How Much Is a “W” Worth in Major League Baseball?

Moneyball

Looking at the current landscape of Major League Baseball, it seems that the Moneyball concept is still alive and well (as exemplified by the Houston Astros and the Pittsburgh Pirates — two rather successful ball clubs in what are traditionally considered to be small markets!

Here in Canada, the Toronto Blue Jays’ recent playoff run in 2015 gave us a reminder of how exciting postseason can be when management, players, and fans all share the same goal and vision. Yet, as thrilling as playoff baseball can be, the true definition of success for a team comes down to it being able to win the last postseason game. Why? All teams that bow out of the playoffs — be it the League Division Series, the League Championship Series, or the World Series, ultimately lose their last postseason game. Only one team — the World Series Champion — ends its season by winning its last game in the calendar year!

Before we get ahead of ourselves about winning the last game in October/November, however, we must be reminded that a team cannot participate in the playoffs — let alone advance — unless it wins its division or a wild-card spot. Even with the newly-expended postseason format that saw both leagues (American and National) having two (as opposed to one) wild cards, it remains a challenge to secure one of the 10 playoff berths. One only needs to see how much obstacles Toronto overcame in the 2015 season, aided by then-GM Alex Anthopoulos’ fury of trade deadline activities (acquiring Troy Tulowitzki, LaTroy Hawkins, David Price, and Ben Revere within a span of four days from July 28th to July 31st) to bring an end to the Blue Jays’ 22-year postseason drought. To this end, the first order of business for a team should be getting into the playoffs.

Toronto Blue Jays Fans

Baseball is once again the talk of the town in Toronto (and even across Canada) after the Toronto Blue Jays ended a 22-year playoff drought by winning the American League East Division in 2015. The trick is can the ball club repeat, if not improve, on their success?

In the simplest form, there are arguably three ways to try to make the postseason. One way is to try to “buy” a championship by signing one or more (if not all) the elite unrestricted free agents on the open market. Of course, this approach requires an ownership that has deep pockets and is willing to spend (sometimes without limitations). Traditional big spenders that come to mind include but are not limited to the New York Yankees, the Boston Red Sox, and the Los Angeles Dodgers. An alternative approach, put on full display by Pat Gillick when he guided Toronto to four American League East Division titles, two American League pennants, and two World Series championships from 1989 to 1993, is to build the core of the 25-man roster through smart drafting and player development and then bolster the lineup, starting rotation, and/or bullpen through trade-deadline deals (including rentals if the cost of prospect capital is within reason). Perhaps the least popular method (at least from the fans’ perspective due to the long-term patience required) — albeit arguably just as effective as the other two means — is to rely on continuous and sustainable home-grown talents strictly, much like the Cleveland Indians (which managed to win an impressive six American League Central Division titles and two American League pennants from 1995 to 2001) and Tampa Bay Rays (which managed to win an American League pennant, two American League East Division titles, and two American League Wild Cards from 2008 to 2013 despite having a very modest payroll).

If money is no object, it would be logical to conclude that most baseball executives would opt for the first route given that it is the shortest avenue to get to the promised land, at least in theory. After all, the Yankees are the owner of 27 World Series championships, by far the most championships of any teams among the four North American major sports, i.e., Major League Baseball, National Baseball Association, National Football League, and National Football League. The greatest strength of “buying” a championship is two-fold. On one hand, by taking an elite talent off the unrestricted free-agent market and/or the trade market, you can prevent your rivals from acquiring that talent, meaning that you are strengthening yourself while simultaneously weakening your opponent. On the other hand, you can afford to “make mistakes” because if the player that you signed and/or traded for did not pan out as anticipated, you can always go out and sign and/or trade for another elite talent as a replacement until you find the right one!

New York Yankees World Series Trophies

Even with notable elite home-grown talents such as Derek Jeter, Andy Pettitte, Jorge Posada, Mariano Rivera, and Bernie Williams, one can argue that the New York Yankees essentially “bought” 4 World Series Titles (1996, 1998, 1999, and 2000) within a span of 5 years by outspending all 29 other teams in Major League Baseball.

Yet, there is no guarantee that being a big spender would necessarily get you a championship. In the 2015 season, the eight ball clubs with the highest payrolls — and I purposely limited the scope of my coverage to eight teams because there are only eight “true” playoff spots — as of the 2015 season are as follow: (1) Los Angeles Dodgers at $ 301,735,080; (2) New York Yankees at $221,256,867; (3) Boston Red Sox at $214,789,749; (4) San Francisco Giants at $187,088,630; (5) Washington Nationals at $165,655,095; (6) Detroit Tigers at $162,218,297; (7) Texas Rangers at $152,445,607, and (8) Los Angeles Angels at $151,348,162. As we can observe, among the eight teams with highest payrolls, all of which have a payroll in excess of $150,000,000, only three (3/8 = 37.5%) of the ball clubs — the Dodgers, the Yankees, and Rangers — made the cut! In other words, even if you spend money without reservation, it does not necessarily mean that success is guaranteed! In fact, based on this small sample, there is a (5/8 = 62.5%) chance that your team will be watching (as opposed to playing) postseason baseball even if your ball club has one of the highest payrolls in all of Major League Baseball.

Table 1: Teams with Highest Payroll in Major League Baseball: 2015 Season

Source of Data: http://www.spotrac.com/mlb/payroll/2015/

Conversely, having a modest or low payroll does not necessarily mean that your team is completely out of running for the grand prize. Even though the odds may stack against you, at least from the surface, recent history suggests that the probability of a low-budget ball club making it to the playoffs is actually not terrible. Below are the eight teams with the lowest payrolls — again, I deliberately limited the range of my coverage to eight ballclubs because there are only eight real playoff spots — in the 2015 season: (1) Miami Marlins at $63,590,525; (2) Tampa Bay Rays at $73,582,652; (3) Arizona Diamondbacks at $76,639,242; (4) Cleveland Indians at $77,404,413; (5) Oakland Athletics at $80,376,830; (6) Houston Astros at $81,450,835; (7) Milwaukee Brewers at $94,010,873; and (8) Pittsburgh Pirates at $99,435,606. As we can decipher, among the eight teams with lowest payrolls, all of which have a payroll south of $100,000,000, there are actually two (2/8 = 25%) ballclubs that managed to secure playoff berths. Indeed, the difference between the number of the “rich” teams from among the eight ballclubs with the highest payroll that made the postseason — three in total — and the number of “poor” teams from among the eight ballclubs with the lowest payroll that made the playoffs — two in total — is only one team.

Hence, in statistical terms, there is not a massive gap in the chances of making the postseason between being one of the “rich” teams from among the eight ballclubs with the highest payroll (37.5%) and being one of the “poor” teams from among the eight ballclubs with the lowest payroll (25%) as the difference is only a mere (3/8 – 2/8 = 1/8 or 12.5%). As a matter of fact, if we were to take the average payroll of the eight teams with the highest payroll [($301,735,080 + $221,256,867 + $214,789,749 + $187,088,630 + $165,655,095 + $162,218,297 + $152,445,607 + $151,348,162)/8 = $194,567,186] and subtract the average payroll of the eight teams with the lowest payroll [($63,590,525 + $73,582,652 + $76,639,242 + $77,404,413 + $80,376,830 + $81,450,835 + $94,010,873 + $99,435,606)/8 = $80,811,372], which yields ($194,567,186 – $80,811,372 = $113,755,814), and then divide this difference by 12.5, i.e., the chances of making the postseason between being one of the “rich” teams from among the eight ballclubs with the highest payroll and being one of the “poor” teams from among the eight ballclubs with the lowest payroll, we can deduce that for every additional one percent (1%) in which a team wants to augment its odds of making the playoffs, it would cost that ballclub just less than 10 million dollars ($9,100,465.11). While the math suggest that you are inching closer to the promised land (at a rather slow pace of one percent) for each additional nine million ($9,100,465.11 strictly speaking) that you are dishing out, I am not so sure that the trade-off makes sense from a value (or cost-benefit) perspective unless money is no object whatsoever.

Table 2: Teams with Lowest Payroll in Major League Baseball: 2015 Season

Source of Data: http://www.spotrac.com/mlb/payroll/2015/

If spending money blindly is not the way to go, then it seems logical that the second or third approach (perhaps even a combination of the two) is the preferred option. Recent trends in the baseball industry seem to back this rational strategy as more and more teams are demanding “value” for their investments, meaning that they want to get the most bang for their bucks. Below are the eight teams with the lowest average cost per win in Major League Baseball for the 2015 season, as calculated and ranked by dividing the total payroll of all 30 teams by the number of wins (“W”) they have in the 2015 season: (1) Miami Marlins at $895,641.20 per “W;” (2) Tampa Bay Rays at $919,783.15 per “W;” (3) Houston Astros at $947,102.73 per “W;” (4) Cleveland Indians at $955,610.04 per “W;” (5) Arizona Diamondbacks at $970,116.99 per “W;” (6) Pittsburgh Pirates at $1,014,649.04 per “W;” (7) Oakland Athletics at $1,182,012.21 per “W;” and Minnesota Twins at $1,282,311.06 per “W.”

Among the eight teams with the lowest average cost per win in Major League Baseball for the 2015 season, there are once again two (2/8 = 25%) ballclubs that managed to secure playoff berths. This means that the probability of teams that emphasize values for their spending making it to the postseason is the same as that of ballclubs with lowest payroll in Major League Baseball for the 2015 season. Better yet, the chances of teams that emphasize values for their spending and ballclubs with lowest payroll in Major League Baseball for the 2015 season making it to the playoffs are only slightly worse than teams with highest payroll in Major League Baseball for the 2015 season (3/8 – 2/8 = 1/8 or 12.5%).

Table 3: Teams with Lowest Average Cost Per Win in Major League Baseball: 2015 Season

Source of Payroll Data: http://www.spotrac.com/mlb/payroll/2015/
Source of 2015 MLB standing: http://mlb.mlb.com/mlb/standings/index.jsp?tcid=mm_mlb_standings#20151004

All things taken into account, I would opt for smart drafting and player development rather going for the shortcut of “buying” a championship if I were a GM, unless my budget is a bottomless pit. Bottom line, not only is there no absolute certainty that having one of the eight highest payrolls would mean a ticket to the playoffs, but as we have witnessed, the odds of making it to the postseason are not really that different for the eight teams with the lowest payrolls and for the eight teams with the lowest average cost per win in Major League Baseball for the 2015 season. Coupled with the unattractive fact that it would cost me nearly 10 million dollars to increase my team’s chance of making the playoffs by a mere one additional percent (and each percent thereafter), it seems obvious that smart drafting and player development is by far the most optimal plan.



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Dr. Kenneth Lam is an Assistant Professor in the School of Health Policy and Management within the Faculty of Health at York University; a former Junior Fellow at Massey College; as well as a Peer-Reviewer for American Journal of Preventive Medicine, Canadian Scholars' Press Inc., Healthcare Policy, Oxford University Press Canada, and Women's Press. He has held multiple academic awards, grants, fellowships, and scholarships; gave talks and lectures by invitation at the Toronto General Hospital, the University of British Columbia, the University of Kentucky, and the University of Toronto; delivered oral and poster presentations at numerous scientific conferences; published abstracts for the Journal of Clinical Oncology, Journal of Palliative Care, Neurosurgery, The Spine Journal, and World Spine Journal; worked on reports that were commissioned by the Ontario Ministry of Health and Long-Term Care (OMHLTC) as well as Health Canada; and co-authored articles in both Neuro-Oncology and the Harvard Health Policy Review. Prior to earning his Doctor of Philosophy (PhD) in Health Services Research from the Faculty of Medicine at the University of Toronto, Lam worked as a consultant with the OMHLTC and in various capacities with the Ontario Agency for Health Protection and Promotion (now renamed Public Health Ontario), The Change Foundation, and the Ontario Hospital Association. He also holds an Honours Bachelor of Arts (Hon BA) in Political Science from the University of Trinity College at the University of Toronto, a Master of Arts (MA) in Political Science from the School of Graduate Studies at McMaster University, a Master of Public Administration (MPA) concentrating in Health Policy from the School of Policy Studies at Queen's University, and a Master of Studies in Law (MSL) from the University of Toronto Faculty of Law specializing in Health Law as well as Sports and Entertainment Law. Although an academic by profession, Lam is a certified scout from Major League Baseball Scouting Bureau who is extremely passionate about sports and has published an assortment of baseball, hockey, and basketball articles since September 2014. Presently, Lam is the Sports and Entertainment Section Editor of Obiter Dicta at Osgoode Hall Law School of York University.

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Joe
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Joe

A major problem I see with your premise is that “smart drafting and player development” is not an exclusive strategy that teams choose to (or choose not to) take. It’s not as if the Yankees or Red Sox just throw-up their hands and punt entirely on trying to draft the best players and develop them into good major-league players just because they can afford to pay for guys that have already been developed into established all-stars. All teams are, or are at least making a good faith effort to, make smart draft picks and develop players.

What your analysis is really saying is that teams who DO decide to participate in big free-agent spending or trade-deadline dealing oftentimes end up spending more money than they get in return for their investment. Your next logical step is then to look at success rates in reaching the playoffs, and low-and-behold, the big-money free-agents and big-prospect trades most often end up being less econimical than using home-grown players that play for league-minimum or low arbitration salaries for a big chunk of their early careers. This is not new news.

Think of it this way, if you were the Mariners GM, could you go to a presser and justify to the fanbase that the new team strategy is going to be smart drafting and player development ONLY. You would plan drop the payroll 50 million (from 126) because that extra 50 million only gets you a 5% better chance of making the playoffs based on this one fangraphs community article I read this one time. I guess maybe you could convince the owners that you are saving the organization a boatload of cash so you should get a hefty raise!