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.

Relationship Between 2015 Payroll and Wins

	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.