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These days, the correlation between payroll and winning is historically weak

Aug 26, 2014, 9:29 AM EST

Money Bag

It has been repeated so often that it has turned into a religion more than anything else: rich teams can buy their way into contention, poor teams cannot. Books have been written under that assumption. A swath of people who claim they were baseball fans have cited it as a reason for tuning out the game. Those rich teams like the Red Sox and Yankees have an unfair advantage, the story goes, and the other teams have no shot, it is claimed. Baseball needs a salary cap or something!

Except, even if there was some truth to that ten or fifteen years ago, it’s certainly not the case now. Today Brian MacPherson Providence Journal tells us just how un-true that is. He has run the payroll numbers against the W-L records and has found that a list of teams in alphabetical order has greater predictive power of team success than does a list of team payrolls from highest to lowest:

Ten years ago, by correlation calculations, a team’s payroll accounted for around 25 percent of its success . . . By correlation statistics, payroll accounts for barely more than four percent of teams’ success now.

The correlation coefficient between payroll and wins this season (0.202) is even smaller than the correlation between the standings and the first letters of the cities in which teams play (0.24). In other words, you’d have a slightly better chance of predicting playoff participants simply by using alphabetical order than by using payroll numbers.

There are a lot of reasons for this, many of which we’ve talked about around these parts for years. Smarter front offices, locking young players up to long term deals before they get too expensive. More overall money available to smaller revenue teams due to TV deals and the like. Changes to the draft and international free-agent signings. The reduction of PEDs in the game which means fewer older guys (i.e. the guys who can be acquired via free agency) making impacts.

I doubt this will change the mindless talking points of the baseball bashers. They’ll still auto-pilot on “baseball needs a salary cap” talk next winter when big free agents sign someplace. Or they’ll just change their complaints, moving from “The Yankees and Red Sox win it all the time because they’re rich!” to “No one can get excited about baseball now that marquee teams like the Yankees and Red Sox stink! Who wants to watch a Royals-Brewers World Series anyway?”

But the cool thing about facts is that they remain facts even if idiots ignore them. And the fact is, baseball has a far more level playing field now than it has had in a long time.

  1. pete2112 - Aug 26, 2014 at 9:46 AM

    Is this really news? I’ve been saying this for a while. Tampa had been a dominate team in the AL east for a number of years with the Yankees and Red Sox spending much more than they were able to do. I’m sure being able to sign proven free agents while also being able to retain and re-sign their own players is a huge advantage, but team chemistry is also important, which is where teams like the Yankees run into trouble.

    • asimonetti88 - Aug 26, 2014 at 10:59 AM

      While the Rays have been very successful, and I always root for them to win the East, the Red Sox and Yankees have both won a World Series within the last 5 years, while the Rays have not. I would not say the Rays are the “dominate (sic) team in the AL East for a number of years”.

      • pete2112 - Aug 26, 2014 at 11:14 AM

        First of all, I said they “were” the a dominate team in the AL east for a period of time. Perhaps dominate is too strong, but they did win the east a couple times in the past eight years and have won the same amount AL pennants as the Yankees in those same eight years. They got beat by a better Phillies team in 08, but they still reached a World Series. My point is that they did this with much less money and more within the organization developing their own talent.

      • mogogo1 - Aug 26, 2014 at 11:33 AM

        “Dominant.” That is the adjective you are looking for. Dominant teams dominate.

    • 78mu - Aug 26, 2014 at 1:41 PM

      No it’s not really news. The Cubs during the Hendry era showed how hard it was to win even with a big checkbook.

      A lot of luck seems to be needed. Would the Cardinals have won 2 WS unless all other teams had continually passed on Albert for 12 rounds. Even the Cardinals didn’t know they were getting one of the best hitters in baseball history.

  2. Ren - Aug 26, 2014 at 9:48 AM

    Proof definitely tells money doesn’t buy everything, a team needs a leader in the field who can serve as a mentor, or a manager who can press the right button on how to pull the team together… Any player can prove himself well even though he isn’t a well known one, determination and perseverance of someone or the players in it’s team is what’s needed to achieve victory. One’s that’s dedicated on how to withstand even though in a streak of losses in their belts is what’s needed to move forward and alwasy keep lookin ahead of the next game, and not to lose sight on what’s their current objective is… And that’s to head to the World Series. It’s all about the team’s confidence and chemistry, that can obtain good results…

  3. Francisco (FC) - Aug 26, 2014 at 9:52 AM

    In other words, you’d have a slightly better chance of predicting playoff participants simply by using alphabetical order than by using payroll numbers.

    A’s, Angels… damn the Yankees are screwed.

    • stex52 - Aug 26, 2014 at 10:03 AM

      Of course it breaks down at “Astros.”

    • PayBonnilla - Aug 26, 2014 at 10:08 AM

      It’s actually the “first letters of the cities in which teams play,” not first letter of the team’s name, according to the excerpt.

      • Francisco (FC) - Aug 26, 2014 at 10:17 AM

        I know, but the joke doesn’t resonate as much if I use N rather than Y.

      • El Bravo - Aug 26, 2014 at 10:20 AM

        Either way the Atlanta Braves will come out on top….and then promptly lose in the playoffs.

  4. practicalpossum - Aug 26, 2014 at 9:52 AM

    Interesting, to my mind. It says that either some teams are way overpaying for the performance they’re getting, or that some teams are way underpaying (e.g. Marlins and Stanton), or mostly likely both. In a rational market, there should be some correlation between the amount paid and the results obtained.

    I would not be surprised to see this become an issue in the next round of collective bargaining talks, as the owners seek to find ways to get out of the overpaying for poor performance trap.

    • stex52 - Aug 26, 2014 at 10:07 AM

      Bingo. It’s not a rational market. Rich owners make deals for the prestige of making them, or to appease a restless fan base by looking like they are doing something, or by taking past performance and projecting it forward. The desirable players contribute by demanding multi-year contracts (who doesn’t want job security?) and waiting for the bigger fool to put the money down for a ridiculous contract. It only takes one fool each year.

      None of these are rational behaviors. But they drive a lot of the big contracts.

      • aboutamoo - Aug 26, 2014 at 10:14 AM

        I would say the players demanding multi-year contracts is very rational.

    • aboutamoo - Aug 26, 2014 at 10:13 AM

      The owners can get out of the overpaying for poor performance trap any time they want to. It’s called “restraint”. There’s about 15-20 years of evidence to suggest that any contract more than four or five years in length, or one that goes beyond a player’s age 34 season is a bad idea. It doesn’t require changes to the CBA to act on that evidence.

      • geejon - Aug 26, 2014 at 11:14 AM

        You’re right, but the teams with “extra” money to spend seem to take the stance that “this 6 year deal taking this guy thru age 36 will probably give us 2 excellent years, 2 solid ones, then 2 barely average ones”. We can sign him and hope we luck into an extra excellent year before he drops into replacement level for the rest of his deal or we can NOT sign him and not even get those 2 (hopefully 3) excellent years at that position”. With the money to burn, I understand why certain teams see that scenario as more reward than risk (since all they’re risking is money they can afford to spend) and the reward is obvious.

      • aboutamoo - Aug 26, 2014 at 11:40 AM

        The reward, ultimately, is the mediocrity the Yankees have been trapped in for the last few seasons. They keep spending enough that they never bottom out completely, a la the Astros. But they’re miles away from being serious contenders (negative-27 run differential — they’re much worse than their record). And by the time A-Rod, Sabathia, and Texeira come off the ledger, Ellsbury, McCann, and whoever else they sign this winter will be clogging up the field while eating $100 million+ of payroll for them.

      • geejon - Aug 26, 2014 at 12:12 PM

        @aboutamoo … Yup the Yankees are mired in mediocrity right now but they have several World Series titles and had a ridiculous run of playoff appearances that it probably doesn’t sting them too much. Nobody can be on top forever. I’m not quite sure what appeal bottoming out would have for them other than the crapshoot that is the MLB draft. This isn’t basketball where a single #1 overall pick will change your franchise. New York isn’t Houston. That organization is swimming in money and their owners aren’t going to pocket the money rather than sign FA’s. I fully expect them to come away with either Scherzer or Lester this winter. The notion that they shouldn’t do that but rather have the Steinbrenner clan pad their Swiss bank accounts even more and field 50 win teams for 10 years hoping they hit on some top 3 draft picks is laughable. I’m not a Yankee fan and even I can see that’s ridiculous.

    • simon94022 - Aug 26, 2014 at 6:21 PM

      Baseball is different from other sports in that draft picks are virtually never ready for a major league roster and only a fraction of them will ever make the big leagues. Most players require years of team investment in minor league development, and the collective bargaining agreement takes this into account.

      Thus the basic MLB economic structure: All young players are relatively cheap, and all veteran players (6+ years of major league experience) are relatively expensive.

      So you can never have a “rational” market where teams pay a standard rate for a standard level of performance. And likewise, the richest teams can never automatically dominate. As long as your roster is filled with young players, your payroll will be low, even if you have a playoff team. Likewise, as long as your roster is filled with free agents and veterans acquired through trades, your payroll will be high, even if the team is terrible.

      The larger revenue teams tend to favor the veteran/free agent approach to building a roster because it is easier: it appears to be a quicker route to the goal, and you don’t have to be that smart.

      The best thing to be in baseball is smart AND rich, but if you had to choose between the two smart is much, much better than rich.

  5. trbmb - Aug 26, 2014 at 10:09 AM

    The majestic NFL is the model, if that perfect league has a salary cap, any league that doesn’t is inferior and a failure.

    • [citation needed] fka COPO - Aug 26, 2014 at 10:59 AM

      if that perfect league

      What exactly is perfect about the NFL?

      • 18thstreet - Aug 26, 2014 at 11:48 AM

        You’ll have to excuse trbmb. He’s taken too many hits to the head.

      • raysfan1 - Aug 26, 2014 at 3:26 PM

        I’m assuming the statement was intended as sarcasm.

  6. SocraticGadfly - Aug 26, 2014 at 10:11 AM

    Short sample size at start of story by focusing just on this year.

    Then this:

    The inability of rich teams to leverage their financial resources is what makes the signing by Boston of Cuban defector Rusney Castillo to a seven-year, $72.5-million contract so meaningful.

    That lack of leverage is because more smaller-market teams are gambling by signing promising players to pre-free agency extensions. Sometimes, as with the Rays and Longoria, it pays off spectacularly. But, other times it doesn’t, and it works only as well as farm system development does.

    Beyond that, loopholes still remain, like in the international market.

  7. Paper Lions - Aug 26, 2014 at 10:15 AM

    There are probably a lot of problems with his methodology. Two being the use of a linear model for data we know is not linear and the use of 1-year time scales.

    Baseball isn’t about winning 1 year, it is about winning each year to have more chances at winning it all. In baseball, the problem isn’t that less rich teams can’t win, it is that they have to catch lightning in a bottle or build for a short window because they can’t afford to keep any or most of the stars they develop.

    I am willing to bet if he took the noise out of the data by calculated average payroll and average wins (or, more importantly, number of playoff appearances) for each team over that time frame, and used orthogonal polynomial regression, he’d account for a lot more variation….wins is a really noisy stat, and has nothing like a linear relationship with payroll (or even talent).

    • Bob Loblaw - Aug 26, 2014 at 12:22 PM

      I also think that the article is disingenuous because it doesnt take into account the skill of the GM. All things being 100% equal, there is absolutely no question that the team that spends more money will win more than the team that spends less. ALL OTHER THINGS BEING EQUAL.

      I guarantee a couple things…

      Billy Bean, Andrew Freedman and Theo Epstein would have done much better with the Phillies than Ruben Amaro Jr.

      Ruben Amaro Jr would be doing far far worse with the Rays, Cubs, and A’s than Beane, Freedman, and Epstein.

      Again, if you put a GM on a team that spends more $$$, he will win more than if you put that same GM on a team that spends less $$$. It’s common sense.

      • Paper Lions - Aug 26, 2014 at 12:27 PM

        Totally agree. The monster that the Cubs are going to be when they start spending money is going to show what happens when you have a team that builds internally and spends money smartly on the draft, international markets, and in FA.

        Any good GM can be better with money because you can keep your great players, buy other team’s great players, and use money to fix mistakes.

      • stex52 - Aug 26, 2014 at 2:28 PM

        And I’m afraid the argument about GM quality will enter into the Astros/Cubs comparisons. They both started with the same model. But I think cracks are appearing all over in Luhnow’s ability to execute the plan.

      • mazblast - Aug 27, 2014 at 5:28 PM

        The MSM never mentions it, but Amaro in his utter incompetence has won as many World Series titles as Freedman and the brilliant Billy. The major difference is the forward view–we know RAJ will never get one.

  8. gbrim - Aug 26, 2014 at 10:25 AM

    You don’t have to be a ‘baseball basher’, Mr. C. to think baseball would be better off with a salary cap and restrictions on guaranteed contract money, not to mention more generous revenue sharing for low revenue teams.

    • Paper Lions - Aug 26, 2014 at 10:37 AM

      Well, no, but unless baseball is willing to start spending more money on players, a salary cap isn’t going to happen. Baseball spends a smaller percentage of revenues on players than any other North American sport, and it isn’t that close. This is largely due to teams have 7 years of (usually) very cheap control of players. Unless, the owners, as a group, are willing to start spending about 10% more of their revenue on players than they do now, to make it closer to spending in other sports, there is no way a cap is happening. Essentially, teams would have to do a massive overhaul on revenue sharing and start acting like a single unit instead of 30 individual units for a cap to happen.

      • stex52 - Aug 26, 2014 at 10:42 AM

        If they start acting in concert then I think their anti-trust exemption should be removed immediately. At least now they have a fig leaf cover that suggests they are not in collusion.

        If they act at any level more in conclusion than they do now, we should end the charade.

      • Paper Lions - Aug 26, 2014 at 10:55 AM

        It is already a charade, they already act as a unit in most aspects via the CBA. For there to be a salary cap that is effective at both paying fair salaries and maintaining competitive balance, they’ll have to be more like a single financial entity, like other leagues are because of their national TV contracts….that won’t happen because teams in big markets will not want to share profits…even though 100% of those profits derive from being part of the league.

    • stex52 - Aug 26, 2014 at 10:38 AM

      I can’t think of any reasons why we should. It’s a free country. Owners are allowed to be fools, as long as they pay the bills. Why would you restrict the amount of money those kids are allowed to make?

    • Wesley Clark - Aug 26, 2014 at 10:59 AM

      As far as a salary cap goes, No Thank You. I really dislike the NFL model of player control. The league has a salary cap. Player A signs a contract. He plays well. He gets a little older. He is still honoring said contract. The team decides that Player A is making to much money and just cuts him. Everyone is ok with that for some reason. Now if Player A holds out for more money, it is like he murdered an infant. How dare Player A do that! He is lucky to be getting paid “millions” to play a game! The outrage is palpable and, at the same time, moronic. The Player’s Union in football really screwed over it’s members. Like it or not, Baseball has the most American business model. Free Markets and such.

      • mogogo1 - Aug 26, 2014 at 11:46 AM

        The NBA and NHL also have salary caps. MLB is basically on its own. Pros and cons both ways but the fact Royals fans have waited 30 years to have a good team once again says a lot, as does the fact that a tiny city like Green Bay has been able to stay near the top for a long period of time in the NFL.

      • Wesley Clark - Aug 26, 2014 at 12:06 PM

        The problem with your comparison of Green Bay/Kansas City is that is completely disregards the impact that a smart front office can have on winning. From a baseball perspective (because who cares about the NFL?) you can look no further than Oakland and Tampa Bay. They, generally speaking, operate in the same payroll zip code as Kansas City and manage to field competitive teams. The Twins were competitive for a really good stretch on small payrolls as well. Kansas City’s lackluster on the field performance is more related to the front office than anything else. Are the big market teams at a financial advantage? Of course, but smart teams can still win.

      • stex52 - Aug 26, 2014 at 12:14 PM

        Arguments about competitive balance are irrelevant to salary caps. The only reason owners do it in any league is to assure that more of the profits go to them, rather than the guys who are actually playing the game.

        “Competitive balance” is a smokescreen.

      • cshearing - Aug 26, 2014 at 12:20 PM

        A salary cap does not have to come with unguaranteed contracts like they have in the NFL. The NBA & NHL both have a salary cap (with the NBA’s being softer, with luxury taxes) while still having guaranteed contracts.

    • [citation needed] fka COPO - Aug 26, 2014 at 11:00 AM

      Tell us how it would be better with a salary cap then. I’ll sit here waiting…

      • gbrim - Aug 26, 2014 at 11:14 AM

        How about you or Mr. C. tell me why advocating a salary cap and other changes makes me a ‘baseball basher’, as Mr. C implied in his article. That was my point.

      • [citation needed] fka COPO - Aug 26, 2014 at 11:18 AM

        How about you or Mr. C. tell me why advocating a salary cap and other changes makes me a ‘baseball basher’,

        That’s not what he said, in fact it’s the reverse. It’s baseball bashers who advocate for the salary cap, (so A does B, not B does A).

        So again, why do you think baseball needs a salary cap? You mention revenue sharing, baseball already does that. Why should there be a restriction on “guaranteed money” in contracts? All that does is shift money from the players to owners.

      • gbrim - Aug 26, 2014 at 11:29 AM

        I didn’t say, in my original comment, that Mr. C ‘said’, the comment was Mr. C. ‘implied’. Certainly not the reverse of his comment as you said.

        Its a baseball tradition to not change much of anything over the years. That is how we got nine inning games that last way over three hours, and completely different economic realities for teams competing in the same league. I think that is a terrible mistake for a great sport to make.

      • [citation needed] fka COPO - Aug 26, 2014 at 11:47 AM

        So you’re not going to tell us why you think baseball needs a salary cap then?

      • gbrim - Aug 26, 2014 at 12:04 PM

        The arguments are all out there, pro and con. And I am certainly not persuasive enough to change many minds. Plus, I don’t want to send this thread even further off topic. Mr. C.’s post had a bit of good news for any fans who want competitive balance. I’ll take ‘everybody has a chance’ every time, however it is accomplished.

      • [citation needed] fka COPO - Aug 26, 2014 at 12:21 PM

        Yes, and all the “pro” arguments are easily debunked, so I was curious if you were going to trot those out, or if there were new ones.

      • gbrim - Aug 26, 2014 at 2:32 PM

        COPO, I didn’t respond further so as to not hijack the thread. You are happy without a salary cap. Won’t cost me any sleep at night that you feel that way.

  9. schmedley69 - Aug 26, 2014 at 10:31 AM

    So why do we have these stupid competitive balance draft picks then? My team is handicapped with an incompetent GM. How about giving us some extra draft picks to compensate for that?

  10. Bob Loblaw - Aug 26, 2014 at 10:36 AM

    “Five of the eight teams now in position to make the playoffs have payrolls ranked 15th or lower — Baltimore (15th), Milwaukee (16th), Seattle (18th), Kansas City (19th) and Oakland (25th).”

    Tigers are 1.5 games out. Yankees are 2.5 out of the WC. If they both make it, remove Royals and Seattle and now it’s 3 of the 8 playoff teams. While the other 5 would be #1, #2, #5, #6, and #9 in payroll ranking. What does that do to the narrative?

    Look, I’m not saying that the article isn’t right. All I am saying is that maybe this year is an anomaly and that we should look at the next five years and come back to the thought.

    • Bob Loblaw - Aug 26, 2014 at 10:40 AM

      Wait, that’s totally wrong. It’s actually 10 teams, not 8. And so let me fix that for him.

      “”Five of the ten teams now in position to make the playoffs have payrolls ranked 15th or lower — Baltimore (15th), Milwaukee (16th), Seattle (18th), Kansas City (19th) and Oakland (25th).”

      Tigers are 1.5 games out. Yankees are 2.5 out of the WC. If they both make it, remove Royals and Seattle and now it’s 3 of the 10 playoff teams. While the other 5 would be #1, #2, #5, #6, #7, #9 and #13 in payroll ranking. What does that do to the narrative?

  11. ud1951 - Aug 26, 2014 at 12:12 PM

    This is a recurring theme in the US today, the conventional wisdom is that money buys power and influence and without it, you are pretty much screwed. Another example of the conventional wisdom being wrong most of the time. True in baseball as in politics, well funded teams don’t always win and well funded candidates often lose. Talent, execution and good ideas trump money just about every time in almost every setting.

  12. twinfan24 - Aug 26, 2014 at 1:12 PM

    Small sample size? The article mentions a change from the mid-2000’s. So, they are saying only the last few years are different. Which means struggles from a couple big market teams, and one or two teams having a good season can throw things off.

    I will still maintain that more money helps you recover more quickly from a bad signing and/or stay competitive for a longer stretch. A team with more money can eat a contract and sign another player. A team with limited resources will be stuck with not signing another big contract until the first one is paid off (or close).

  13. adross47 - Aug 26, 2014 at 1:12 PM

    I would personally love to see a Brewers vs. Royals World Series.

    • Bob Loblaw - Aug 26, 2014 at 2:30 PM

      This will never happen unless there is a salary cap. Period.

      • tridecagon - Aug 26, 2014 at 2:57 PM

        All else being equal, the probability of two specific teams meeting in the WS is less than 1 in 200. So yes, it’s unlikely to happen anytime soon, but it probably doesn’t have a ton to do with the salary cap.

      • twinfan24 - Aug 26, 2014 at 7:55 PM

        Except all things aren’t equal, so your 1 in 200 odds aren’t really accurate to reality in any given season.

  14. sportsfan18 - Aug 26, 2014 at 2:32 PM

    It sure is Craig…

    I mean the Knicks spend a LOT over recent years and they don’t win…

  15. wjarvis - Aug 26, 2014 at 5:08 PM

    So looking purely at what teams played in the World Series since 1995 here are the teams salary rank.

    95 – 4 over 7
    96 – 1 over 3
    97 – 5 over 1
    98 – 2 over 9
    99- 1 over 3
    00 – 1 over 6
    01 – 8 over 1
    02 – 15 over 10
    03 – 25 over 1
    04 – 2 over 11
    05 – 13 over 12
    06 – 12 over 15
    07 – 2 over 25
    08 – 12 over 29
    09 – 1 over 7
    10 – 10 over 27
    11 – 11 over 13
    12 – 8 over 5
    13 – 4 over 10

    So there has been 1 world series champion who has a payroll in the bottom half of the league, and only 3 teams have even made it to the world series without being in the top half of the league. The average salary rank for a world series winner in that time is 7th, and the loser 10th. Yes, you actually have to spend the money wisely to win more, but it does help to spend money.

    • simon94022 - Aug 26, 2014 at 6:04 PM

      You have skewed the numbers by picking the year 1995 as your starting point, which is arbitrary. The key year for baseball’s current economic system is 2003, the first season under a CBA that included meaningful revenue sharing and a luxury tax.

  16. simon94022 - Aug 26, 2014 at 6:12 PM

    Here’s the other area where baseball is unique among major sports: Regardless of talent level, all young players are relatively cheap, and all veteran players are relatively expensive. This is not true in the NFL or NBA, where draft picks can become immediate superstars and do not require years of team investment in minor league development.

    When a baseball team goes into rebuilding mode, it fills its roster with younger players and therefore drops way down the payroll rankings. So it’s something of a tautology to point to payroll rank and express shock — shock! — that the lowest payroll teams generally do not make the posteason.

    Of course, some of the lowest payroll teams DO make the postseason year after year. They are the smart ones that draft and develop well and have rosters loaded with cheap young talent.

  17. twinfan24 - Aug 26, 2014 at 7:58 PM

    The other problem with looking at wins is that baseball has the smallest spread from lowest to highest winning percentage of the major sports. They play the most games, so it looks like a bigger spread by pure number, but the percentage spread is the smallest.

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