The Real Market Inefficiency
Without question, one of the most incredible achievements in baseball during my lifetime was the Braves winning 14 consecutive division titles between 1991 – 2005. There’s an asterisk, since in 1994 the season ended early with the Braves six games back, but what doesn’t count officially doesn’t count officially, and it’s not even like 14 out of 15 is all that much less impressive. Anyhow, another contender is this: since 2008, the Yankees have won the most games in baseball, with 564. The Rays have won the second-most games in baseball, with 550. Over that span, the Yankees have out-spent the Rays by more than nine hundred million dollars.
There’s always been concern over the difference between the Haves and the Have-Nots, and that concern is alive and well today, with the Dodgers having established themselves as a league elite. When it comes to payroll, baseball is far from an even field, and I have a pet theory that over time, as teams get smarter and smarter, the differences between them will get smaller and smaller, and success will correlate more and more with spending. Lower-budget teams, right now, have to focus on so-called market inefficiencies. But while it’s easy to get caught up in the details, perhaps the greatest market inefficiency of all is spending big money in general.
None of you need to be reminded that there is a relationship between team payroll and team success. Of course there is, and there always has been, and there presumably always will be. Money lets you do things other teams can’t afford, good things, and this is precisely why many people are worried about the current state of payroll imbalance. But if you grant the relationship, the important question asks of its strength. A strongly positive relationship suggests a problem. A weakly positive relationship suggests that things are kind of okay.
I grabbed team data from 2004-2013, covering the entirety of the last decade. I collected winning percentages, and I collected Opening Day payrolls. For each season, I examined the relationship, and the important bits are in the table below. We’re looking at winning percentage vs. money spent.
| Year | R^2 | Slope | $m/Win |
|---|---|---|---|
| 2004 | 0.29 | 0.0014 | 4.5 |
| 2005 | 0.23 | 0.0009 | 6.5 |
| 2006 | 0.29 | 0.0010 | 6.0 |
| 2007 | 0.25 | 0.0008 | 7.4 |
| 2008 | 0.10 | 0.0006 | 10.6 |
| 2009 | 0.23 | 0.0010 | 6.2 |
| 2010 | 0.14 | 0.0007 | 9.4 |
| 2011 | 0.17 | 0.0007 | 8.8 |
| 2012 | 0.04 | 0.0004 | 15.7 |
| 2013 | 0.11 | 0.0005 | 11.5 |
The average of the second column is 0.18. The average slope is 0.0008, meaning on average, an extra million was worth an extra 0.0008 of winning percentage. The last column is just the average cost, in millions, of a single extra win. It’s another indicator of the flimsiness of the relationship. In large part thanks to the Rays and the A’s and, recently, the Pirates, money has been a less significant factor than one might otherwise expect. It might feel like it’s a small sample being skewed by a few exceptions, but then, those teams are actively proving what’s very much possible.
Spending more helps more than it hurts. It helps less than it ought to, were everyone and everything behaving optimally. And that could be the very issue. If you think about it in the simplest terms possible, players are relatively cheap through their first six or seven years of team control. If they debut in their early 20s, that time runs out somewhere in the vicinity of 30. So when players start getting paid free-agent money, they’re usually getting worse, their peaks right behind them. And the best players demand long-term contracts, sometimes up to and exceeding ten years in length, and those have turned out pretty poorly in the past. You’d just pretty much always rather take a shot on a guy in his 20s than on a guy in his 30s.
When a team has more money, it can convince itself to spend it, and that’s practically beginning from an inefficient place. It might spend more on a “proven” player, or it might spend more to have a star player while the star is actively fading. When you have less money, you can’t afford to be anything but cold and objective, and you can’t afford so much to worry about labels like “proven” or “durable”. Having less money can force you to be bold, if sometimes a little unfeeling. If the Rays had more money, perhaps they wouldn’t have traded James Shields like they did. Perhaps they wouldn’t be thinking so hard about trading David Price. The Shields trade was, without question, brilliant for the organization. As long as other teams prefer to act conservatively, there’s a setting to be taken advantage of.
Some time ago I was reading about a theory that cap teams in the NHL aren’t really at an advantage over teams that spend short of the cap. Spending less, in theory, forces a team to make smarter decisions, while spending more, in theory, allows a team to be a little more careless. This is more or less the same idea, and while I can’t really prove it, it makes intuitive sense, at least given the way things are right now. Teams with big money don’t take enough advantage of it. Teams with less money have to be more vigilant about maximizing their results. Individual factors are overvalued and undervalued, but the real inefficiency is just spending more. The ways in which that’s done are just subgroups.
It might be that baseball can have only a limited number of successful smaller-market teams, since there are only so many cheap, good players to go around. Maybe there isn’t room for another Tampa Bay or Oakland. Maybe there’s room for one, but not another two or three. It’s not like every single team in baseball can think about cutting back and expecting promising results, and really there’s only going to be more spending with all the money making its way into the game. The overall financial landscape has never been more healthy.
And this could be a blip on the way to a more worrisome MLB future. Spending limits on the draft aren’t good for lower-budget teams. Spending limits on international markets aren’t good for lower-budget teams. Teams, by and large, are still getting smarter, and what we’re seeing are older players hitting free agency and more young players getting extended before they reach the market. Teams, all teams, very highly value the draft picks they might lose by signing certain free agents. If everyone puts an appropriate premium on talented, cost-controlled youth, it’s going to be that much harder for smaller-market teams to exploit the competition.
But at least right now, and at least for the past few years, there’s been a big difference between high and low payrolls, and there’s been a smaller difference between high and low effective payrolls. The poorer teams have been forced to act more rationally by their own budget constraints, and the richer teams have just spent on things they maybe shouldn’t have spent so much for. It’s good, of course, to have money. Better to have more of it. But the underdogs have strengths of their own.
Jeff made Lookout Landing a thing, but he does not still write there about the Mariners. He does write here, sometimes about the Mariners, but usually not.
ctrl + f “phillies”.
Nothing? Really?
Interestingly, using different methodology, explained in the linked paper, David Berri and Martin Schmidt found payroll explained 17.6% of wins in the 1988-2005 period.
http://www.vanderbilt.edu/econ/faculty/Vrooman/econdesign.pdf
RedSox
…won the WS with the 4th highest payroll in baseball.
And the second-highest (2004, 2007). Then again, we’re not really sure what the implication was in the post to which we’re replying.
Whats up with the recent viewpoint that the Red Sox are all of the sudden some sabremetric darling?
Recent? Idk, they’ve received love from the saber community for the majority of the the current ownership’s run (2002). You can spend money and still utilize sabermetrics, I’m not really sure what you’re trying to say here.
“All of a sudden”? Are you new?
Seriously, who gives an aging Carl Crawford 7 years and $140 Million. The radio guys gave Epstein a ton of crap during the Bobby Valentine disaster year
Yeah, who would ever give a 7 yr, $142 million contract to a player who had produced the fifth most WAR (13) in the MLB the prior two years and was entering his age 29 season and his best asset was speed which normally ages well? They should have known he was due for serious injuries that decreased his performance since he had averaged 147 games in the past 8 years since his rookie year!
The Red Sox have a great philosophy: observe the A’s, then do what they’re doing with more money. First power/OBP guys, then the everyone is at least average strategy.
Having Bill James work for your organization will do that.
This situation sounds a lot like the concept of ‘moral hazard’ in economic theory. If you can take a risk and not suffer the consequences, you’ve got yourself a moral hazard. Signing an aging veteran to a 10 year contract constitutes a moral hazard for a ‘have’ team, at least relative to a ‘have not’ team, because if said player does not perform, the ‘have’ team will still be profitable. While there is not ‘no’ risk for the ‘have’ team, the relative risk is much lower than it would be for a ‘have not’ team.
I disagree. There are most certainly consequences to a player underperforming. Ryan Howard will cost David Montgomery 125,000,000 real American dollars. This may seem like “no big deal” to us poor folk fans. Just a sunk cost that the phillies should move on from. But that money is real, and the value Howard is delivering is very much less than that number.
If you had $100m in the bank, and spent $1m on facebook stock the day it opened… the fact that you still have $99m doesn’t change the fact that you lost $1m. That $1m is still $1m. The same goes for players.
“If you had $100m in the bank, and spent $1m on facebook stock the day it opened… the fact that you still have $99m doesn’t change the fact that you lost $1m. That $1m is still $1m.”
That would probably make more sense if it weren’t for the fact that if you invested $1 million in Facebook the day it open and held on, you’d have nearly $2 million now.
Well Ryan Howard is not Facebook stock since it went public. Fair enough.
You’d have about 1.5 million if you bought at the IPO price (few can) or at the close of the first day of trading (around $38). That’s if you held on and could stomach the paper loss of about a half million for a few months.
Okay fair point, poor choice of stock. Principle still stands though, as articulated well by commenters below. Different levels of risk for different parties does not indicate a moral hazard, just that teams have different abilities to recover from mistakes/accidents.
I am no economist, but I have operated on belief that moral hazards allow the actor to externalize unwanted or harmful consequences. The Yankees and Dodgers are more able to sign players without regard to return on investment. This, to me, is not a moral hazard, it is a material benefit of their size. If the Yanks sign a guy for $40 million and he busts, they still pay “the consequences” in wasted payroll, but those consequences do not affect them so greatly as a $40 million bust would affect smaller payroll teams.
Right, it’s effectively an economy of scale. Because the scale of the Dodgers organization is many many times that of Tampa Bay, they’re effectively playing a different game altogether. Moral hazard doesn’t come into play, at least not directly.
Having differing levels of risk for different parties is not a moral hazard.
It’d only be moral hazard if the Kershaw contract the Dodgers just signed had to be paid with Steinbrunners money.
Looking at the chart you posted, it seems like spending has actually become less meaningful in explaining wins over the past decade, not more so. Am I correct in interpreting that, or does inflation only make it seem that that’s the case. If so, what explains that trend?
Jeff’s theory is that the smaller market teams must spend more efficiently out of necessity. But his other theory is that all teams will eventually come around to the knowledge that allows those small-market teams to do this, negating their advantage.
Right- what I’m saying is that looking at the table, the R^2 coefficient seems to be declining over the past 10 years, indicating the correlation between payroll and wins is declining. This would seem to run counter to Jeff’s theory that large market teams will get smarter over time.
I’m not sure it runs counter to Jeff’s theory at all. The past 10 years have seen several teams massively increase their payroll – for example the Phillies. Teams that do that may need to learn the hard way to be more efficient with their spending.
So the Phillies are still paying a lot for a team that used to be good, but if they learn from the experience, then they should be more efficient in the future.
The Phillies recently admitted that maybe there is something to this statistical analysis thing and hired an analytics specialist. It’s unclear how closely they consult with this person, but they’re at least paying lip service to the notion of becoming more efficient.
An assumption included but not stated is that a wealthy team will not be completely destroyed by signing a high-cost player with high variability in potential production, or even several of them.
“as teams get smarter and smarter, the differences between them will get smaller and smaller, and success will correlate more and more with spending”
I wonder if we can run this in reverse as a measure of how smartly teams, as a whole, are acting. I.e., the bigger the difference between the have and the have-nots, the close things are to being optimized (in baseball operations).
I suppose the problem with that is that all the teams could share the same ignorance. Too bad.
Right, what that would measure would be the difference in “smartness” between teams, not optimization.
You started with the Braves streak ,,, they were a big-market team, America’s Team, then. That’s relevant because continuous success is (or has been over the past decade+) a motivation to spend on established players rather than going with younger ones. The Red Sox, notably, have had both a productive farm system and high payrolls – because they feel they always have to compete, although they haven’t repeated as champions of anything since 1916. It will be interesting to see how long the Rays, playing in a tough division, can sustain their success.
You missed one important factor IMO. The goal for a club is not to get their cost per win as low as possible. They are trying to get their profit as high as possible.
For the Yankees maybe it’s true that they have to spend 11M to buy a win. But as long as that marginal win can bring them more than 11M in return, it’s still a worthwhile investment (opportunity cost ignored).
As opposite, the Rays might only get 6M per extra win they get. That’s why Yankess keep spending when their marginal cost per win is much higher than the Rays. Simply comparing their cost per win make very few sense to explain if the system is efficient or not.
What proportion of the Rays’ attendance is made up of misplaced fans of visiting teams? Maybe the Rays will see their revenues increase if they get worse, so that people who have moved to Florida will come to see their team beat up on the Rays. Because apparently no one from Florida actually cares about baseball…
This isn’t even close to true. The problem the Rays have is that they have a terrible stadium located in a terrible spot. It’s very difficult for the average fan to get to a game. If the stadium were better situated, the team would not have that issue. The Marlins, on the other hand, have a pretty, reasonably easy-to-access stadium but the team is atrocious.
Marlins attendance was never good.
My original post was intended to be a huge exaggeration, but I definitely do think the demographics of the area has something to do with it. Give the Rays the best stadium situation in the majors and I would bet they would still have some of the lowest attendance.
Is it that difficult to get to Tropicana Field? I’m not intimately familiar with Tampa-St. Pete, but the stadium is located right off an interstate that circumnavigates the whole area. Surely it’s easier for someone from anywhere in the Tampa Bay region to get to Tropicana Field than it is for the typical suburban Cubs fan to get to Wrigley, for example.
There are lots of baseball fans in Tampa. However, imagine if Yankee Stadium just opened up 15 years ago in Fairfield, CT, and didn’t have a good team until 5 years ago. But they were still called the NY Yankees and counted on New Yorkers to fill the seats. That is the reality for a Rays fan in Tampa. I live in Tampa and I am the same distance from a Rays game as Providence, RI is from Boston, MA. Another factor is market size – I bet there are as many baseball fans per capita in Tampa as there are in Rhode Island or CT, but the Red Sox and Yankees don’t count on fans in RI and CT the same way the Rays count on fans in Tampa. Spring Training and Minor League baseball both share the fan base in Florida as well.
MLB is not really a P&L focused industry. In fact, many large corporations focus more on revenue growth than profit, nice to have both but revenue growth comes ahead of profit growth. In the MLB higher revenues = higher valuations. Winning begets revenues. Any team owner that puts profits ahead of revenues and winning should be in another business.
^This. I don’t think [many/most] teams are trying to maximize profit. It’s an expensive toy for the ultra-rich and/or ultra-competitive.
They treat teams like any other investment. So, you’re wrong that teams are “toys”. But right to agree with pft, that they should/do focus on revenue. It’s better for competition. But it also is better at making your investment (look) more valuable.
“They treat teams like any other investment”
We’ll have to disagree on that one. Some owners do, but some (like, say, the Dallas Cowboy’s Jerry Jones) don’t approach their ‘investments’ the way any normal investor would approach a company.
Also I think you ignore another important factor, the risk. What is the chance for a team like the Rays to success compared to a team like the Yankees? The 2008-2013 Rays may just be an rare sample in the recent baseball history. It’s like taking Nate Robinson and say, hey, do you really need to be at least 6 foot tall to play in NBA?
I guess most of the time those who spend more have bigger chance to make playoff, but of course that could be tautology. Maybe those who are likely to make playoffs would be more willing to spend than those who are not. However, simply comparing the average cost per win can tell little. Average numbers only make sense when you population are almost identical or distributed fairly, which is obvious not the case.
I’m not convinced that the caps on the draft/international markets hurt small market teams. The big market teams are getting smarter too. There is nothing stopping them from focusing on those areas, only with more money. I think eventually they’d drive up the prices of those players to the point where small market teams would lose any advantage.
Not everyone thought 7/42 for Yasiel Puig was going to be a bargain, but it definitely looks like it will be. However, a team like the Rays couldn’t afford to take a 42 million dollar gamble on a player like Puig.
The draft is a different story, because there are already limitations that put small and big market teams on the same level, namely the fact that a team can only sign a player it drafts. However, if it wasn’t a problem that small-market teams found certain players unsignable, I wonder why they would have included these draft money limits at all.
“However, if it wasn’t a problem that small-market teams found certain players unsignable, I wonder why they would have included these draft money limits at all.”
Because the problem was that small-market teams didn’t find certain players unsignable. (Declaration of interest: I’m a Pirates fan, and my team signed a lot of expensive players until the draft limits hit, whereupon they couldn’t sign their 2012 first-rounder.) The draft limits are more likely to have been forced on the small-market teams by the big-market teams than vice versa.
Oakland signed Cespedes for $36 million. I think that’s pretty comparable to the Rays signing Puig for $42 million.
Cespedes was older and with a more established track record in Cuba, if I remember. Puig also had not played baseball in more than a year, and was considered very raw. I think Cespedes was considered a much safer bet at the time.
Exactamundo. As soon as an inefficiency/competitive advantage is established and recognized, it ceases becoming such. At which point the less money you have, the more a cap benefits you.
Is there any data on non-player payroll? Like for Front office types, scouts, player dev people, etc? By ignoring these costs (assuming they are, too, correlated with higher wins), we’re underestimating the effect of money on wins. It would be interesting, though, to see what the price per win is for player vs other spending. There may be arbitrage opportunities there, perhaps based only on the fact of less availability of data.
I’ve frequently wondered about this, too. It seems teams like the Rays and Cards (although they’re certainly not small market) have a huge advantage in terms of drafting and developing talent. DO they Rays pay their scouts and coaches more than the Yankees or Angels? I’m not sure, but if it was as simple as offering scouts an extra $50,000 a year I’m sure the big market teams would be more than willing to do so.
Perhaps owners who spend more insist on greater control, weakening their teams? Stienbrenner would be an example of this, as would Angelos in the late 90’s and Dombrowski. The Yankees and Tigers can still succeed due to their massive payrolls, but would less owner interference enable them to be even better?
The Cards and Rays are located in the 18th and 19th largest markets in MLB, respectively.
Yes, but the Trop is on a small impoverished peninsula surrounded by a 10 mile wide mote…
Player expenses are 47% of revenues and by far the largest expenditure. Limits on draft bonuses and international spending kind of level the playing field although some of the small market teams spent more in this area than large market teams who were content to spend big on free agents.
Salaries for the non-players are pretty low. Its not as much a factor of how much you spend there but the quality of the people you spend it on. You could double your spending there without any results if you spend it on the wrong people.
Why would you use opening day payrolls, and not take into account money spent during the season to… win?
That’s not really going to change much of anything.
Wait so, *Nutting is Cheap* and that might be … ok? What will I do with my pitchfork? I wish I could unread this article.
Most of the cost inefiiciency comes from team expectations and seemingly no cost per win ratio. Any time the Yankees don’t make the ALCS it seems like a wasted season for them that needs to be fixed instead of hey, we made it to the playoffs, we still have a good team.
It’s interesting to note that the two teams that people tout as the bastions of small market teams are teams that generally don’t draw a lot of fan interest and can sell off big players basically at will without large fan consequence (due to a general lack of fan interest anyway). The A’s drew less than 2 million people and won the division. The Brewers drew over 25% better dispite winning 22 fewer games.
To put it another way the larger teams can take chances and spend more to put Wins into fewer players because their return of investment is likely much larger. The A’s could have signed Cano with the national TV money they received and their team would have been better, but they likely would not profit from it monetarily, they would have broken even because if they win the West they still dont gain much fan attention.
I think a better way of doing this might be to take out the outliers. remove the top and bottom 4 teams in average payroll over the past decade and analyze it. taking out the Yankees/Dodgers/Red Sox noise on free spending and the Rays/A’s/Marlins lack of profitability with spending money might be a better analysis of how much spending 1 million dollars actually gets you. That way its more applicable to every other team in the league who is not spending in accordance with the outliers
I wonder how much of it is that some teams just get, through whatever means, a basic core of really good players and then it’s a matter of filling in the gaps. Getting the core of really good players has a large element of chance because no one really knows which good prospects will turn out great, and which superstars will continue at that level or which will deteriorate. Part of it is good drafting, part is smart player transactions, but I think more is due to chance working in a team’s favor than is generally thought.
The way the Rays seem to do it is that they developed a core of good players through being bad for a long time, then they both refuse to trade their young players, while also trading away their established players when they get too expensive. They fill their holes with cheap, undervalued free agents or even cheaper junkpile salvaging.
There is excellent research out there on BP and THT by Matt Swartz that found that teams generally know when they got talent and generally keep the talented, either by not trading away that prospect and/or signing their own free agents long term. Thus there are sharp inefficiencies in free agent signings, which generally the big money teams do more of, which can help to explain why the money they are spending is not as efficient as one might think.
This also ties into the draft. Finding a good starter with a Top 5 pick that you have when you are losing big is a heck of a lot easier than when you are playoff competitive year in, year out, as many big money teams strive to be, and drafting in the 21-30 overall picks. A team can be much more efficient with their player payrolls when picking up Top 5/10 picks who are more likely to become good starters than the picks that the playoff competitive teams get. And this sharp dichotomy slows the flow of talent to the big money teams, forcing them to invest more and more money into the free agent market (over time) in order to make up for the difference in talent flow from the draft (and international free agents). Particularly now that draft picks are slotted and there is a cap on bonuses for international free agents from Latin America.
I know there is a looser correlation between money spent and team “success”, depending on what you define as success – it could just be a winning record, getting to the playoffs, etc.
But what about the much higher correlation of higher payroll to getting DEEP into the playoffs, ie. the Championship Games or the WS itself. In the last 20 years, roughly 85% of the teams that made it to their league’s championship game were in the top half of payrolls in their leagues in the same year.
That’s a pretty heavy correlation – any thoughts on that?
The Rays may have discovered another market inefficiency: The value of prospects, including non-elite prospects.
The Shields trade was so obviously a win for the Rays because they got a player that is potentially as-good or better than Shields, while also being younger and cheaper. However, if they had made the trade and received 4 prospects, none of whom projected to as good as Shields, would the trade have been a win for them? It may not be hailed as such, but if two of those players can turn into 2-win players, one into a 1-win role player, and one into a bust, that is still 5 wins for $2 million dollars combined salary for their pre-arbitration years. Lock them up for team-friendly contract with options like the Rays do, and that’s a bunch of cost-controlled talent from a trade that isn’t a clear steal.
It’s tough not to fall for “team that received the best player won the trade”, reasoning. Even in trades of major-leaguers for prospects, we still tend to take the outlook of the best prospect as the measurement of the value gained by the acquiring team. The Rays, however, know the value of a pre-arbitration 2-win player better than anyone, so they know that in terms of surplus value, that player alone is potentially worth more than James Shields alone, depending on the scarcity of roster spots on that team. If the Rays end up trading David Price, and in return they don’t receive a prospect that has David Price potential, it may look like a bad trade for them, but they will probably have improved their surplus value.
what happens when the TV bubble bursts?
If the Mariners and Rockies played for the World Series, it would be only the second appearance for either team in their histories and one would win its first trophy. The same two cities meet in the Super Bowl and one is getting its second shot in the last ten years and the other is looking to win its third in the last twenty years. Last five years have seen Super Bowl parades in Pittsburgh, New Orleans, Green Bay, New York and Baltimore. Those are two markets that are considered the doldrums of Major League Baseball, two markets the league won’t venture into, and New York. If high payrolls don’t correlate to winning, why don’t lower payroll, smaller market teams win the World Series more often?
The Mariners have never appeared in the World Series. After the Rays made it 2008 and the Rangers in 2010, it left only the Mariners and Nationals as the active franchises never to have won a pennant (so Expos are included).
No one is saying high payrolls don’t correlate to winning. In fact, everyone knows the opposite is true. This article just proposes one factor that correlates with winning that also seemingly correlates negatively with payroll.
Nice article! And what’s interesting here is the fact that the Rays were tied 4th for the highest average player age in 2013 (30.1), while the the A’s had the second-youngest team (27.6).
So, while both teams succeed with low payrolls, they also take different approaches when building their rosters. The Rays do develop their young players pretty well, but they count on the (underrated?) free agents too.
The A’s have done tons of trades recently, moving their assets for good-to-top prospects and letting these guys play. Of course, they also signed some key free agents (Colon, Moss, Cespedes…).
Or maybe it was just a coincidence and I may be drunk…
I have actually been performing a similar analysis and want to highlight a few points:
1. For my methodology, I prefer to look at Run Differential versus win percentage. I think there are arguments for both, but I prefer run differential as it should be the underlying driver of the win percentage. Put another way, if I were a GM I would be trying to generate Run Differential to create wins and in that way find that to be the better evaluation criteria.
2. When looking at run differential we are also able to look at spending patterns within specific categories, i.e. do clubs do better spending on preventing runs (Runs Allowed) or scoring runs (Runs Scored)? Unfortunately the public data sets that I have seen to date do not aggregate this data very well, but definitely recommend it for further study.
3. The points about spending in other areas of the organization are really interesting. If only a franchise went public…
4. The study of these items is hampered somewhat by not factoring in in-season trades which may shed or add payroll and wins accordingly.
My study looked at the post-expansion period of 1998-2013. For all teams I generated their annual run differential and compared those against their starting payrolls for the year. On average, here is what each team spent to generate one run of variance between their runs scored and their runs allowed:
Arizona Diamondbacks $(10,658,688)
Houston Astros $(8,263,653)
Seattle Mariners $(5,882,158)
Chicago Cubs $(4,205,278)
Cincinnati Reds $(3,405,548)
Minnesota Twins $(2,954,742)
Colorado Rockies $(2,127,102)
Detroit Tigers $(2,116,109)
San Diego Padres $(1,590,270)
Milwaukee Brewers $(1,199,223)
Baltimore Orioles $(1,015,032)
Florida Marlins $(713,764)
Tampa Bay Devil Rays $(666,103)
Montreal Expos $(644,948)
Pittsburgh Pirates $(609,647)
Kansas City Royals $(431,976)
Oakland Athletics $794,201
Atlanta Braves $817,076
St. Louis Cardinals $998,539
Boston Red Sox $1,082,386
New York Yankees $1,185,606
San Francisco Giants $2,182,826
Anaheim Angels $2,291,001
Philadelphia Phillies $2,697,658
Los Angeles Dodgers $2,780,389
Cleveland Indians $3,602,630
Texas Rangers $4,060,882
Toronto Blue Jays $5,702,552
Chicago White Sox $6,874,247
New York Mets $14,397,946
Negative indicates how much they spent to generate, on average per year, one negative run of variance.
The ordering is somewhat counter-intuitive as those organizations that are positive but close to zero are actually the most efficient at generating run differential. As you can see, there are some pretty likely candidates as far as efficiency since 1998: Athletics, Braves, Cardinals, Red Sox, Yankees.
What I love is that my Mets are the least efficient at generating positive run differential (Special thanks to Bobby Bonilla, Steve Philips, and Omar Minaya). This is in keeping in line with my perception of constantly being let down.
There is another layer to this analysis that is actually even more interesting which is to look at the relative rank of spending versus performance (RunDif). To summarize that one though, The Oakland Athletics are, far and away, the most efficient team in baseball.
One other fun data point is that the top 8 clubs according to this metric (lowest positive cost per rundif) have won 13 of the last 16 world series, though the top two clubs, Atlanta and Oakland, have not won during that stretch.
This is fantastic work. You should see if you can get a full guest post for this research, I would read it.
“players are relatively cheap through their first six or seven years of team control… So when players start getting paid free-agent money, they’re usually getting worse… You’d just pretty much always rather take a shot on a guy in his 20s than on a guy in his 30s.”
As this dynamic has become increasingly clear, maybe it’s time for MLB to revisit its service time/arbitration/free agency rules. The top-end FA contracts have inflated to the point where it’s almost NEVER a good idea to sign them. It seems like the balance should be shifted back toward the young guys whose prime years are going to teams that pay them a (relative) pittance.
Maybe just raising the minimum salary would be enough to shift the scales. It’s at $500,000 for 2014, but based on the value these players create, it should be many times that — maybe $5 million? Of course, that would be really hard on the small-market teams, so it would probably have to be accompanied by a LOT more revenue-sharing. None of that’s going to happen anytime soon.
So, what would have to happen for baseball players to be logically compensated for their performance? That is, could MLB ever become an *efficient* market?
The article appears to assume that win-percentage vs expenditures is a linear relationship. As best I understand, it is not: the marginal cost of incremental wins varies significantly depending on the win base from which one starts. It seems that to go from 91 to 92 costs a lot more than to go from 81 to 82. How exactly that might affect the conclusions is another matter, but affect them I reckon it would.
I’m wondering if your theory holds true, and bigger payroll clubs start to dominate, we will see MLB soften it’s stance on selling players, like they do in soccer. It would make plenty of sense for clubs with smaller payrolls to turn players that they are unlikely to be able to hold onto into currency that can be used for even more players. Or stadium improvements. Or whatever.