Payroll and Wins in Major League Baseball

One of the stories we tell in The Wages of Wins is – contrary to conventional wisdom – teams cannot simply buy a championship in Major League Baseball (or any other North American sport, either). Although there is a statistically significant relationship between pay and wins, the economic significance – or as Deirdre McCloskey puts it, the “oomph” of the relationship — doesn’t seem to be there.

Bill Freehling of the Southern Ledger has taken this argument and applied it to the Florida Marlins and Major League Baseball in the current season. His column – which concurs with our basic findings – is an interesting read. And not just because he mentions the three authors of The Wages of Wins, although it is great to see someone apply our analysis.

I thought I would also look at the wins and payroll relationship in baseball thus far in 2006. When people see the Yankees and Mets – the payroll leaders in the American and National League – lead their respective divisions, it is easy to conclude that teams can buy a title. A different story is told when you look at all teams in baseball.

Yes, the Yankees and Mets are towards the top in both winning percentage and payroll. Three of the top six winners, though, are the Tigers, Twins, and A’s. And these teams rank 14th, 18th, and 21st in league payroll.

Looking past the top teams we see the Marlins winning half their games with a payroll of $15 million. Meanwhile the Cubs have spent $94 million and only won 40% of their contests.

Overall, payroll explains about 24% of winning percentage in baseball this year, a result similar to what we found when we examined this relationship over the past several years.

Despite all this, it is possible that we will once again see a subway World Series in 2006. And if we do, people will argue that the New York teams simply bought their pennants. As I noted in May, if the Yankees and Mets could simply buy a championship team, this would be our fourth consecutive Yankee-Met World Series. And the Yankees would be making their eighth consecutive trip to the Fall Classic.

Given the repeated failures of the New York teams, maybe it is time for everyone to conclude that there is more to building a winner than just spending some cash.

– DJ

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