Yankees really the root of all Evil?

Yeah, pretty much. It is interesting to note that from 1988 through 1993, before the 3 Division + Wild Card system, the Yankees were only Top Payroll Dog once (1988). Starting in 1994, with the 3 Division + Wild Card system, the Yankees have been Top Dog every year except 1995 (Toronto) and 1998 (Baltimore). And, even in those years, the Yankees were merely #2.

The lowest the Yankees were in this span was 1991, when they were ranked 8th overall. Their's was merely 4.42% of the total MLB payroll, trailing the Top Payroll of the Oakland A's by about $6 million. Oakland was 5.34% of all payroll that year.

Between 1998 and 2002 the Yankees bounced back and forth between that low of 4.42% of total MLB payroll and a high of 6.41% (1988). But starting in 2003 things began to heat up. The Yankees went on a run of 7.18%, then 8.89%, then 9.5% in 2005. They pretty much have hit an equilibrium around 7.6% of total MLB payroll over the past 4 seasons. 

But how does info that compare to anything? Well, Top Dog was 6.41% of all payroll in 1988 and 6.15% in 1989. But then from 1990 through 1998 whoever was Top Dog never exceed 6% of MLB payroll total. There was a 5.06%, a 5.26% and a 5.34% in there, for example. From 1999 through 2002 things bounced between 5.55% and 6.22%. This was, in the grand scheme of things, a slight yet significant increase. But THEN, with 2003, things get all blown up. We go 7.18%, 8.89%, 9.5%, 8.37%, 7.65%, 7.78%, 7.56% and, finally in 2010, 7.59%. All Yankees. They just put their foot down on the accelerator pedal and took off.

Look at the chart below. This chart shows BOTH the relative position of the Yankees versus all other teams in terms of payroll (the blue dots connected by the thin blue line), contrasted against how many playoff "Happiness Points" they collected each year (the stacks of red balls). That gray line right the runs across the middle, right at payroll slot #15, is what I call the "Selig Line". As we have seen earlier, you want to be ABOVE that line in order to improve your chances of playoff success (not mandatory, but certainly preferred).


The Yankees have spent their entire existence over the past 23 seasons above the Selig Line. As you can see, Happiness Points are not guaranteed, but they sure do show up a lot!

Sixth Question: What About The Red Sox? They suck. But here is their chart:


Cute little underdogs? Bullshit. But enough about the Red Sox.

Seventh Question: What About our Angels?

Well, back in the early 1990's they certainly were among the highest spenders on payroll. That didn't work out so well. We then went through a period between 1993 and 2001 of moderate spending. But look at the chart below. And, while looking, please note that Bill Stoneman became GM of the Halos in 2001. Think about that the next time any of you want to launch scuds in his general direction.


 (P.S. - I am sure that there is some level of curiosity about all the other teams in MLB and how their chart looks over this same period. Winter is a long time. I have zero interest in mythical trade possibilities, so I will have lots of time to build those and publish as follow-ups. And I do take requests. Stay tuned.)

Eighth Question: Any other tidbits? Sure.

*  In the span of time studied MLB payroll has climbed 821.85%.

*  There were two HUGE growth spurts: 1989 - 1992 where growth averaged 27.14% per year, and 1997 - 2001 where growth averaged 17.01%. From 2002 to present the growth rate has been pulled back considerably, averaging 3.74% and including 2 years of negative growth (2004, 2009). There probably are pretty good reasons for those growth spurts, but I am long enough already. I will come back to those if others don't already have the answers.

 *  In 1988 the total payroll for all of MLB was $294,817,820. In 2009 the payroll for the Yankees was $209,081,577. The Yankees payroll in 2009 could have paid the salaries of 71% of all baseball players on all teams in both leagues of Major League Baseball in 1988.

*  MLB payroll in 2010 alone, was more than MLB paid in payroll for the years 1988, 1989, 1990, 1991 and 1992 COMBINED. Who am I to complain about $5 hot dogs?


Bud Selig is grossly wrong. Money really does buy happiness in Major League Baseball. Any semblance of parity is exclusively due to the performance of outliers. Not only can we prove that money buys happiness, but we can quantify how much happiness such money can buy.

It is critical, if one expects to realize playoff success over time, to get at or above the 15th highest payroll in baseball, and stay there. It doesn't matter how many teams there are overall in baseball. Expansion does not create a greater number of elite players. And it is not about how many bad players are at the bottom. Those don't drive the payroll market and they rarely drive deep playoff success over time.

Money spent is not directly relative to success. But money spent relative the spending of others IS relative to the success realized over time.

Going forward, now that I have the data assembled I can spend more time collating it. Historical reports for all teams is merely a work exercise, but interesting. Comparison of data items against actual events in baseball history might explain trends and exceptions. And there is a very interesting relationship between the top 15 teams that warrants further study, since their historical success seems to be quite linear in comparison to relative payroll against one another.

This Fan-Post is authored by an independent fan. Tell us what you think and how you feel.

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