2012 Payrolls and Wins

Back in May, Dave Studemund published an article over at The Hardball Times on the historical relationship between payroll and wins. While there certainly is a link between the two, he actually found that it’s been decreasing as of late, and that the league seemed to be moving away from the late-1990s, where payroll seemed to be the determining factor in whether teams won or lost. As he noted in his conclusion, baseball has “settled into a pattern that is more competitive than any previous time period, other than the years of collusion.”

Given what the A’s, Orioles, and Rays have done this year — and perhaps more strikingly, what the Red Sox, Phillies, and Marlins have not done — I figured the 2012 numbers would follow a similar path. I was wrong; 2012 has pushed the league back to a parity level not seen in 25 years.

Using opening day payroll numbers from The USA Today’s salary section, I plotted planned team expenditures versus current winning percentage. The correlation was just .18, just slightly above the R posted during the collusion years of 1986 and 1987, and half of the R posted in the last few years, which Studes correctly identified as some of the most balanced in the game’s recent history. Or, if you prefer to see it in scatter plot form, here’s a chart of 2012 Opening Day payroll versus current winning percentage.

Breaking it down into three tiers, the results are even more obvious. Here are the average payrolls and average winning percentages for each payroll grouping:

Top 10: $140 million, .525 Win%
Middle 10: $88 million, .511 Win%
Bottom 10: $66 million, .464 Win%

The ten highest payroll teams essentially paid an extra $74 million per team over the bottom tier spenders, for a net benefit of 10 extra wins apiece, which shows that there is real value in spending money. However, they outspent the middle tier teams by $52 million for a net of only two extra wins, showing some real diminishing returns on higher payroll levels beyond the league average. Essentially, the data is showing that the money spent that got a team out of the bottom tier of wins helped avoid being one of the very worst teams in the league, but for this year at least, additional money spent on top of a league average payroll had very little effect on a team’s overall record.

Just to show that it’s not a few outliers skewing the results, here are the relative payroll placements of each of the nine teams in baseball with a winning percentage over .550:

Washington Nationals 0.617 $81,336,143 20th
Cincinatti Reds 0.599 $82,203,616 17th
Texas Rangers 0.593 $120,510,974 6th
Oakland Athletics 0.571 $55,372,500 29th
Atlanta Braves 0.570 $83,309,942 16th
New York Yankees 0.564 $197,962,289 1st
San Francisco Giants 0.560 $117,620,683 8th
Baltimore Orioles 0.557 $81,428,999 19th
Tampa Bay Rays 0.550 $64,173,500 25th

That’s three top ten teams, four teams in the middle, and two teams in the bottom. The best teams in baseball this year are essentially evenly distributed throughout the payroll spectrum, with the only real advantage conferred by having a higher payroll being the avoidance of an Astros-style collapse.

MLB has been fairly balanced competitively for the last decade or so, but this year, spending money essentially hasn’t mattered much at all. We probably already knew this instinctively from looking at the struggles of teams who dominated the free agent spending market last winter, but I didn’t realize the magnitude of the meaninglessness of payroll this year.

Odds are that this probably not the beginning of a new trend. As you can see in Studes’ data, MLB has only previously achieved this kind of financial parity when owners were colluding to hold down player salaries, and it’s pretty rare to have this many high payroll flops all in the same season. However, the evidence is pretty striking – even in an era of expanding television contracts and ever-growing payrolls at the high end of the spectrum, you simply cannot determine which teams are going to be competitive simply by looking at money spent on the Major League roster. There are still inefficiencies to be exploited and ways to create value beyond simply chasing the shiny new toy being auctioned off at the winter meetings.

Spending money isn’t a bad thing, of course, but it certainly isn’t the only thing, and this year, it hasn’t even been that important of a thing.

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Dave is a co-founder of USSMariner.com and contributes to the Wall Street Journal.

40 Responses to “2012 Payrolls and Wins”

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  1. Bryan says:

    Amphetamines must have something to do with this, right? Go back a decade and players in their mid-30s were popping greenies and showing up at 90% for games in August and September. Today, younger players have a distinct advantage in terms of recovery time and surviving the long grind. Young pitching is buoying Oakland and Washington in particular, while the Yankees, Red Sox, and Phillies have lots of money sitting on the DL, not earning them any wins. Just one factor among many, of course.

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    • Petetown Matt says:

      Not sure if thats too relevant. Some of the best low budget value this year has come from older arms like Colon, Kuroda, Oliver, etc.

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    • Tom says:

      Not only that but I’m wondering how many players are purposely not taking a certain substance (even if it’s totally legal) for fear of turning up a positive test.

      Probably null, team doctors are everywhere and medical science is a thing, but still…

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    • JimNYC says:

      Amphetamines certainly have something to do with it, although if you’ve ever taken amphetamines I’d argue that a player could chug a few Red Bulls and get largely the same effect.

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      • adambigbucks says:

        You definitely have to believe that steroids/amphetamines are a huge driver in the decline of payroll/win correlation over the last few years. Older players on large contracts are simply not producing at a level that is head and shoulders above than their younger, cheaper counterparts (or even shoulders above, or even just above). Thus, you would have to think that high payroll teams littered with expensive older players are not putting themselves at enough of an on-paper advantage to withstand the random fluctuations of a season.

        In a very simplistic and probably not statistically significant example of this, there are currently 31 hitters in the league with a WAR over 4. 7 of them are older than 30 (23% of the total). In 2000, those numbers were 48 and 19 respectively (40%). It just makes it seem that teams were really getting their money’s worth with older guys a decade ago, and that simply isn’t the case anymore (at least the past couple of seasons) – and steroid/amphetamine usage has to factor into that somewhere.

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  2. jscape2000 says:

    Spending money isn’t the only thing, but choosing when to spend money.

    The Marlins added $50M of payroll compared to last year, but have treat water (.444 winning percentage both years). The Angels added only $10M but have improved .531 to .546.

    The White Sox actually shed $30M of payroll and added 50 points to their winning percentage.

    I’m trying to imagine how to distill this delta payroll into a chart that we can sort…

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    • bstreich10 says:

      That’s a little misleading, as Pujols is only costing them 12 MM this year with his extremely backloaded contract. Using his AAV they added 22 MM from last year. CJ Wilson’s is very backloaded as well.

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      • jscape2000 says:

        I don’t think that’s misleading. It’s a fact.

        And, those backloaded contracts likely represent either 1) a sense that the Angel’s financial position is likely to change in the near future with new tv deals, higher ticket sales, etc., or 2) that they will be making cost saving moves next year to balance the salary increase.

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  3. Eminor3rd says:

    I think the biggest potential effect here isn’tthat some low payroll teams have good seasons when their farms mature, but that the rich are more able to sustain the success. Can you create a graph showing winning % over the past 15 years and compare that to payroll? I bet the big guys are all perched at the top and the small guys bounce in for a year or two and then drop off, with the exception of the Rays and maybe the Twins for a couple years.

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    • Baltar says:

      I tend to agree. I think this was basically a fluke year. My very unreliable memory can’t recall a year when there were so many surprises on the plus side and the minus side.
      Even so, Dave’s data is both interesting and encouraging. A fine post!

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  4. Charles In Charge says:

    Does this take some pressure off of Cashman in New York? Assuming they still make the playoffs, he can say that the sustained success of the Yankees under his tenure isn’t just due to cash.

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  5. Sam says:

    Spending money isn’t a bad thing, of course, but it certainly isn’t the only thing, and this year, it hasn’t even been that important of a thing.

    The fact that the correlation between wins and spending is lower this year than in previous years does not mean spending is any less important this year. Rather, it means that the teams that spent less money were better at spending their money than the teams that spent more money.

    For another example, think of park factors. There’s a high correlation of playing your home games in a hitters park and scoring a lot of runs. But let’s say that the correlation between park factors and overall scoring decreases in 2013. Would that mean that playing in a hitters park is less important to scoring runs in 2013? No, it just means that the teams that played in hitters parks had poor offenses that year. They still received the same advantages as they had in prior years, they just failed to execute. Similarly, the teams with high payrolls still had the same advantages this year–they just failed to leverage their advantage as well as they had previously.

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  6. Kinanik says:

    Do we have any information on non-payroll spending? How much teams spend on scouts, medical experts, training, etc.? My prior intuition says that as information about something gets better, the better the association between what you pay and what you get since there’s less random noise in the data. What teams pay for isn’t just players, though. I would guess that the gap between non-payroll spending between teams makes a big difference in outcome.

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  7. i like numbers says:

    From looking at the payroll numbers, with only a few teams on the far right as sort-of-outliers, it would make sense to log transform the values. If you do that and you remove Houston (since they really aren’t a major league team this year) then the correlation drops to 0.09.

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  8. jon says:

    It would be nice if someone did a quick linear regression to see what it is and find out the r^2 value here. Doesn’t look like payroll explains much of the variation in winning % by looking at this graph really…

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  9. Tim A says:

    This could be related to lots of the higher paid players in the game all heading into declines at similar times. I mean the Yanks really aren’t getting any younger. I think the trend of teams locking up there core players, irrelevant of their financial status, in order to control them beyond there usual six seasons, and add value if they are dealt, will help to continue this trend.
    I think with less top prime years talent is hitting free agency, we will see less ability to build thru FA, and more value being placed on farm talent. New CBA and all amateur talent is worth more now, and even lower level teams are reaping enough media benefits now days that they can lock up homegrown talent early to a extension.

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  10. designated quitter says:

    As a Yankees fan, when people have disparaged them by saying “Of course they win, they spend twice as much money on players” I always respond “Yes, but most of the extra money has been wasted.”

    I think this year’s parity is a confluence of two things- too much money tied up in useless contracts by big spenders, and an unusually productive rookie class. If I’m right, then the parity should end when the rookies become eligible for free agency, today’s useless overpaid veterans are off the books (except ARod and one or two others), and the teams with money buy the Strasburgs and Harpers and Trouts.

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  11. Mr Punch says:

    I’d guess that parity is likely to improve (i.e., correlation between payroll and wins will fall) for a few more years at least – simply because a number of the long-term high-dollar contracts given out in the past few years aren’t going to pan out. There seem to be more deals for 5+ years, some to players who are only pretty good; the out-years may be ugly – and if parity causes offers to level off, they won’t be “inflated away.”

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    • Tim A says:

      If I’m Pujols there is no way in hell I am not skulking around some AA club at age 42, not even capable of playing in the majors anymore(I mean really this is a possibility). I mean why retire and not make 30mm when I can embarrass myself a little, and make 30MM I mean come on its 30,000,000 thats a no brainer.

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      • Bob says:

        If you have made hundreds of millions of dollars in your career and built a reputation as the best player of your generation, pride might be worth more than 30 million.

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      • Ivan Grushenko says:

        No. I’ve made hundreds of dollars in my career and I’d embarrass myself for $30 in a heartbeat.

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  12. Selling Jeans says:

    I’m a bit reluctant to think PEDS, or lack thereof, are a big part of lower payroll teams succeeding. 1. Do we really know how severe the cutback has been? 2. Bartolo Colon– low payroll team. 3. And as a devotee of the A’s, who, among other things, have been most noteworthy for their ability to play lights out baseball in 2nd halves when they are good– 61-20 in 2001; the 20 game win streak in 2002; 58-30 since June 1 this year, best record in baseball– I can tell you that young starting pitching played a big role then and now. A’s management has talked about how their pitchers are often much stronger post July 1 than other teams. This year– with 4 rookies and a “veteran” in Brett Anderson (397 career IP and he’s only 24) in the current rotation– seems to be the acid test. Now one could also point out that with the likes of Giambi 1 (2001), Giambi 2 (2001) and Tejada (2001-02) on the roster, PEDS might have had an impact toward those strong 2nd halves, but again show me a team without a lot of PED users back then.

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    • Tim A says:

      The A’s are awesome yeah. I think the way PED’s affected things is different from the way most people view it. people frequently think PED’s are only steroids from the way they discuss it, but you have to remember they test for more then steroids, and previously it was somewhat commonplace for veterans (Willy Mays) to use Amphetamines. I think the number of bad contracts, and the utter ugliness that some of them will end with, is a product of mixtures of PED’s being used to facilitate older players to perform longer. IE productive 40+ players with stars still having prime years after 35 frequently. I think a lot of the bad contracts are worse then they looked at signing, because when deals were signed players produced longer then they do now.

      I would posit that in 2001 if you asked 30 baseball execs if Vlad would be jobless at 37, despite still maybe having something left in the tank they would have laughed you out of the room. If you used a time machine too pole the 30 GM’s you would probably get universal agreement that VG would still be a star in 2012, and would at least play till 40 as a starter. Lots of bad money from 04-10 is still hanging around, and there’s still bad money going out to guys that won’t be worth what there being paid for years on the ends of these deals.

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    • Bob says:

      Older players are more expensive than younger players. If PEDs help you be better/faster/stronger, they can put off the decline phase of a player. Longer peak = older = higher salary.

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  13. MikeS says:

    I’m not enough of a statistician to do the math, but I bet N=30 is too small a sample size. This probably needs to be followed over more than one year to have any real meaning.

    The article guesses at this, but does not do the math either.

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  14. taprat says:

    To echo what a few others have said, money doesn’t buy you wins in any given year, but I’m quite sure it does over time. This is a fluke year with an unusual confluence of events – Yankees and Red Sox getting old in a hurry, Marlins deciding to spend a lot of money unwisely, A’s defying expectations, Angels and Tigers spending big with only marginal success. Over time, I am quite sure that dollars spent relative to the league will correlate with wins. I think a link to the data for this over a many year period should be a permanent part of Fangraphs’ site, because to the extent teams can win more than their payroll would suggest, that team is being managed well.

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  15. SABRphreak says:

    I think Eminor3rd and Sam both make good points. Sam said: “teams that spent less money were better at spending their money than the teams that spent more money.” An important point that is left out is why. Can we see some data regarding contract lengths? I think that’s the bigger culprit. A team that signs a high priced free agent often has to give a long term contract. Over that long term, players are subject to injury and also face decline. On a single year basis, a team can get the similar production from a $10M player that another team is getting from a $20M long-term player. So, the teams with the middle of the road payrolls more likely have a roster with flexibility but also spending some cash. The low payrolls have the most flexibility but no cash for a FA addition. The high payrolls spend a lot but have little flexibility. They have to deal with aging, overpaid players. I am sure this can be seen mapping out winning percentage curves for teams over time along with the volume/duration of their FA contracts. For example, the Yankees signed the top 3 free agents before the 2009 season (in addition to re-signing A-rod the year prior) and won the world series but currently are seen as having too many aging, overpaid players that they’re stuck with for years to come… and therefore will not get the present day value of the players they are paying. But, I think teams understand this which is why they are starting to avoid very long-term contracts for any players but the very best (in addition to avoiding long contracts that include a player’s age 37 and beyond years). These are inefficiencies you have to deal with and plan for in the current system. Teams in the middle of the payroll spectrum can also afford to buy out arbitration years in return for option years (i.e. flexibility) later on during what should be prime player career years. I believe many of the high payroll teams will adjust once the deadweight clears off their books, which also explains why some teams have been performing better this year without increasing their payroll and why many one-year veteran contracts look good. Lastly, we all know that the top teams have to scratch and claw for extra wins (year over year) that bottom or middle of the road teams can pick up more easily.

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    • Tim A says:

      How many 8+ year deals that take the players past 35 were there this offseason 4,5,6 I don’t really see them learning yet. Thats only looking at long term deals. I mean the Marlins handed Heath Bell a bucket of money, and said, ” got a toilet somewhere you can take care of this for us.” I don’t think owners have realized yet that FA isn’t what it used to be, I mean it seems with the plethora of extensions less guys hit FA, and those that do hit it later with less prime years available. Pujols +140MM value over salary in St Luis, with 260MM over 10 years in Anaheim there is a good chance he breaks even on what he was paid compared to what he will have produced over his career, but thats why a smart franchise like STL won a world series with a middle of the pack payroll, and let him walk. STL derived all the market efficiency possible out of Albert, then let him go be someone else’s problem as mortality sets in.

      FA is a trap now, and one thing glossed over in most analyzations, is that teams like the Yankees made it work by overspending in the amateur world in order to always have a strong farm to trade from to fix whatever breaks down. With the new CBA doing what it’s doing to amateur acquisitions. It will be much harder to sustain the big spending empires going forward, because you can’t buy top pick talent in the backs of the rounds anymore.

      Media rich teams like the Dodgers, also scare the smaller level teams into locking up players early since FA is a corpse with vultures hovering to snap up the last remaining quality piece’s available. Don’t believe me look at what the 2012-13 FA class would have looked like in March 2011 with all those goodies on the market. Now look at MLBTR FA tracker and see what a picked over bunch it has become in the last 1 1/2+ years 90% of the top talent from the bunch is gone now, and what your left with isn’t going to tip scales too far for anybody’s 2013 season.

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      • Justin M. says:

        I’m sorry Tim A, but your quote, “teams like the Yankees made it work by overspending in the amateur world in order to always have a strong farm to trade from to fix whatever breaks down. With the new CBA doing what it’s doing to amateur acquisitions. It will be much harder to sustain the big spending empires going forward, because you can’t buy top pick talent in the backs of the rounds anymore.” when it came to the past few years before the change was just flat out wrong.

        Care to guess who “overspent on amateurs” before the change was made? In the 3 years before the change, the biggest draft spenders were the Pirates, Nationals, and Royals. The new change is MUCH better for the Yankees, because now teams like the Pirates and Royals won’t be able to do what they did in the draft anymore. THEY were the teams spending big bucks on amateurs because those players are the only players they can afford to buy that have a good shot at getting to be potential superstars.

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  16. nsacpi says:

    The increased use of long-term contracts (mainly but not exclusively by high payroll teams) that take players into their late thirties or early forties might be part of the story. These contracts effectively borrow from the future to pay for the present. During the initial you get good performance for the price, but later you pay steeply.

    At first, these kinds of contracts decrease parity. But as more and more players under such contracts move into their declining years, the effect is to increase parity. It has been interesting watching what has happened to the Phillies and Red Sox this year. The Yankees give signs of succumbing to the same problems. Other teams that have signed players to lots of money for their declining years are going to have similar issues.

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  17. nsacpi says:

    I see SABRphreak making some similar points.

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  18. Adam S says:

    I suspect this is a one-year blip. There seem to be an exceptional number of high paid players producing nothing for the team that’s paying them this year — Howard, Ichrio, Alex Rodriguez, Crawford, Zambrano, Mariano Rivera, Santana, and I’m sure many others.

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  19. soladoras says:

    The salary numbers don’t seem to account for dead money on teams for players with guaranteed contracts that were released. For example the number they have for the Giants is almost exactly their actual payroll obligations for 2012 minus the 13.6 million they are paying to be out of baseball this season.

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  20. Mike Green says:

    It does seem to be something of an outlier year to me. The Nationals count as a mid-market team, but really their success is due to the combination of finishing last and drafting Harper, Strasburg and others, and then spending money. They will be in the upper tier very shortly. The Orioles are a Pythagorean miracle story.

    The presence of both the A’s and the Rays among the best teams in major league baseball is unusual. The Rays have sustained it for quite a few years courtesy of exceptional management. Can the A’s do the same thing? I doubt it, but time will tell.

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    • Ivan Grushenko says:

      Rays benefited from early drafting too — Price, Upton, Longoria were all drafted in the Top 5. It even enabled them to pick Josh Hamilton, Delmon Young and Tim Beckham and survive.

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  21. Tim says:

    One of the downsides of being a big payroll team is that agents are always going to use you as a bargaining chip, and you’re probably gonna have to pay more to retain your players.

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  22. Antonio Bananas says:

    Should probably break it down into divisions too. The coastal teams generally have higher payrolls (Yanks, Mets, Sawks, Dodgers, Angels).

    I did a paper in like 2009 and looked at the division standings and the payroll standings of each division from 2000-2009 and a vast majority of the time if you had the highest or second highest payroll in a division, you won the division, if you were last, you got last.

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