A Different Take On The Dodgers’ Spending Spree
The Dodgers are rich. Very rich. After spending $2.15 billion to buy the team, the new owners have opened the checkbook again and again and again. First, in the trade with the Red Sox that netted Adrian Gonzalez, Josh Beckett, Carl Crawford and Nick Punto. Next with the winning bid for Korean pitcher Hyun-Jin Ryu. Then with the free-agent signings of Zack Greinke and Brandon League — and the contract for Ryu.
Over on his blog, my colleague Mike Petriello estimates the Dodgers’ current commitments for 2013 at $246.9 million. That figure includes deferred payments still owed to Manny Ramirez, Andruw Jones and Hiroki Kuroda, but excludes Ryu’s $25.73 million posting fee. Salaries for A.J. Ellis and Ronald Belisario — who are entering their first year of arbitration — still need to be added. And perhaps the Dodgers make another small move here or there. But let’s not quibble over pennies.
Instead, let’s assume the Dodgers’ Opening Day payroll is $250 million. A nice, big, round number. A quarter-of-a-billion dollars. Unprecedented, right? Blows anything the Yankees have ever done out of the water, correct? The most the Yankees ever spent on an Opening Day payroll was $209 million, back in 2008. But you can’t just compare $250 million spent in 2013 to $209 million spent in 2008 without adjusting for inflation. That’s not how money works. The value changes over time. Let’s take a look.
Below is a chart listing the Yankees’ Opening Day payroll for each year from 2004 through 2012, as reported by the Associated Press. The right-hand column adjusts those figures for inflation to 2012 dollars, using this inflation calculator.
| Year | Yankees Opening Day Payroll | Adj. for Inflation (2012) |
|
2004 |
$182,835,513
You Aren't a FanGraphs Member
It looks like you aren't yet a FanGraphs Member (or aren't logged in). We aren't mad, just disappointed.
We get it. You want to read this article. But before we let you get back to it, we'd like to point out a few of the good reasons why you should become a Member.
1. Ad Free viewing! We won't bug you with this ad, or any other.
2. Unlimited articles! Non-Members only get to read 10 free articles a month. Members never get cut off.
3. Dark mode and Classic mode!
4. Custom player page dashboards! Choose the player cards you want, in the order you want them.
5. One-click data exports! Export our projections and leaderboards for your personal projects.
6. Remove the photos on the home page! (Honestly, this doesn't sound so great to us, but some people wanted it, and we like to give our Members what they want.)
7. Even more Steamer projections! We have handedness, percentile, and context neutral projections available for Members only.
8. Get FanGraphs Walk-Off, a customized year end review! Find out exactly how you used FanGraphs this year, and how that compares to other Members. Don't be a victim of FOMO.
9. A weekly mailbag column, exclusively for Members.
10. Help support FanGraphs and our entire staff! Our Members provide us with critical resources to improve the site and deliver new features!
We hope you'll consider a Membership today, for yourself or as a gift! And we realize this has been an awfully long sales pitch, so we've also removed all the other ads in this article. We didn't want to overdo it.
|
$223,890,748 |
|
2005 |
$205,938,439 |
$243,917,367 |
|
2006 |
$194,663,079 |
$223,357,536 |
|
2007 |
$189,639,045 |
$211,567,048 |
|
2008 |
$209,081,577 |
$224,632,834 |
|
2009 |
$201,449,289 |
$217,205,634 |
|
2010 |
$206,333,389 |
$221,797,817 |
|
2011 |
$201,689,030 |
$207,407,792 |
|
2012 |
$197,962,289 |
$197,962,289 |
Look at 2005. When the Yankees’ Opening Day payroll of nearly $206 million is adjusted for inflation to 2012 dollars, it amounts to nearly $244 million. That’s pretty darn close to the Dodgers’ expected 2013 Opening Day payroll. When inflation is accounted for, the Yankees actually spent more in 2005 than in 2008, even though everyone always points to 2008 as the high-water mark.
So, yes, the Dodgers will spend a lot of money in 2013. It’s just that the amount won’t be unprecedented when adjusted for inflation.
There’s another way to look at the Dodgers’ expected payroll, as compared to the Yankees: as a percentage of all revenue earned by Major League Baseball each year. Maury Brown, over at Biz of Baseball, recently reported that total MLB revenues in 2012 topped $7.5 billion and may reach $9 billion by 2014. Brown arrives at the $9 billion figure by adding in the new national TV contracts (valued at $788 million per year) and the annual value of the Dodgers’ expected local TV contract (between $240 million and $280 million per year). He has a nifty chart showing the growth in MLB revenues from 1995 to the present.
Let’s assume total MLB revenues in 2013 reach $7.7 billion — modest growth over this year that doesn’t yet incorporate the new national TV or local Dodgers TV money. A $250 million Dodgers payroll would amount to 3.2% of total MLB revenue, give or take a million dollars. Did the Yankees ever have a payroll that amounted to 3.2 % of MLB revenues? They sure did. In 2008, the year they spent $209 million on payroll. But that was nothing compared to 2004 and 2005, when the Yankees’ payroll was more than 4% of MLB revenues.
Here’s how the numbers break down:
| Year | NYY Opening Day Payroll | Total MLB Revenue | NYY Payroll as a % of MLB Revenue |
| 2004 |
$182,835,513 |
$4,500,000,000 |
4.10 |
| 2005 |
$205,938,439 |
$5,000,000,000 |
4.10 |
| 2006 |
$194,663,079 |
$5,600,000,000 |
3.50 |
| 2007 |
$189,639,045 |
$6,100,000,000 |
3.10 |
| 2008 |
$209,081,577 |
$6,500,000,000 |
3.20 |
| 2009 |
$201,449,289 |
$6,600,000,000 |
3.10 |
| 2010 |
$206,333,389 |
$7,000,000,000 |
2.90 |
| 2011 |
$201,689,030 |
$7,000,000,000 |
2.90 |
| 2012 |
$197,962,289 |
$7,500,000,000 |
2.60 |
It’s easy to get blinded by big numbers. And it’s easy to see the Dodgers’ payroll growing and then wondering how we could have gotten to this point. But, remember, we’ve been here before with the Yankees of the 2000s. Other teams played catch up, new revenue streams developed, and players and owners responded with a new Collective Bargaining Agreement aimed at reigning in the Yankees’ spending. Ten years later, we have the Yankees of the 2010s — a more measured, big-money team.
Will the Dodgers follow that same path? We don’t know. You don’t know. And the Dodgers probably don’t know. For now, they’ve won the lottery and are buying a lot of shiny new toys. We’ll have to wait and see how those toys perform and age and whether they continue to give the Dodgers the pleasure they sought when they first bought them.
Wendy writes about sports and the business of sports. She's been published most recently by Vice Sports, Deadspin and NewYorker.com. You can find her work at wendythurm.pressfolios.com and follow her on Twitter @hangingsliders.
Excellent article. It will be fascinating to see if LAD keeps adding payroll from here. Based on how the team in constructed, it will probably be a necessity to be a contender as some of those players age.
How dare you apply rational analysis and contradict the “ZOMG THE DODGERS R SPENDING TEH CRAYZIE MONEYZZZZZ!!!!” narrative! Take it back.
Inflation calculators are handy, BLS has a good one that I use all the time. This is also handy though, and makes things less tedious if you’re doing a multi-year comparison.
http://oregonstate.edu/cla/polisci/sahr/sahr
I question the usefulness of CPI in this context, do player salaries inflate with a basket of goods? Do players care what the cost of a gallon of milk is? gas? an ipad? Seems to me player salaries inflate at a far greater rate than those goods, which is why your second approach is useful, but you could simply find the annual rate of increase in MLB salary spending over a number of years (maybe going back to the death of the reserve clause in 1975, and see what the annual rate of inflation is for MLB salaries. That gives you the payroll value in MLB Salary dollars, which I suspect increases at above the approximately 3% annual increase in CPI. If it doesn’t, that would actually be interesting to know as well.
Nice work, drives me crazy when people make dollar comparisons without adjusting for inflation.
Same point I was going to make. For something so specific like players salaries, it makes more sense to use the “inflation rate” of contracts rather than CPI. Because, as you mentioned, that’s probably an even higher rate, the Dodgers’ payroll is probably even less of an outlier.
Having said that, the exercise makes the point just fine, which, of course, doesn’t fit into the narrative, so it will be ignored.
You really should use the GDP deflator for inflation, CPI overstates inflation by an average of 0.7% a year (the error adds up!). And you might want to review the theoretical foundation behind “Baumol’s cost disease”. When looking at salary inflation in the performing arts, that’s the model you want to use. Bottom line, salaries in the performing arts can easily outpace overall inflation.
And I’m not sure anyone didn’t think we’ve been here before with the Yankees – that’s the comparison everyone is making – consequently how can anyone think it is unprecedented? I wonder who the target audience is for this article?
I think inflation is an okay measure. But remember that the CPI data doesn’t apply to everything equally. I would think that for the best comparison, take all MLB payroll, divide by wins per season, and estimate the value of a win in each season. That way you can compare how many wins are being “bought” by each team.
Seems like a lot of keystrokes for a pretty basic (and obvious) idea.
I was going to point out a problem, but your second point saved the day.. Great article!
I was going to note that baseball inflation is different from US Inflation, but by your usage of Total MLB Revenues, that captured that nuance by removing the inflationary effect, versus how you handled it at the start of your article, by adjusting for inflation instead, which is another good way of handling the money-time series comparision.
I think we can look to history for a likely answer to questions at the end. Teams generally cannot buy championships. If they could the Yankees would have experienced a Back to the Future moment in the 2000’s, duplicating their 1950’s success. Heck, two teams couldn’t even buy playoff berths last season (Marlins and Angels) after committing to over a quarter of a billion dollars each in contracts during the last off-season.
Even the Yankees championships of the 1990’s were not entirely bought. They won on the backbone of the young core that they put together in the early 1990’s when Sabean was the head of their scouting, and adding players like Jeter, Pettitte, Posada, Riviera, to their farm system.
Of course, the spending did help, but again, if spending was the key determining factor in their championships, they should have been winning in the 1980’s and 2000’s regularly there too, under that assumption. I think history clearly shows that while money can more often than not get you into the playoffs, it does not deliver championships to you.
The only study I’m aware of that actually shows what delivers championships to a team is Baseball Prospectus’ great study of “why Billy Beane’s S*** doesn’t work in the playoffs”. There, they found that teams who were among the best in three key metrics (pitching staff K/9, closer WRXL, and their fielding metric) in the history of the divisional playoffs, not only generally make the World Series, but generally have won too. Unfotunately, their public stats don’t seem to match what they published in the book, but when I used their public stats for the Giants in 2010, they appeared to qualify for one of the top teams in history, whereas (didn’t look into it) their 2012 team probably wouldn’t, as their closer and team defense numbers I know would not look good.
One issue with the revenue example is the Yankees were ahead of the curve in revenue growth, so their payroll would necessarily be a higher percentage of industry revenue. I would be more interested in seeing how payrolls have compared to team revenues. I think I’ll start working on that post now.
During the 00’s, the Yankees were ahead of the curve with their own TV network. They had a ton of revenue generated from this TV deal. They spent it. People bitched endlessly for about 10 years.
Now, other teams are doing the same and the MSM seems to be saying “don’t blame the team, it’s all the TV money”.
Just an interesting dynamic.
Wow…before reading your comment, I expressed the same thought with the same terminology. Either great minds think alike, or we aren’t original. I hope the former.
One language quibble: after adjusting for inflation, (and possibly overstating the adjustment, as noted by Peter above), even the adjusted figures max out at $243.9 million – several percentage points less than the $250 million that the Dodgers are spending (NOT counting Ryu’s $24.7 million posting fee), the article says “So, yes, the Dodgers will spend a lot of money in 2013. It’s just that the amount won’t be unprecedented when adjusted for inflation.”
Well, actually they ARE unprecedented ($250>$243). It would be more accurate to say that, while unprecedented, they represent evolutionary change, not revolutionary.
I thought what made the LAD spending so noteworthy was that a team OTHER THAN the Yankees were spending money like the Yankees, not that the other team was spending so much more.
I like how this analysis acknowledges the fact that the Dodger’s spending isn’t actually that crazy when you look at the overall league revenues. What it fails to acknowledge is that the owners have intentionally tried to reduce the amount that goes to the players (salaries are rising, but not as much as revenue), so when the Dodgers break that paradigm and start handing out money in a way that better matches the mid-2000’s it is actually something to pay attention to.
The most important number that companies look at is percent of total revenue spent on payroll.
Depending on the industry this is as low as 20% for capital intensive industries to 50% for service industries. I would think any MLB team at or below 50% is in good shape. Unfortunately, MLB teams keep their financials more secret than classified files on the CIA, so we can’t really do more than guess, but MLB total salaries seem to be around 45% of total revenue.
Where the Dodgers are is anyone’s guess.
They might be way over at current revenues but under based on projected revenues. If so, their projections better be accurate and they better hope Fox does not think they have good leverage to renegotiate given the money already committed by the Dodgers.
Wendy,
I just ran the numbers above through the CPI calculator that you linked and got different inflation-adjust numbers. Did you make any other modifications?
Where does the posting fee get added? Shouldn’t it at least count as a bonus and be spread out over the next ? years?
Ignoring it completely is a problem.
Another problem is that the Dodgers may not be thru yet. I am betting they’re not.
Despite these problems, this was a very good and thought-provoking article. Another gem in your financial series.
The only way the Dodgers economics make sense is if the Chavez property is eventually in play. The Guggenheims already have a charity.
Your own numbers show that the Dodgers opening day payroll for 2013, NOT including the $25.73 million posting fee for Ryu and the $12 million signing bonus for Greinke, is the highest in history by $7 million when adjusted for inflation.
So why even TRY to say it isn’t unprecedented. It just makes you look like a schmuck.