January 13, 2009


The Biz: The Price of Winning: Who is really the best in MLB at creating wins from dollars? (Peter Bernstein, 1/14/09, ESPN)

We conclude this: for every $7 million a team spends on payroll (at 2008 player salary levels) the team will on average win one more game. A team that spends $125 million, or $35 million more than the 2008 average payroll of about $90 million, would be expected to win five more games than average. That comes out to 86 for the season.

It doesn't seem like a lot, but at least you'd think the spenders would take comfort. Spend and win more, right? Even if handing a $21 million per year total (we're looking at you, Teixiera) should feel like more than an addition of three wins—especially when subtracting Jason Giambi's salary ALSO subtracts those same three wins!

The problem for spenders, like all players of poker, isn't the money. It's the swings. There is a lot of variation around that expectation of 86 wins, as the scatter plot shows. Teams that have spent $125 million have won more than 100 games and also managed fewer than 70 victories. Spending more helps, but it's hardly a guarantee of a winning season. In fact, only about 23 percent of the variation in team wins can be explained by variation in team payroll alone. The other 77 percent is due to other factors, such as a guy getting hurt, which is just another way of saying that some teams (like last year's Rays) get a lot more out of their dollars than other teams (like last year's Tigers).

Who are the most cost-effective franchises, the ones that consistently—not just in one fluke year—win more games than their payroll would imply? Not surprisingly, Billy Beane's Oakland A's take the top spot. They typically have a below average payroll that would be expected to produce 76 wins a season. Instead, they have averaged 87. The Minnesota Twins are another high-performer, averaging 84 wins a year instead of their payroll-based expectation of 75 victories.

The bad teams? Start with the Baltimore Orioles. They have spent more than the league average over the past 11 seasons and would be expected to win 83 games a season. Instead, they've managed just 72. Other poor performers are the Detroit Tigers and the Kansas City Royals. That's right: For all their bellyaching about being a small-market club, the Royals have spent as much money as the Twins but have finished, on average, 17 games behind them.

In the Yankees' case, despite their success and ability to get into position for title runs, they are in the bottom half of the league over the last 10 years in terms of wins per dollar spent. When they lock up Mark Teixeira at $180 million, a player whose stats are equal to or worse in many cases than Milton Bradley, who the Cubs just secured for a sixth of that total … Well, you get the idea.

Things are at least a little bit better in baseball than in football, but the fundamental truth remains: by the time a guy is available to sign a big contract he probably isn't worth it.

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Posted by Orrin Judd at January 13, 2009 8:01 PM
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