Team Payroll vs. Team Performance in Baseball

The following is a research paper I wrote for my English class this year on team payroll's relationship to team performance in baseball. I received a 94 on the paper. Please give it a read and tell me what you think. Later, I'll type up a more in-depth blog about my preface. Thanks, and enjoy.

Preface

While I was researching my paper, I realized that I wanted to find a way to represent the success of a team related to their payroll in numerical form. So I started the quest to perfect a formula to figure out a team's "payroll performance score" or "PPS." My original formula for PPS was very basic: take the rank of the team's payroll and subtract it from the rank of their record. So let's use the 2003 World Series-winning Florida Marlins as an example. In 2003, the Marlins went 91-71, the seventh-best record in the Majors that year. The Marlins' payroll was $49,050,000, the twenty-fifth highest in the game. In my initial formula, seven would be subtracted from twenty-five, giving them a PPS of eighteen. I realized, however, that I would run into issues with my formula after I figured out each team's PPS for 2003. The Oakland Athletics had the highest score of nineteen, with the fourth-best record and twenty-third highest payroll. But the A's did nothing in the playoffs, getting ousted by Boston in the first round, while the Marlins won it all. How could I get the PPS formula to reflect accurately?

I came to my next idea: add points to the difference between record rank and payroll rank. The difference between payroll rank and record rank, my initial PPS formula, became the "raw payroll performance score" (RPPS). I then took the teams' RPPS and added points to it based on the following criteria: winning their respective division or wild-card, success in the playoffs, and wins. I added five points to a team's score for winning their division and three points for winning their wild-card. Five points were added for making it past the first round of the playoffs, seven points for two rounds, and nine points for winning the World Series. Finally, five points were added if a team won more than 110 games, four points if the team won 100-109 games, three points if the team won 90-99 games, two points if a team won 80-89 games, and one point if a team won 76-79 games. I subtracted a point if a team won 70-75 games, two points if a team won 60-69 games, three points if a team won 50-59 games, and four points if a team only won 40-49 games. This final total became known to me as "adjusted payroll performance score" or APPS.

So let's take another look at the 2003 Florida Marlins. After subtracting record rank from payroll rank, I had a score of eighteen for the Marlins. The Marlins won the National League wild-card that year, allowing three more points to be added, giving them a score of twenty-one. The Marlins won the World Series, so I added nine more points, giving them a score of thirty. Finally, Florida was 91-71, so three points were added, giving them a final APPS of thirty-three, tops in the Majors, ahead of Oakland who had a score of twenty-seven and Minnesota who had a score of eighteen.

My final dilemma with my formula was how it was to be viewed. If the scores were listed in order and the viewer viewed them from top to bottom, I realized that larger market teams would be shut out entirely of being viewed as "successful." The 2003 New York Yankees had an RPPS of zero. They had the best record and highest payroll, a season that could be viewed as successful. However, a score of zero would not be viewed as successful by a casual viewer. This led me to view the scores on a spectrum. I have not been able to perfect a graphic for this yet, but I have an idea in my mind. First, with RPPS, teams in the middle of the spectrum (scores of five to negative five) would be viewed as having successful seasons, as they would have finished in the general area they were supposed to. Teams in the positives to the right in the six to ten range would be viewed as having good seasons be considered slightly overachieving. Teams with an RPPS of above ten would be considered to have had a sensational season. Teams with an RPPS between negative six and negative ten would be considered underachievers, while teams with an RPPS of under negative ten had a horrendous season. The 2003 New York Mets had the worst season of the last five years, having the second-highest payroll, but finishing with the twenty-seventh best record to finish with an RPPS of negative twenty-five.

The ranking of the teams based on APPS can still be put on the spectrum, but because of the addition of points for success, the center of the spectrum must be at five. So an APPS of between zero and ten is considered successful, ten to fifteen is considered a good season, and above fifteen is a sensational season. Zero to negative five is considered underachieving, while anything under that is just horrible. So using this data, I was able to find the most successful teams over the past five years.

According to RPPS, the most successful team over the past five years has been the Cleveland Indians, with an average RPPS of 12.0, while the least successful team has been the New York Mets with an RPPS of -10.6. The most successful team according to APPS has been the Oakland Athletics with an average APPS of 16.0. The least successful team has been the Baltimore Orioles with a score -9.4.

I did not feel this data was concrete enough to be used in the following paper, as it is still being perfected, but I did use some form of RPPS to represent success. Hopefully this provided a new way to look at team payroll and team performance.

Team Payroll vs. Team Performance

In baseball, there is a direct link between team payroll and team performance. It is conventional baseball wisdom that a large market team, one that plays in a large city with high revenues, such as the New York Yankees, should perform better than a small market team, one that plays in a smaller city with low revenues such as the Kansas City Royals. Steve Marantz wrote in the article "If You Don't Pay, You Lose" in The Sporting News, "In baseball, as in no other professional sport, championships are purchased, lock, stock, and barrel." However, there are prominent exceptions to this alarming trend.

Baseball is a game rooted in money which is evident after a quick glance at the game itself. Out of the four major sports organizations, the National Football League, the National Basketball Association, the National Hockey League, and Major League Baseball, Major League Baseball is the only one that does not have a salary cap. Because of this, richer teams in larger markets can outbid poorer teams for top talent in free agency ("Sports"). Many feel that the poorer teams are automatically placed at a disadvantage when the season starts. "When spring training starts, half the teams have no chance. The players know it, the managers know it, and most importantly, the fans know it," Peter Magowan, owner of the San Francisco Giants said ("Baseball's"). When asked how he feels about the relationship between team payroll and team performance, The Baltimore Sun columnist Peter Schmuck stated:

I believe there is a direct relationship between high payroll and success in Major League Baseball, and the best evidence is the New York Yankees. They have spent the most money on salaries over the past decade or so and have appeared in the playoffs every year since 1995. That's not a coincidence. (Schmuck Interview)

Schmuck echoes the sentiment Magowan presents that at the beginning of the season, it is clear-cut who the favorites are just based on payroll.

Some baseball analysts and owners have argued that some of the smaller teams, such as the Oakland Athletics and Minnesota Twins, should be disbanded. However, the success of the Athletics and Twins in recent years has made it hard for this proposed action to be justified. One way that the gap between the large and small market teams has been closed slightly is through revenue sharing. The point of revenue sharing is to have the richer teams share a portion of their profits with the poorer teams. Many rich teams, such as the New York Yankees, feel that this Robin Hood-like policy is unfair to them because they are basically penalized for making money. Outspoken Yankees owner George Steinbrenner likened revenue sharing to communism by saying, "You can't say, 'Well let's share everything equal,' or else we would be over in Russia. And it didn't work over there" ("Baseball's"). As Steinbrenner's comments show, more significant revenue sharing will not come easily.

The past history offers a distinct look into the impact of the payroll differential in Major League Baseball. In 1996, the eight teams in the playoffs were all in the top half of the payroll rankings and the team with the higher payroll won each series, ending with the New York Yankees defeating the Atlanta Braves in the World Series (Schmuck, "Money"). Contrast 2002 to 1996. The four teams in 2002 that advanced to their respective League Championship Series ranked no higher than ninth in payroll. The playoffs ended with the Anaheim Angels, with a lower payroll, defeating the San Francisco Giants in a seven-game series. This victory for small revenue teams went so far as to somewhat dispel the notion that "only the teams with the highest payrolls such as the New York Yankees had a shot at winning the World Series" ("Angels"). From the year 2002 to 2007, a team with a payroll regarded as "high" won the World Series only twice.

Even though all the evidence makes it seem virtually impossible to compete year-in and year-out with a low payroll, there is a glaring exception to the rule: the Oakland Athletics. The success of this particular baseball franchise was so shocking; it led the commissioner of Major League Baseball, Bud Selig, to call it "an aberration" (Lewis 123). In his book Moneyball, author Michael Lewis followed Oakland Athletics general manager Billy Beane throughout an entire season to get an inside look into the art of running a small market franchise. The Athletics practice "moneyball," a system implemented by Beane which breaks from the baseball tradition of spend, spend, spend. Dealing with a low budget and payroll, this is essentially the only way Beane can keep the Athletics competitive. Agent Scott Boras, who has some of the highest paid clients in baseball, when talking about Oakland's success, remarked, "What happened to these franchises is a product of management's decisions. Teams like Oakland have used intellect to overcome imbalance" ("Baseball's"). The "imbalance" Boras speaks of is simply money, not a skill advantage, as Oakland's success has shown.

The Oakland Athletics are a perfect example of a small market team competing on the big stage. In looking for players, Beane follows the philosophy of baseball sabermetrician Bill James. James is the author of the Baseball Abstract, which was published throughout the late 1970's and into the 1980's, and created a whole new way of looking at the game of baseball. James is the inventor of statistics such as range factor, runs created, and on-base plus slugging (OPS). James was an advocate of on-base percentage (OBP), which Beane took to heart (Lewis 69). On pages 128 and 129, Lewis writes:

A player's ability to get on base – especially when he got on base in unspectacular ways – tended to be dramatically underpriced in relation to other abilities. Never mind fielding skills and foot speed. The ability to get on base – to avoid making outs – was under priced compared to the ability to hit with power. The one attribute most critical to the success of a baseball team was an attribute they could afford to buy. At that moment, what had been a far more than ordinary interest in a player's ability to get on base became, for the Oakland A's front office, an obsession.

Not being able to afford to pursue high-profile free agents on the free agent market, Beane had to resort to looking to unusual sources for value. After the 2001 season, first basemen Jason Giambi left the Athletics for the New York Yankees and a seven-year, $120 million contract. In displaying the payroll gap between the large and small markets, Lewis wrote, "And that some fraction of the $120 million the Yankees had paid Jason Giambi after the 2001 playoffs to lure him away from the Oakland A's was to prevent him from ever again playing for the Oakland A's" (Lewis 123). The Athletics faced the dilemma of how to replace Giambi at first base. Beane called on Scott Hatteberg, whom he converted from catcher to first base, as he saw immense value in Hatteberg's ability to get on base. The cheap investment in Hatteberg paid off, as Hatteberg finished thirteenth in Major League Baseball in on-base percentage, third in pitches seen per plate appearance, and fourth in strikeout-to-walk ratio, a feat nearly unequaled by any other player (Lewis 170). Along with "treating rich teams as petty cash dispensers" by extracting cash from teams by selling them players, the Athletics also would use players in the last year of their contracts as "rentals," acquiring them for next to nothing near the trade deadline and only keeping them for the stretch drive (Lewis 197).

As the payrolls rise, the realization is made that teams are not paying for more people; the teams are still paying for the same twenty-five players, giving talent a higher price. In 1998, pitcher Kevin Brown signed a then-astronomical seven-year, $105-million contract with the Los Angeles Dodgers, making him the highest paid player in baseball history. However, this did not equate to instant success for the Dodgers. In the five seasons from 1999 to 2003 Brown played in Los Angeles, the Dodgers went 426-384 (a .526 winning percentage) and did not make the playoffs in any of those years ("Professional"). Brown's addition boosted their payroll and added hope for success, but the money spent on Brown did not translate into success for the Dodgers.

In the same offseason, former Dodgers catcher Mike Piazza signed a contract worth $91-million over seven years with the New York Mets ("Do"). Piazza played out all seven years of his contract with the Mets from 1999 to 2005. In Piazza's seven years in New York, the Mets had two playoff appearances and made the 2000 World Series, losing to the New York Yankees. The Mets finished the seven years with a record of 568-565, a .501 winning percentage (Forman). Evaluation of Piazza's tour of duty with the Mets is difficult, as the Mets had success early in Piazza's Mets career, but in the last few years of Piazza's contract, the Mets were horrible, including a 66-95 season in 2003.

Alex Rodriguez is one of the most popular examples of equating team performance to team payroll. In December 2000, Rodriguez signed a 10-year, $252 million contract with the Texas Rangers. This record-breaking contract did not turn into winning ways for the Rangers, as Texas went 216-270 in Rodriguez's three years (2001-2003) in Texas. Before the 2004 season, Rodriguez was traded to the New York Yankees for second basemen Alfonso Soriano. In Rodriguez's four years in New York, the Yankees are 387-261 and have made the playoffs each year, but have yet to win a World Series (Forman). In 2003, before the Yankees added Rodriguez to their payroll, their payroll was $152,749,814 while they won 101 games. In 2004, with the addition of Rodriguez, the Yankees' payroll ballooned to $182,835,513, and they still won 101 games (Holtz). Despite the team's lack of success, Rodriguez has won two American League Most Valuable Player Awards while with the Yankees. He recently was re-signed by the Yankees to a record 10-year, $275 million contract, reportedly worth up to $300 million with incentives, after he opted out of his former contract ("Alex Rodriguez").

The past five years show many different trends in terms of team performance and team payroll. In 2003, the Florida Marlins won the World Series with the twenty-fifth (out of thirty) highest payroll, defeating the New York Yankees, who had the highest payroll and best record that year. Also in 2003, the Oakland Athletics outperformed their payroll the most out of any team in Major League Baseball, finishing 96-66, the fourth best record in the game, with the twenty-third highest payroll. The New York Mets turned in one of the worst performances in Major League Baseball history from a payroll standpoint, finishing 66-95, good for the twenty-seventh best record. This is not much of a shock until one realizes the astronomical amount of money the Mets were paying: $117,176,620, the second highest payroll in the game. To put this into starker terms, the Mets essentially paid $1,775,403.33 per win in 2003 (Holtz).

The 2004 baseball season followed closer to the plan conventional wisdom set for it, as the Boston Red Sox won the World Series with the second-highest payroll in baseball, defeating the St. Louis Cardinals, who had the twelfth-highest payroll, in a four-game sweep. The Chicago White Sox won the 2005 World Series with the thirteenth-highest payroll, defeating the Houston Astros, who had the twelfth-highest payroll. Also in 2005, the Cleveland Indians put in the best payroll-related performance, finishing with the sixth-best record in baseball, while putting together the twenty-sixth highest payroll (Fry).

In payroll-related performances, 2006 was a year to remember. First off, the Florida Marlins started the season with a payroll of $14,998,500, the lowest in baseball by over $20 million, and thirteen times less than the New York Yankees, who had the highest payroll. They outperformed all expectations, finishing 78-84, or basically paying $192,288.46 per win. The Oakland Athletics again put in a great performance, finishing with the fifth-best record while having the twenty-first highest payroll (Forman). Another small market team, the Minnesota Twins, finished with the third-best record in baseball while having the nineteenth-highest payroll. The World Series-winning St. Louis Cardinals had the eleventh-best payroll, but the thirteenth-best record, actually underperforming based on their payroll. They beat the Detroit Tigers, who had the fourth-best record of the year and the fourteenth-highest payroll (Fry).

With the second-highest payroll in 2007, the Boston Red Sox won the World Series for the second time in four years. They swept the surprising Colorado Rockies who finished the year with the sixth-best record on the twenty-fifth highest payroll. Also surprising the experts in 2007 were the Cleveland Indians, Arizona Diamondbacks, and San Diego Padres, who had the best, fifth-best, and eighth-best records in baseball while having the twenty-third, twenty-sixth, and twenty-fourth highest payrolls. The Tampa Bay Devil Rays were the perfect example of team performance relative to team payroll, having the lowest payroll and worst record in the majors (Fry).

The answer is obvious that team payroll influences team performance, but there is still hope for small market franchises as the Oakland Athletics have proven. The advent of the "moneyball" strategy has given the most hope to the small market teams, and with the recent success of small-market, low-payroll teams in general is a great sign for baseball. With teams outside of the top ten in payroll winning the World Series in three of the past five years, it appears that the landscape of Major League Baseball is changing. However, conventional wisdom still continues to rule a game unwilling to change its unwritten rules.

Works Cited

"Alex Rodriguez signs new Yankee deal." UPI NewsTrack. (Dec 13, 2007): NA. Student Resource Center - Gold. Thomson Gale. John Carrol School. 15 Dec. 2007.

"Angels, Giants Win Baseball Pennants; First All-Wild Card World Series Set; Other Developments." Facts On File World News Digest 24 Oct. 2002. Facts On File World News Digest @ FACTS.com. Facts On File News Services. 11 Nov. 2007 <http://www.2facts.com>.

"Baseball's Future." Issues & Controversies On File 23 June 2006. Issues & Controversies @
FACTS.com. Facts On File News Services. 11 Nov. 2007 <http://www.2facts.com>.

"DO HIGH PAYROLLS GUARANTEE PENNANTS?" USA Today Mar. 1999: 7. Student
Research Center Gold. InfoTrac. John Carroll School. 10 Nov. 2007. Keyword: Baseball Payrolls.

Forman, Sean L. Baseball-Reference.com - Major League Statistics and Information. http://www.baseball-reference.com/. 13 November 2007.

Fry, Ben. Salary Vs. Performance. 2007. Ben Fry. 9 Nov. 2007 <www.benfry.com>.

Holtz, Sean. Baseball Almanac. 2 Nov. 2007 <www.baseball-almanac.com>.

Lewis, Michael. Moneyball. New York: W. W. Norton & Company, 2003.

Marantz, Steve. "If You Don't Pay, You Lose." The Sporting News 10 Nov. 1997: 8. Student
Research Center Gold. InfoTrac. John Carroll School. 7 Nov. 2007.

Schmuck, Peter. E-Mail interview. 19 Nov. 2007.

Schmuck, Peter. "Money Doesn't Always Buy Happiness." The Sporting News 19 May 1997: 37. Student Resource Center Gold. InfoTrac. John Carroll School. 6 Nov. 2007.

"Sports Salary Caps." Issues & Controversies On File 26 Nov. 2004. Issues & Controversies @
FACTS.com. Facts On File News Services. 11 Nov. 2007 <http://www.2facts.com>.

Thanks for reading.