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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.