The link between payroll and team performance is a very real one in baseball, and as the only major sport without a salary cap teams can theoretically "buy" their way to a championship. But is this the way payrolls operate in baseball? Do higher payrolls lead to more wins, or does winning lead to higher payrolls?
This chart shows Opening Day payroll from 2000 to 2013 using data from Cot's Baseball Contracts and shows the number of playoff teams by payroll rank:
To explain, the team with the #1 payroll in the league made the playoffs in 12 of the 14 years. It just so happens this team was the New York Yankees. In those 12 playoff appearances they won twice, in 2000 and 2009. Teams with top 10 payrolls made the playoffs in 57 out of 140 opportunities (40.7 percent), the middle third 26.4 percent and the bottom third 15.7 percent. Maybe it does pay (see what I did there?) to have a higher payroll.
Not so fast. Payroll level and wins were weakly correlated at best, and another way to look at the data was to see if payrolls increased more after making the playoffs to see if making the playoffs created a payroll bump. On average, teams that made the playoffs increased their payrolls by around 11.3 percent, non-playoff teams by 6.4 percent:
|Year||Playoff Teams||Non-Playoff Teams|
The playoff teams from 2000 had Opening Day payrolls in 2001 an average of 27 percent higher, whereas non-playoff teams saw average payroll increases of only 19.7 percent.
There are plenty of reasons why this could be. The obvious is playoff teams have a tendency to have the better players. After letting this stunning revelation sink in, consider the ramifications--better players get paid more, and if they don't get paid more, they certainly at least demand more.
Another possibility depends on the makeup of the playoff teams, whether they're "manufactured," i.e., made up of free agents and trades, or homegrown. Manufactured teams already paid for the players as they signed them to free agent contracts or acquired them in trades, whereas homegrown teams could have higher payrolls as key players enter arbitration and free agent years.
Does it make sense to have a higher payroll? Like any question answered as forthrightly as possible, it depends. This table shows total payroll and wins for teams from 2000 to 2013 and is sorted by most total wins:
|Team||2000-2013 Payroll||Payroll Rank||Wins||Wins Rank||Playoffs||World Series|
The team spending the most in the past 14 seasons also won the most games, but they did it in different ways. The 2000 World Series champion Yankees had a solid core of homegrown talent in Derek Jeter, Bernie Williams, Jorge Posada, Mariano Rivera and Andy Pettitte, supplemented by key acquisitions like Roger Clemens and David Cone. The 2009 Yankees were different--by this time only Rivera and Jeter remained, joined by Alex Rodriguez, Mark Teixeira, CC Sabathia and others. The Yankees gradually transformed from a homegrown to manufactured team, having the highest payroll along the way.
Nothing is black and white when it comes to baseball payrolls, and to categorically state that winning leads to higher payrolls is beyond what I wish to communicate. Numerous other factors such as service time, age of roster and key free agent and international signings influence payroll as well. Does winning lead to higher payrolls? The data suggests this is the case but whether this is causation or correlation is often a team-by-team and year-by-year determination. Having written that, the notion that teams spend to win might very well be a chimera that doesn't reflect reality.
Payroll data from Cot's Baseball Contracts