Dilemma: payroll or prospects?

There are two forms of currency in baseball: money and talent. The concept of the first form is easy for us to understand as we're all subject to economics in one form or another. Some teams, and people, have more money than others, affording them different opportunities to find success. Talent, on the other hand, is a more abstract form of currency but I'd argue that it's the more valuable of the two. The goal of baseball is to win games (especially playoff games), not buy the most expensive team.

With that said, there's clearly a relationship between the two forms of baseball currency. Talent and money, money and talent; they're obviously linked. But there are limitations to that linkage. After all, talent only receives money because teams decide to pay for it (based on perceived scarcity and value). If a team of players wanted to leave an amount of money equivalent to the GDP of a small island nation on the table and play for the minimum across the board, they'd be free to do so. And while money can certain buy talent for teams, there is another way to get it: develop it yourself. This isn't free, but when compared to bidding for free agents on the open market, it's certainly the cheaper option.

Naturally, I gravitated towards a question that I'm surely not the first one to ask: if you had to choose between the two, talent and money, which should you pick? Of course, in a perfect world, you'd pick both, but we're being simplistic here. In my scenario, if you choose money, you can afford some expensive players, much like we've seen come off the board this winter. If you choose talent, you don't have the money to buy the marquee free agents, so you instead you have a strong crop of minor leaguers. Which is more appealing in the quest to win games?

Rather than just ask existential questions, I decided to try to approximate an answer. I found the average ranking for each team's minor league system, via Baseball Prospectus, over the last six years (2008-2013) to determine the strength of in-house talent. Of course, this is an imperfect solution to how talented a team's minor league system is, but it's perhaps the best we can do given the breadth of minor league baseball. I also found the average win total over the last three years (2011-2013) for every major league club and their corresponding average payroll over that same span. As is commonly done, I divided the average number of wins by the average payroll to determine the dollars each team has spent per win over the last three years. For fun, I created a "Talent Factor" by dividing the average minor leagues system rank by the average number of wins (the higher the factor, the better). If we're going to compare money to wins, why not do the same for talent development in this scenario?

Trends

• Looking at the big picture, there's obviously some connection between having a strong farm system and keeping down the cost of each win. Given how service time works in major league baseball, this should come as no surprise.
• Teams that spend a lot of money tend to win a lot of games. This is where that whole "buying talent" thing comes in.
• Most teams with strong farms systems also win a lot of games. Think of the Rangers, Rays, Braves, etc.
• The teams with the worst record over the last three years tend to have lower than average payrolls and poor-ranking farm systems. I call this the "death spin."
• Teams with a high Talent Factor tend to be teams that are perennial contenders. The internal development of talent keeps competitive teams from losing their edge, regardless of payroll.

Outliers

• The Padres have had some strong farm systems but they haven't translated to wins. Their current crop is just starting to arrive, so time will tell if it's enough to catch them up to other teams in the division.
• The Diamondbacks fall into a weird category of not having an impressive farm system or a high payroll but have managed to finish .500 or better each of the last three years, winning the NL West in 2011. This is likely a result of guys like Goldschmidt, Corbin and Miley becoming solid big league contributors despite never being highly ranked.
• Baseball teams in the city of Chicago have not done a good job of managing large payrolls. Theo Epstein has obviously started to right the ship for the Cubs while the White Sox may just now be figuring out that they've fallen off a cliff (a year to two too late, no doubt).
• While the Rangers have had the best farm system over the last six years, they've still opted to spend a lot of money. They've also flipped some of that young talent for pieces at the major league level. Drafting and developing talent while having the payroll threshold to keep that talent or buy missing pieces is what's had them as an AL contender for the last several years and into the foreseeable future.

Takeaways

After looking at this recent snapshot of baseball's landscape, there's no conclusive distinction between being rich in money or rich in talent. In fact, payroll only correlates slightly stronger to wins than talent does, although I'd guess that once you account for those diamonds in the rough who become solid major leaguers, it's essentially a wash. And I guess this is the main point: you can be good at developing talent or have a lot of money. You can even do both, but you can't do neither (double negative intended for effect).

There are a several teams that are mired in the middle. They have no identity. Why this happens is beyond the scope of this post, but we have to largely look at who's directing the franchise (GM and/or ownership). Of course, luck comes into play, too, so who really knows? But is there any worse place to be in than, say, Milwaukee right now? They have a mid-level payroll, which isn't enough to lure many impact free agents, and the minor league system is almost completely devoid of impact talent. Brewer fans, don't feel bad, you're not alone.

A lot of this is intuitive to those of us follow roster construction, payrolls and minor league systems. Got money? Spend it wisely and use to your advantage. Have a strong player development program? Don't over-commit financially and let your talent carry you year after year. What's perhaps most surprising is how many people entrusted to manage organizations haven't picked up on this pattern and/or haven't figured out how to implement it.

I'm positive it's harder than it looks to run a major league franchise, but when you watch certain teams swing and miss so many times, it becomes clear which organizations are being left behind. The analytics movement has made it pretty darn clear which moves are good, bad and somewhere in between, but those coming up on the losing end again and again are starting to stand out more than ever. Perhaps knowing one's own strength is the greatest strength of all.

. . .

Jeff Wiser is a contributor to Beyond the Box Score and co-author of Inside the 'Zona, an analytical look at the Arizona Diamondbacks. He occasionally blogs about craft beer at BeerGraphs and you can follow him on Twitter @OutfieldGrass24.

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