Does Payroll Determine Success in Major League Baseball?

By Nathaniel Allen and Jacob Clorfene

Our truth: Changes in payroll have little impact on changes in regular season win percentage for Major League Baseball

Major League Baseball is unique among American professional sports because teams have no salary cap. In other words, teams can spend as much as they want on players with no limits. Because of this, MLB teams have a much greater overall variability in terms of payroll spending when compared to other sports. Some teams will spend as much as three times more on players than other teams. Analysts often argue whether the best path to success is to simply spend a ton of money on the best player or to try to win through other means, such as building a strong minor league farm system. This creates a debate about whether teams from larger markets, such as New York or Los Angeles, have a better chance of success than teams from smaller cities such as Milwaukee.  Our analysis has determined that in recent years there is little correlation between payroll and win percentage.

On each graph, there is a line of best fit and a value called “R^2”, which is the coefficient of determination. For example, an r^2 value of .38 would mean that 38% of the results of the dependent variable can be reasonably be explained by the independent variable. In this case, payroll is our independent variable and winning percentage in a given season is our dependent variable.

First, we examined the payrolls of each MLB team and compared that to the winning percentages of each team for the 2015, 2016, and 2017 seasons. Three graphs depicting that information are seen below.

Screen Shot 2017-12-09 at 4.14.28 PM.pngScreen Shot 2017-12-09 at 4.14.13 PM.pngScreen Shot 2017-12-09 at 4.14.05 PM.png

All three graphs have coefficients of determination below .31, with significant variability of results between the three seasons, with the lowest value in the 2015 season. This conversation was particularly prevalent during that year, as the traditionally small-market Kansas City Royals were able to win the World Series.  This just goes to show that it is not a consistent relationship between WP and payroll, if there is one at all.

After this fairly basic examination of our data, we decided to examine if there were other factors in the relationship, such as if a winning season caused an increase in revenue, and therefore lead to a higher payroll the following year. To determine this, we compiled the change in winning percentage between two seasons and the change in payroll in the following two seasons. The two graphs presented below depict the change in WP between 2015/2014 versus the corresponding change in payroll from 2015 to 2016, and the change in WP between 2015/2016 versus the corresponding change in payroll from 2016 to 2017.Screen Shot 2017-12-09 at 4.13.53 PM.pngScreen Shot 2017-12-09 at 4.14.21 PM.png

It turns out there is almost zero correlation between an increase in winning percentage causing an increase in payroll, as our trend-lines for both graphs are nearly horizontal. 

Next, we examined whether an increase in payroll would cause an increase in payroll between two seasons. The following two graphs depict whether there is a relationship between an increase in payroll leading to an increase in wins. This is calculated through the ratio of WP from 2016/2015 versus the ratio of change in payroll from 2016/2015 for the first graph, and the same data for 2017/2016 for the second graph.Screen Shot 2017-12-09 at 4.13.32 PM.pngScreen Shot 2017-12-09 at 4.13.40 PM.png

These two graphs also show very little relationship, as the first one has a completely horizontal trend-line, indicating a correlation of zero, and the second one is not much more conclusive.

All of these charts that we have constructed indicate that under the current status quo in Major League Baseball, there is very little correlation between payroll and success on the diamond. We approached this issue from several angles, and none of them conclusively proved a very significant relationship between the two variables. Creating a successful Major League Baseball team is very difficult, as after all, only one of the thirty teams can win the championship every year.  A large payroll is certainly not a hindrance to a great baseball team, but it is merely one of many factors that can build a juggernaut, not the determining factor. A minor league system with talented prospects, a competent coach/front office, depth in starting pitching, the bullpen, power hitting, situational hitting, and a flexible payroll are truly the only way that you can “buy” success in Major League Baseball.

All graphs constructed by us.

Payroll Information taken from http://www.spotrac.com/

Standings from 2015-2017 taken from mlb.com/standings

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s