The Battle Between Payroll and Parity

Over the All-Star break, MLB Commissioner Rob Manfred addressed the Oakland A’s, their quest for a new ballpark, and their remarkably low payroll. With regard to the last of those items, Manfred exhibited little concern, suggesting there was almost no correlation between a club’s capacity to spend money and its ability to win games. John Shea reproduced and retransmitted the following comments, care of Manfred, at the San Francisco Chronicle.

“I categorically reject the notion that payroll should be the measure of whether somebody is trying to win in our game today. I reject that not because I prefer low payrolls to high payrolls. I reject that because I know that the correlation between payroll and winning in baseball is extraordinarily weak.

“You do not guarantee yourself wins by having a high payroll, and as the Oakland A’s have showed, you can win with a low payroll. So I really reject the premise of that question. Those are the economic facts.

“Falling into this notion that payroll is a measure of whether an owner is trying to win is literally sophistry.”

I’ve got good news and bad news for the Commissioner. The good news is that, in six out of the last seven individual seasons, the correlation between wins and payroll hasn’t been very strong, as the graph below suggests.

Among those individual seasons is last year’s campaign. A year ago at this time, the numbers from 2016 to 2017 indicated a trend in the opposite direction. By the end of season, though, the correlation had dropped even further.

Last year, we saw some high payroll teams doing very well and some low payroll teams doing very poorly. We also saw two clubs (Cleveland and Houston) qualify for the postseason while spending relatively little. That, combined with the failures of teams like Detroit and San Francisco, suggests there’s some logic to the argument that payroll doesn’t equal wins.

The correlation last year wasn’t much to speak of, nor has the relationship been much stronger this season.

Wins and payroll in 2018 aren’t entirely unrelated, but the correlation isn’t a strong one. Unless things change significantly before the season’s end, we are going to have witnessed a relatively weak — though not “incredibly” weak, Mr. Commissioner — mark in six out of the last seven years. If you want to see the sport with a glass half-full, then write off 2016 as an anomaly and raise your glass to parity. If you want to know the horrifying truth, however, then read on.

The relationship between wins and payroll can appear weak in a sample of one season. Clubs that spend a lot sometimes fare poorly; clubs that don’t, like the A’s, sometimes play well. It happens every year. The effect looks a little different, however, if we consider several seasons together, to see how prolonged spending (or lack thereof) impacts winning.

A year ago, I noted that the correlation between wins and payroll over the previous three and three-quarters seasons was pretty high, at .58, as the graph below shows.

So after a decrease in the correlation from August to the end of the season, plus another lower figure this season, it would be reasonable to expect a drop in the 2015-18 numbers. That’s not what the data reveal, however.

The correlation remains virtually unchanged from last year, and it’s pretty strong. If the chart is a bit of a slog, here’s a few bullet points.

  • There are eight teams with sustained winning records — an 84-win pace or better, in this case. Six of those eight teams had average payrolls of at least $140 million and all three of the biggest spenders are included in that group.
  • There are eight teams with sustained losing records — a 74-win pace or worse, in this case. Six of those eight teams had average payrolls of less than $110 million.
  • Of the eight teams with an average payroll of $150 million, five of them were incredibly successful, with a minimum of an 89-win pace per season.
  • Of the 11 teams with average payrolls under $110 million, none of the them had sustained success and only two were around .500.
  • Of the 13 teams with an average payroll of at least $140 million, nine teams were above .500.

No matter how you slice up the data, winning and payroll are linked. Teams like Oakland this year or Cleveland and Houston the past few seasons represent the exception. They don’t demonstrate that payroll is immaterial to winning. They demonstrate that sometimes payroll doesn’t matter, and that’s not the same thing. Worse, financial might is also showing a stronger correlation with winning. A year ago, the relationship between team value and wins over the previous four seasons looked like this:

One year later, it looks like this:

Of the eight most successful franchises of the last four years, all but one are in the top 11 when it comes to the value of the franchise. Of the bottom 10 franchises in terms of value, only one has a winning record since the start of the 2015 season. Ultimately, talent wins out. Teams with leaner budgets have certainly found ways to acquire that talent by means of the draft and international market — and retain it by signing young players to extensions. That has always been the case. The value of a franchise and the size of its payroll, however, account for about one-third of a club’s wins. Included in the other two-thirds is scouting, development, injury prevention, analytic strategy, shrewd acquisitions, and maybe a decent amount of luck. All that stuff is important. But 33% is still a substantial portion of a team’s success to have determined by financial might. What happens if and when the competitive advantages in the other two-thirds begin to dissipate?

Logic dictates that, with caps placed on draft bonuses and international spending, small-market teams have fewer ways to leverage what spending capacity they do have to find talent outside of free agency. Larger-market clubs, meanwhile, continue adapting to the modern game, with front offices embracing the kind of analysis utilized mostly by smaller clubs in the past. And while the worst hasn’t occurred yet, what happens next season when the Cubs, Dodgers, and Yankees all go over the competitive balance tax threshold, while the large-market Astros and Phillies increase payroll? What happens when the Orioles, Royals, and Tigers cut spending again? Is the relationship between money and wins going to get weaker or stronger? Owners with low payrolls might be trying to win, as Manfred has insisted, but owners with large payrolls likely will win, and those teams that don’t spend in the future might find the task of competing even more difficult than they do right now.

Craig Edwards can be found on twitter @craigjedwards.

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5 years ago

Awesome article. I hope someone puts this in front of Manfred’s dumb face.