Money Is Buying Wins Again in 2016

If the playoffs started today, the Washington Nationals, Chicago Cubs, Los Angeles Dodgers, San Francisco Giants, and St. Louis Cardinals would be in the playoffs on the National League side. The top-five payrolls in the NL belong to those same five teams. Over in the American League, the Cleveland Indians seem likely to make the playoffs while the New York Yankees likely will not — and the Los Angeles Angels aren’t anywhere near the playoffs, but these are merely exceptions to the rule. Anecdotally it certainly seems like money matters this year after several years of parity. Digging into the numbers of the relationship between money and wins, the numbers indicate that a team’s payroll really is more important now than at any other time in the last decade.

There are 15 teams this season whose opening-day payrolls exceeded $130 million. Among those 15 teams, only the Los Angeles Angels possessed a losing record through Tuesday’s games, and if the playoffs started today, the top half of teams by payroll would claim nine of the 10 available playoff spots. Of that bottom 15, the only teams with a winning record are the Pittsburgh Pirates, Houston Astros, Miami Marlins, and Cleveland Indians. Cleveland would represent the only team among that group to qualify for the playoffs if the season ended today. If this seems unusual, it is. And it isn’t.

Last season at around this time, I looked at the relationship between wins and payroll and found that there was nothing significant. The correlation coefficient between wins and payroll was .17, and that number had been part of a decline that had been occurring over the previous decade. As Brian MacPherson pointed out when he researched the issue the year prior, the relationship between wins and payroll had been declining since the start of this decade. At the end of last season, the correlation coefficient for wins and payroll in 2015 was a very low .22, but in discussing the issue last year, I pointed to two causes for concern (if a lack of parity is concerning).

First, I noted that, while the relationship between payroll and wins was very low, the relationship between a franchise’s financial muscle and wins was a bit higher. Last year, the correlation coefficient at this time between Forbes’ franchise valuations and wins was at .29. Still not a very high number, but a number that could indicate that a team’s finances were still playing a role in wins. This year, the relationship is stronger, as shown by the graph below, with numbers from Forbes.

Screenshot 2016-08-24 at 11.39.54 AM

While the Yankees’ season might be viewed as a disappointment, the team still possesses a winning record. Of the top-12 franchises by value, only the Angels and the rebuilding Philadelphia Phillies have recorded fewer wins than losses. The Angels can’t seem to build a winner around Mike Trout, while the Phillies are running one of the lower payrolls in baseball. Of the teams in the bottom 10 of franchise valuations, the Royals and Blue Jays have winning records, but they are also running fairly healthy payrolls. There’s a strong relationship between franchise value and payroll this season (r = .81), and the only teams that have eschewed both with success this season are the Indians and Marlins.

The second cause for concern I had regarding the very low correlation between wins and payroll was that, over a longer period of time, running a consistently higher payroll seemed to produce a higher correlation with winning than payroll in a single season might not be picking up. When I ran the numbers last year, the correlation coefficient was .36 for wins and payroll between 2013 and 2015. For this season, I added the remainder of the 2015 season and included the 2016 season as well. The strength of the relationship shot even higher.

Screenshot 2016-08-24 at 11.50.59 AM

Talent is going to show a considerably stronger relationship with wins than payroll will. There’s a direct relationship between the players on the field (which can be represented by WAR) and the runs they are scoring and preventing, which is how teams win. However, the relationship between payroll and wins no longer seems as random as it has the past few years when “parity” was the buzzword. This season, the relationship between payroll and wins is stronger than at any time in the last decade. The graph below shows payroll and wins this season.

Screenshot 2016-08-24 at 11.28.44 AM

So is 2016 just a random down (or up, given your perspective) year as the trend toward parity continues? Probably not. Dave Studeman wrote a piece for Hardball Times before the 2012 season called Money and Wins. He found that the relationship between money and wins goes through up and down periods. At the dawn of free agency in the late ’70s, there was a strong relationship between payroll and wins, as teams could finally use their financial might to bring good, expensive players into the fold. In the early- to mid-80s, as a group of good, young players entered the league — and into the late-80s, when MLB teams colluded to keep salaries down — the relationship dissipated. In the late-90s and early-2000s, as payrolls skyrocketed and older players often available in free agency maintained their high level of play during the steroid era, buying good talent was easy and the relationship between wins and payroll was strong.

As steroid testing began, teams began to rely on younger players and the sabermetric revolution allowed teams with lesser resources to obtain talent in a more shrewd, frugal manner. The relationship between payroll and wins declined to the point where, over the last few seasons, there was little relationship at all on the individual season level. The gap between the sabermetrically savvy and the inept has closed, and the opportunities for a small-market team to find an edge are becoming rare.

Teams are still relying young players, but the cost to obtain those players is different. Caps on amateur talent have ended up helping the financially well off, as large-market teams were the first to expose the problems of the international-cap system by exploiting the supposed penalties. Those same teams used their financial might for Cuban and Asian free agents. The cap system in the draft incentivized losing for the Astros, Cubs, and now Phillies to help those teams rebuild.

Whether the relationship between payroll and wins remains strong might depend very much on the upcoming labor negotiations. The fight might not be between the players’ union and the owners, but among the owners themselves. The small-market teams exploited some advantages on which bigger-market clubs were slower to pick up, as teams embraced analytics, but those advantages don’t exist in the same way, and financial muscle could once again rule the day. It will be up to the owners of small-market teams and big-market teams to come up with a solution that can keep the Oaklands and Tampa Bays of the world competitive with the Rangers and Yankees.

Craig Edwards can be found on twitter @craigjedwards.

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7 years ago

Interesting. I do wonder how much the preponderance of overt “tanking” by so many teams entering the 2016 season played a part in this.

7 years ago
Reply to  wickterrell

And the evidence for “so many” teams “tanking” is what, exactly?