Over the past five years the Boston Red Sox spent $587 million dollars on player salaries.1 In 2013 all that money help buy them a World Series, but in 2012 and 2014 the big-spending Red Sox ended the season in the cellar of the American League East. They fell to the bottom of the division again this year on Memorial Day and only now, late in the season, do they have a chance to climb back out. (Update: The Red Sox “surge” in September fizzled out leaving them once again in the cellar of the AL East.)
Over that same five-year period the Dodgers spent even more, $824 million, and the team’s investment has bought them a winning record but little else. The team advanced to the Championship round in 2013 with a victory over the Atlanta Braves, but lost to the St. Louis Cardinals. Last year the Cards foiled the Dodgers chances by beating them in the first round, and this year they fell to the Mets in the five-game divisional series.
The New York Yankees have seen no better rewards than the Dodgers when it comes to their high-priced payroll. The Yanks also spent about $800 million on player salaries between 2011 and 2015 and averaged one more win than the Dodgers. Like the Dodgers, though, the Yankees’ playoff performance over these years has also been pretty dismal. They lost to the Detroit Tigers in the divisional round in 2011, and though they got past the Baltimore Orioles in that round a year later, they fell to the Tigers once more when playing for the pennant. This year they lost to the Houston Astros in the one-game wild-card playoff.
When fans see teams spend enormous amounts in player salaries and get such mediocre results, they rightly wonder whether highly-touted expensive players are really worth the investment. These doubts only grow stronger when they see teams with considerably smaller payrolls like Kansas City, Oakland, Pittsburgh or St. Louis routinely make the playoffs and sometimes win the Series.
As it turns out, though, focusing on these particular high-spending teams leads us to the wrong conclusion. We can see the general relationship between payrolls and victories by simply plotting each team’s total wins against its total spending on player salaries. Here is the plot for all thirty MLB teams from 2011 to 2015:2
Teams that spend more on player salaries do win more games, but the price is pretty steep. The “slope” of the line, 0.13, tells us that it takes about $8 million to improve an average team’s performance by one regular-season win, since 0.13 X 8 = 1.04.
We can also use this overall relationship between salaries and winning to see whether any teams do especially better or worse compared to what the model predicts for them. For the 30 teams in Major League Baseball, I find just nine whose performance over the past five years deviated “significantly” from the model’s predictions:
One striking result is that only the Cardinals do significantly better than we would predict based on player salaries alone, averaging another ten games per season. No other team in baseball shows the savvy of the St. Louis front office in terms of staffing its clubhouse economically. On the contrary, what stands out are the many more teams that significantly underperformed given their payrolls.
At the bottom of the list are the formerly hapless Houston Astros. In 2011, 2012, and 2013, the team spent about $80 million, $40 million, and just $11 million on player salaries. According to the model those figures should have generated between 70 and 79 wins. The Astros managed just 56, 55, and 51 victories in those years. Last year Houston improved to 70 wins, and this year Houston beat the Yankees in the wild-card game before falling to the Kansas City Royals in the divisional series.
The other teams in the chart probably won’t come as a great surprise to anyone who follows baseball. The most poorly-served fans are our friends from Chicago where both the Cubs and the White Sox should be winning another eighteen games or so between them given their salary budgets. Notice that none of the big-spending teams I talked about at the beginning, the Dodgers, Yankees, or Red Sox make the list, though the Sox’ performance was only slightly better than Seattle’s.
Finally let’s look at some simple predictions from the model. In this chart I have reproduced the relationship between spending and winning and added two vertical bars, at about $62 million and $150 million.
The first figure represents the amount an average team would have to spend to expect they can win half their games, or 81 from a 162-game season. The second figure, $150 million, is the cost it takes to win 90 games. Nearly every team that has made the playoffs since 2010 has won 90 games or more, so $150 million represents the “entry fee” for having a solid chance at the playoffs. Unless you are the St. Louis Cardinals, of course.
For more details see the Technical Appendix.
1I use “player salaries” rather than total payroll throughout. Player salaries include monies paid to positional players and pitchers. Total payroll can include other sums like “dead” money paid to departed players to whom the club still has a contractual obligation.