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Does Payroll Have An Effect on Winning?

With all the talk around the baseball world about the Yankees most recent spending spree, I decided to see how winning games in baseball tied to either age or payroll (and how the two related).

Use "wide-view" to see the entire tables.

I gathered Wins, Average Age (from baseball-reference.com's average ages for pitchers and batters that weigh it based on appearances and averaged them), and Payroll since the most recent expansion (1998-2008). In the 11 years of data there were a total of 330 team seasons. In the following table, we have the correlation between age and wins (Age-Ws), payroll and wins ($$$-Ws), and age and payroll (Age-$$$). There is also the average age and payroll for the top 25, bottom 25, and entire sample.

Total
Age-Ws $$$-Ws Age-$$$ Bot-25 Avg Top-25 avg Top-25 Age Bot-25 Age Average $$$ Average Age
0.49 0.39 0.71 $48,808,701 $85,552,850 30.2 27.8 $46,503,945
28.9

As you can see, the correlation between wins and payroll is not very large, and the correlation between wins and age is in fact greater. Not surprisingly, the top 25 teams spent more and were older than the bottom 25. Similarly, the bad teams were below average in both measures and the good teams were above average in both. This seems to undermine the correlation coefficient for payroll, though. Upon further examination of these teams, however, you see how the lack of an upward bound throws off the averages.

If you seperate the sample in to 3 groups, the very good teams (those with more than 95 wins), the very bad teams (those with less than 67 wins), and everyone else, then you get a pretty good snap-shot of what makes a BAD team and a GOOD team. There are 36 very bad teams and 38 very good team (about the top and bottom 10% of the sample). Of the top teams, close to a third (10) teams were below the average payroll for that year. An additional 5 were within $10 million of the average, including the best team in the sample the, 2001 Mariners. Of the bottom teams, seven were above the average payroll including the second-worst team the 2004, Diamondbacks. There were also another 4 teams within $10 million of average.

So, has anything changed over the last 11 years? The following table shows the year-by year data for each of the aforementioned figures:

Year-by-year
Year Age-Ws $$$-Ws Age-$$$ Bot-5 Avg Top-5 avg Top-5 Age Bot-5 Age Average $$$ Average Age
2008 0.24 0.33 0.74 $72,438,225 $102,530,536 29.0 28.5 $89,495,289 28.7
2007 0.39 0.49 0.73 $50,691,928 $111,450,172 29.3 27.5 $82,556,300 28.9
2006 0.42 0.54 0.72 $59,187,960 $100,799,999 29.6 28.2 $77,382,421 29.0
2005 0.50 0.49 0.82 $48,057,280 $118,792,919 30.9 27.9 $72,957,113 29.2
2004 0.46 0.54 0.84 $55,290,217 $115,561,057 30.6 28.9 $69,022,198 29.2
2003 0.60 0.42 0.82 $54,302,286 $98,410,596 30.3 28.0 $70,942,071 28.9
2002 0.56 0.44 0.84 $45,679,567 $84,668,957 30.3 28.1 $67,469,251 29.0
2001 0.56 0.32 0.79 $53,349,775 $71,993,945 29.6 27.9 $65,355,444 28.9
2000 0.41 0.33 0.91 $44,025,259 $62,074,560 29.5 28.1 $55,537,837 28.9
1999 0.55 0.56 0.79 $29,762,700 $73,329,782 30.3 26.9 $49,807,625 28.8
1998 0.60 0.66 0.64 $27,131,233 $54,797,073 29.6 26.7 $42,609,429 28.8

This table illustrates a salient point about the current state of baseball, in my opinion: young, cheap talent is the best kind of talent. In the last 11 years, it seems that the effect of payroll and age on wins has dwindled further and further. I think one reason for this is the fact that steroids have been "removed" from the equation. These substances seemed to allow players to delay the effects of aging, and now that they are supposedly gone players are aging at a more normal rate. This effect, I believe, will have a startlingly sobering effect on the abilities of players into their free agency years.

Additionally, if you factor in the issue of "rebuilding" and how it is an inefficient use of resources for teams to spend in the short-term on a bad team, then the fact that "cheaper" teams are worse has even less of a hold. Assuming a bright GM knows his team and it's potential, it would be unwise to spend the additional $10-15 million to sign free agents (especially those that cost draft picks) when your team has little shot to compete. If an owner allows a GM to "store" his capital for further use, a smart GM will capitalize on his team's resources most wisely. This is how you take a 70-win $40 million team to a 95-win $60 million team, and you further sustain success. Growing from within is the mantra of smart GMs that use their resources most wisely.

In summation, it does seem that teams that spend more tend to do a little better, but teams that spend less can still do very, very well. If you factor in the ability to "make runs" and bump spending for a year or two there is no reason why any team in baseball can't compete with the Yankees or any other large market team. The key is knowing your team and knowing the best way to allocate resources. Just like any other business, success comes easier with money, but it comes more efficiently otherwise.