Relationship Between Spending, Winning Remains Low
As the Houston Astros and Pittsburgh Pirates race toward the playoffs with payrolls in the bottom 20% of Major League Baseball and the Boston Red Sox and Detroit Tigers falter with top-five payrolls, we are reminded that money cannot buy success in all cases. The Dodgers, with their $300-plus million payroll and a luxury tax bill that will add on another $40 to $50 million, have not guaranteed themselves a berth in the playoffs. We have seen billion-dollar television deals grant enormous benefits to large-market clubs and teams like the New York Yankees and the Red Sox have long wielded their financial might to buy wins. Financial parity does not exist in baseball, but even without it, single-season payroll has played a lesser role in team success over the past few years compared to a decade ago. However, payroll does become a factor when it comes to sustained success.
Over the last three seasons, here is the amount every team has spent per win, using the Opening Day payroll for each of the three seasons and about one-quarter of the season to go this year.
The Dodgers have won a lot, but they have spent for it. There are quite a few winning teams near the left side of the graph, but on the whole, the graph is populated by good and bad teams throughout. Determining the affect of a club’s wealth on its ability to win can be difficult to ascertain. We have payroll information, but some teams spend more on international projects or the draft, or on managers, scouts and members of the front office. Given these variables, it is impossible to make declaratory judgments on overall spending and strategy as it relates to winning on the field, but sticking to payroll data, we can get a decent idea of how important the salaries on the field are in relation to fielding a winning ballclub.
About a year ago, the Providence Journal ran a piece, Money Can’t Buy Success for Teams Anymore, discussing the relationship between wins and payroll. The article took a look at Opening Day payrolls over the last decade and correlated the payroll with wins. Brian MacPherson found that from 2002 to 2008 the correlation coefficient for wins and payroll exceeded .4 and was generally around .5, but that the relationship had declined and, at the time of the article last year, the correlation coefficient was just .2, dropping to the point that alphabetical order had a stronger relationship to wins than payroll. I ran the numbers with the win totals from the end of the season, and while it was not quite as low as it was in mid-August, r was just .25 at the end of last season.
Anecdotally, with the success of Houston and Pittsburgh (Kansas City actually has a mid-level payroll this season), it appears that the recent trend has continued this season. The relationship between Opening Day payroll figures from Cots and win totals so far this season appears in the following graph. (Red, orange, and blue teams look pretty similar so I attempted to differentiate them with symbols.)
Again this season, there is not a great relationship between wins and Opening Day payroll. So far this season (through August 23), r is .17, even lower than it was a year ago at this time. Of course, Opening Day payroll is not the only measure of a team’s financial wealth. Fortunately, using the current payroll data from spotrac, we can compare wins to a team’s current payroll, after teams have added and removed players. The correlation of current payroll and wins is a little higher, at .25, but this is to be expected as the teams with more wins are likely to be adding payroll while teams with fewer wins are likely to be jettisoning larger contracts.
Another measure of financial wealth comes in the form of franchise value. While we do not have all of the information that they use to make their valuations, Forbes roughly approximates the general wealth of a franchise. The graph below illustrates the relationship between that value and wins.
The relationship is not a great one, with r at .29, but looking at the franchise valuations from Forbes would give you a better hint at the current standings than looking at Opening Day payroll.
With four straight seasons of the correlation coefficient at .3 or below, it would seem that money and wins bear little to no relationship, but by expanding the data beyond one season, a funny thing happens. Above, we looked at the relationship between Opening Day payroll and wins this season and found little relationship. Keeping Opening Day payroll in 2015 as one data point, but expanding wins to include prior seasons shows a stronger relationship as the chart below shows.
| r | |
|---|---|
| 2015 Wins | 0.17 |
| 2014-2015 Wins | 0.35 |
| 2013-2015 Wins | 0.40 |
| 2012-2015 Wins | 0.44 |
| 2011-2015 Wins | 0.49 |
Some of the above relationship can be explained generally by the nature of successful teams. A successful team, like the Royals last season, might very well choose to reinvest their money into the team after a successful season. If wins last year and wins this year are high, it would make sense that the Opening Day payroll for this season would be decently high as well. The same is true for teams that have been successful for multiple years. As they continue to succeed, they continue to reinvest to maintain that level of success, leading to higher payrolls and higher win totals.
The relationship above has some circular movement, but it is possible to remove a little bit of that effect. If we look at combined win totals and combined payrolls over the last few years, we can determine if consistent spending is rewarded with wins and, on the other hand, if low payrolls are punished with losses. Looking solely at wins since the beginning of last year and comparing that number to the combined Opening Day payrolls from 2014 and 2015, r comes out to .29, higher than just looking at this year’s numbers.
The graph below shows the relationship between the combined team payrolls from 2013 to 2015 and combined wins during those seasons.
As we can see by the fit line, the relationship is not great, but at .36, r is higher than the seasonal data, where the average yearly correlation coefficient was roughly one-tenth lower. The payroll in each individual season might not matter much, but cumulative spending does have some relationship to winning, even it is not a great one. With younger, cheaper players getting better in relation to their older, more expensive brethren over the last decade, it makes sense that money would have less impact on winning and that has been borne out over the last several seasons, including this year. While financial balance between franchises is not present off the field, and continued spending might lead to wins, payrolls in 2015 have not translated to wins, just as it has been for the last several seasons.
Craig Edwards can be found on twitter @craigjedwards.
http://fivethirtyeight.com/features/dont-be-fooled-by-baseballs-small-budget-success-stories/
I had read this 538 article before?but the statement seemed entirely different from yours.
The topic of that article was named “Don’t Be Fooled By Baseball’s Small-Budget Success Stories”?and the corr between payroll and winning percentage seems higher than before…..
So what’s mainly different between yours article and their research?Curious about it…
A couple differences it looks like:
1. The 538 article looked at data from 2006-2015 and in a lot of those years, the correlation between winning and payroll is quite high. Would guess that is the main difference.
2. Not sure if it made an impact, but the data used in that piece looked at winning percentage only through July 1.
What about the amount teams spent on scouting?
Or signing international free agents years before they show up on the major league payroll?
Or hiring the best executives? ballpark upgrades? Trainers? Plumbing? (hi, Oakland)
Or the ability to take on a bad contract mid-season in a platoon or other small role that benefits a playoff run?
Or, you know, any little thing not related to the opening day payroll?
Another possible reason for current payroll to more closely match past wins/success is that teams with good young talent win, but good young talent gets more expensive each year through arbitration.
For example, just keeping the “youth movement” Cubs together for a few years means Bryant, Soler, Russell, et al., will all be making lots more money than they do today as they go through arbitration or sign long-term deals that buy out a few free agency years.
I’m now going to post this article in response to every twitter complaint like “this is what $300M buys you?” about the Dodgers. I’m sure it will go over well.
now serious words
This probably has to be at or near a trough right? There’s no way this is the true correlation. While I think low-payroll teams really are more sustainably successful than they have been in the past, there is too much advantage in money for this to continue at quite this rate.
-Rich teams are gaining small-market smarts.
-Winning leads to more money. Houston is not going to have the lowest payroll in baseball for very long
Hopefully it never goes back to just rich teams buying championships, but I think this bubble is about to burst.
Perhaps, but keep in mind that MLB players generally reach free agency for the first time at much older ages than their counterparts in the NFL or NBA. If we assume that the drug program has significantly reduced the usage of steroids, it would stand to reason that there is currently less performance to buy in free agency than back when such use was more prevalent and significantly extended careers.
I agree with this.
The legend in the second graph (Payroll and Wins) is missing 10 teams.
I thought maybe it was my browser, but yes, I only see twenty teams listed as well.
It’s based on a team’s primary or secondary colors, so I added the legend for red, darker blue, and orange teams. It was my hope that the rest would be easier to figure out without taking up too much space in the graph.
Obvious thing but I didn’t see it mentioned anywhere so I have to ask:
Did you account for every team “automatically” getting a replacement level number of wins for approx 20M? If you didn’t then the correlation here is basically meaningless. We care about the correlation between marginal dollars and marginal wins, not all dollars and all wins.
As the lowest payrolls increase at rate X + Y but the league minimum salary only increases at rate X, obviously the correlation is going to get worse over time if you don’t account for the replacement level wins and salary.
Subtracting 20M and 48 wins per team per year does not change the correlation.
Ah whoops, I was thinking of the $/win calculation
My b
2 of the top 5 teams in the $/win graph have won the two world series in the time span included…
1995 Atlanta 3rd $45m
1996 Yankees 1st $52m
1997 Marlins 7th $47m
1998 Yankees 2nd $63m
1999 Yankees 1st $88m
2000 Yankees 1st $93m
2001 Dbacks 8th $85m
2002 Angels 15th $61m
2003 Marlins 25th $48m
2004 Red Sox 2nd $127m
2005 White Sox 13th $75m
2006 Cardinals 11th $89m
2007 Red Sox 2nd $143m
2008 Phillies 12th $98m
2009 Yankees 1st $201m
2010 Giants 9th $98m
2011 St Louis 11th $105m
2012 Giants 8th $117m
2013 Red Sox 4th $150m
2014 Giants 7th $154m
While it’s true that small market teams can have “success” by way of winning records and playoff berths, it has actually resulted in a World Series win only once in the last 20 years. Sure, we can break down the numbers and come up with more appropriate terms than “top half” or “bottom half” when we are talking about small markets, but I prefer to keep things simple.
Of those 20 winners, 14 have been top 10 Payroll, 5 have been 10-15 (Top Half) and 1 (ONE!) team, the 2003 Florida Marlins, has won a World Series with a bottom half payroll since Wild Card expansion.
Important note:
These are “Opening Day” payrolls as reported by USA Today and various other sources
What happens if you cut out, say, the Pirates and the Red Sox as outliers?
Why would you? I don’t think they are outliers in the typical sense of the word.
for this season, moves up to .27. Taking out PHI and HOU as well moves it up to .37.
This is actually a fantastically high relationship. Think of all of the things that lead to winning and losing: salary, player development, luck, injuries, drafting, quality of opponents, etc.
If just one thing gets you over 1/3 of the way to winning, which all of the analyses suggest salary generally explains at least 1/3 of the variation in wins….that is a HUGE effect. Monstrously huge, within the context of a game like baseball that has so much natural variation in outcomes of games. Even explaining 20% of the variation would be a huge effect.
Plus, I assume these are Pearson-product moment corerlations, which assumes linearity…and the salary-wins relationship isn’t expected to be linear, just monotonic.
Does payroll correlate with consistency? When I think of the Yankees in the past 20 or so years, they haven’t always won their division, but they’ve never been below .500. The Dodgers only have 3 seasons under .500, the Red Sox have only had 4 despite their recent struggles. Meanwhile, the Pirates and Marlins have a combined 31 losing seasons in the past 20 years. These are kind of cherry-picked, but those are the teams I think of when I think of big payroll and small payroll squads.
One possible explanation for this lower-than-expected correlation is the backloading of free agent contracts. Teams tend to spend reduced amount of money on those big-name acquisitions during the first few years, when they’re still good, then pay out a lot of dead money during the back end of the contract. Thus, current spending may not correlate with current wins so much as past wins – it’s consistent with the stronger relationship between 2015 payroll and wins in previous seasons than between 2015 payroll and 2015 wins.
First of all, I would characterize these numbers as showing a pretty decent correlation between money and wins, as some have suggested above.
I would also be interested in whether payroll affects boom-and-bust cycles. It seems that low-payroll teams can hit the jackpot with some young players, but then their window closes as those players become too expensive to afford. Meanwhile, rich teams can just reload every season, as well as keep the good players they develop.
Yes it is true that Money doesnt always equal Wins and that it would appear having young, not so much affordable, players is the key to acheiving Wins. But here’s the thing… since 2000 have any of these exciting, young, winning teams, like Oakland, KC, Houston…won a Championship? The answer is NO. I would take a higher payroll, with down seasons, in return for winning the occasional Championship.
The higher payroll teams such as Boston (3 Championships since 2000), NY Yankees (2 Championships), SF Giants (3 Championships), Philly (1 Championship), STL (2 Championships) win Championships and for me thats what its all about.