Creating an Expected Payroll for all MLB Teams by Craig Edwards March 5, 2015 When it comes to making demands about improving a team’s roster, a fan’s simplest complaint is that the team is not spending enough. Ownership is the easiest target for criticism because they sign the checks. There is a lot of information hidden from the public and even the players when it comes to a team’s finances. Many assumptions are made, but still questions persist: Are the New York Mets and Atlanta Braves cheap? Are the Detroit Tigers outspending their market for a shot at a championship? Without delving deeply into the finances of individual teams, the answers are not easy to come by. Even if everyone got a look inside the books, there would be reasonable differences regarding subjective definitions of the word cheap. What we can do is take a look at recent spending patterns within baseball. Looking at the known financial aspects of a franchise and attendance, a comparison can be made within the ranks of ownership. The owners might very well all be cheap, and that we cannot know for sure, but we can find out which franchises are cheaper. In my last post, I examined the correlations between payroll and several other factors over the past five years. The two strongest correlations to payroll were prior year attendance and Forbes valuations. Combining those two factors, an expected payroll figure can be created. Running a multiple regression with attendance and valuation over the previous five years resulted in weighting the factors roughly two-thirds to attendance and one-third to valuation (R-squared was .88.). Inputting those weights into this year’s numbers creates an expected payroll for this season. Here are the attendance numbers from last season, from Baseball-Reference. We see some of the biggest markets and most successful franchises in the Los Angeles Dodgers, St. Louis Cardinals, New York Yankees, and San Francisco Giants on one end with some of the smaller markets and non-winning teams in the Houston Astros, Tampa Bay Rays, and Cleveland Indians on the other. Attendance is a big factor in financial success, but it is not the only one. The Forbes valuations, although not always accurate when compared to actual sale prices, do provide a general idea of the fiscal health of the franchise. They consider more than just attendance, including stadium issues, television revenue and other sources of income. Here are the Major League Baseball valuation numbers, from Forbes. While the attendance numbers had a more linear look, the franchise values are more exponential. The Yankees, Dodgers, Boston Red Sox, and Chicago Cubs are the only franchises with valuations exceeding one billion dollars. Twenty-four of the franchises sit in between $485 million of the Rays and $825 million of the Texas Rangers. Taking the attendance numbers and the valuations and weighting attendance at roughly twice the valuation, an expected payroll number is created. It is important to note that these numbers are not what teams could spend or should spend. The expected payroll numbers is what would be expected based on owners’ spending patterns over the past five years. The graph below shows the Opening Day payroll for 2015 next to the expected payroll. The Dodgers jump out as a team outspending expectations while the Cardinals and the Cubs are also noticeable for the opposite reason. The Dodgers new television deal is enormous, but the Yankees have an equally enormous television contract and are actually spending below expectations. The Dodgers did not have the biggest gap positive gap between spending, and the negative differences shown by the Cardinals and Cubs can be more easily seen in the chart below. Detroit and the Washington Nationals outspent expectations at a higher level than the Dodgers. Detroit’s chase for a title is well-known. The Nationals are middle of the pack in terms of attendance, but it is possible that their television contract problems with the Baltimore Orioles results in a lower valuation of the team compared to franchises in equivalent markets. The spending of the Kansas City Royals is somewhat surprising, but with the buzz from the World Series run, the team had extra playoff revenue and are likely expecting a boost in attendance this season. The Cubs fiscal restraint is not a surprise given their rebuilding plan. The Yankees large negative number is somewhat of an overstatement. Luxury tax figures were not included, and the Yankees have paid around $20 million annually over the past five seasons. Doing the same this season would take them out of dead last, but still place them in the bottom five. The St. Louis Cardinals figure is surprising, but an increase in attendance of close to 200,000 in 2014 likely created more revenue than the team was expecting. A potential mega-deal for Jason Heyward and the team’s willingness to go to close $120 million with Jon Lester make more sense given these numbers. Looking at five-year averages provides a better picture of teams that consistently spend less compared to their peers. From 2011-2013, the Cardinals outspent their expected payroll with only a big turn in the last couple years causing the negative dip. Half the teams are within $12 million on either side. Colorado has consistently solid attendance, but the spending has lagged behind. The Astros and the Cubs have cut spending while rebuilding. The Mets are closer to the middle than one might expect, but that is due to payroll from five years ago. Over the last four seasons, the Mets would be in the bottom five. Toronto’s attendance has increased over the past few seasons, but not at the same level as payroll. The White Sox have had attendance decrease over the past few years, but the team has spent more money to try and compete for 2015. Out of the three teams closest to the middle, two are more of the sabermetrically inclined teams in baseball in the Oakland Athletics and Tampa Bay Rays. The third team, the San Francisco Giants, keeps spending, but huge fan support and high franchise value keep them right near expectations. Some of these findings provide more evidence of known information. The Cubs and the Astros are not spending consistent with the rest of baseball while the Tigers and Dodgers have spent more than might be expected. The Cardinals numbers come as a surprise to some, but not all. Cardinals general manager John Mozeliak told Derrick Goold earlier in the offseason that the team had “payroll muscle, if needed”. In the same piecce, rival GM Theo Epstein called the Cardinals a “powerhouse” and said, “I think there isn’t a player in baseball that they couldn’t go get if they wanted to. If they sensed a threat and they wanted to put their foot on the gas I think it’s almost unlimited what they could do.” Epstein’s quote could be typical rivalry bluster, but the numbers in this post say he might be right.