Wins Per Total Payroll

[Crash Course]

I know it's quite fashionable these days to show a team's "Wins Per Total Payroll" and show how much each win "cost."

Analysis like this is often used to show how little team's like the A's "spend" per win.

Is this the right way to look at this, in a business sense?

Would not "Wins Per Net Revenue" or "Wins Per Profit" be the right way to see who is spending their money wisely?

Think of wins as a product.

If I make 12 wins, and it cost me $12 to make them, but those 12 wins earned me $24 in profit, isn't that better than if I had 12 wins, that only cost $6 to make, but who only earned me $12 in profit?

[satchel]

It depends upon what question you are trying to answer.

If the question you are asking is "which team is the most profitable?" then what matters is net profits over expenditures; dividing it up into "profits per win" is somewhat arbitrary because there is at best a weak correlation between the result of a game on any particular day and the profits made from that game. There's a long term correlation between number of wins and profits, so profits per win might be an interesting metric to isolate the effects of that long term correlation from other effects such as market share. Just be careful not to think of it as a marginal profit type of metric, as in "if we had won one more game, we'd have made this many more dollars." It won't work that way.

On the other hand, if the question you are asking is "which team had the most bang for its buck on the field?" i.e., without taking into whether or how much profit was earned from that endeavor, then payroll per win is a useful metric to answer that question, subject to the same caveat that it shouldn't be applied to a single organizations results in a season as a marginal cost metric - "if we had spent X more dollars we'd have had Y more wins."

In sum, I don't believe one metric is better or even more useful than the other - they just answer different questions.

[sweaver]

Doug Pappas has dealt with some of your concerns in his "marginal payroll/marginal wins" measures, in the BP 2K4 book and on the website.

[Crash Course]

Satch - I still think wins per profit shows who is getting the most bang for their buck. At the end of the day, the bottom line, profit per win, is the bang.

Sweav - thanks. I'll read that soon.

[RedSeat]

Satch - I still think wins per profit shows who is getting the most bang for their buck. At the end of the day, the bottom line, profit per win, is the bang.
A highly profitable team with a high win total will have a similar ratio as a less profitable team with a lower win total. The original metric, dollars per win, is not a good indicator of how well the business is run, but it's not intended to be.

I agree with Satch. Wins and profits are two (basically) independant metrics of success. Who's more successful, the owner who wins the world series but loses money or the owner who turns a nice profit but misses the playoffs? It depends on the objective of the owner. No one has a long term strategy to lose money, but some owners would accept a reasonable, short-term loss in exchange for a championship.

[Joseph]

Personally, I consider sucess in baseball to be winning, not making the most money. I think Selig and Pohlad are pretty good at making money, but if their teams don't win they are failures.

Plus, the playing field is hardly level. The Royals could field an all-time great team go 122-40 and still make less than the big AL-east clubs.

[SmedIndy]

If the Royals win 92 games this year, with the money they spend, it's a success. If the Yanks win 92, heads will roll.

[Crash Course]

Not a very true statement. In 2000, NY won only 87 games. Did anyone get fired then? No, because they won the WS. Same thing would apply this year. If NY wins 92, as you state, and wins the WS, why would anyone get fired?

[Jim Rice]

Not a very true statement. In 2000, NY won only 87 games. Did anyone get fired then? No, because they won the WS. Same thing would apply this year. If NY wins 92, as you state, and wins the WS, why would anyone get fired?

Because Smed didn't say anything about winning the World Series, which would obviously cure a lot of regular season ills. But I think we all agree that the Yanks winning 92 is an immense failure given their roster and, in all likelihood, would shoot their WS chances to hell because 92 wins isn't very likely to either win the division or win the wild card. And, to Smed's point, 92 wins and no WS with this roster would result in a few heads rolling in the Bronx. See Howser, Dick and Showalter, Buck.

[PianoMonkey]

Crash, I think you've got some ratios "flipped" there. More often, people quote Dollars Spent on Payroll per Win, not the other way around.

A Wins per Million Dollars of Profit figure would not show anything useful. At least not in terms of determining success. See bottom for more.

A Dollars of Profit per Win figure, which is what I think you're looking for, would describe how much revenue a owner could expect to make from a team that wins X games. This would help reveal certain efficiencies in his staff, but more than likely would be greatly affected by outside factors such as market size. Either way, it would show how much of a return the owner is getting, given a number of wins, but who really cares about that? I care much more about how much the team wins, given a certain payroll to distribute.

(In fact, by dividing by wins, you actually remove the influence of how successful the team is, winning-wise! Like RedSeat says, this method rates a team that makes less money on fewer wins the same as a team which makes more money on more wins. A profit per loss, figure, by contrast, would show how resistant a teams profits are to failure. If you're trying to describe how financially successful a team is, why not just use straight profit numbers?)

Think of it like this: if the Reds win 95 games, they will make X millions of dollars. But if the Red Sox win 95 games, they would make Y millions of dollars. Y is almost assuredly greater than X. It seems like this implies that the Owner/GM of the Red Sox is employing more efficient people. However, one could just as easily say that the Reds would have to win more games than the Red Sox to make Z dollars of profit. This shows that the figure does not necessarily show that the skills of the Reds staff are inferior to those of the Red Sox staff. Rather, it reveals that it is more difficult for the Reds to make money than it is for the Red Sox, for whatever reason.

Please excuse my fuddled streams of logic. I went back and changed this about 20 times while I was posting it.

In conclusion:

Total Profit describes: How financially successful the Owner's investment is.

Wins describes: How successful the team is, winning-wise.

Profit Dollars/Win describes: How much money an owner will make with a team winning a given number of games. Owners obviously want this figure to be as high as possible, but it has little to do with how well his money is spent. Taken over many seasons, this would describe how much the market is worth financially.

Profit Dollars/Loss: Taken over time, this would describe how much the market is resistant to the failures of the team, winning-wise.

Payroll Dollars/Win describes: How much money an owner will have to cough up to field a team winning a given number of games. This is determined largely by skills of scouting/managing/coaching staffs.

Wins/Profit Dollar describes: How good a team is needed to make an owner a given amount of profit. This is inversely proportional to Profit Dollars/Win, and as such is determined by the same factor--market worth.

Wins/Payroll Dollar describs: How good a team is produced by an owner with a given amount of payroll. This is inversely proportional to Payroll Dollars/Win, and as such is determined by the same factor--skill of staffs.

[Crash Course]

Thanks all - food for thought. I'm nibbling on it all now.

[sweaver]

Think of it like this: if the Reds win 95 games, they will make X millions of dollars. But if the Red Sox win 95 games, they would make Y millions of dollars. Y is almost assuredly greater than X. It seems like this implies that the Owner/GM of the Red Sox is employing more efficient people. However, one could just as easily say that the Reds would have to win more games than the Red Sox to make Z dollars of profit. This shows that the figure does not necessarily show that the skills of the Reds staff are inferior to those of the Red Sox staff. Rather, it reveals that it is more difficult for the Reds to make money than it is for the Red Sox, for whatever reason.

This is not exactly true, partly because of the teams compared here, and partly because of what I believe is a faulty assumption.

If the Reds and Red Sox sold the same amount of tickets, the Red Sox would make more money off them, because they have higher ticket prices. However, the Reds have a higher seating capacity. Now, without going through and figuring how much money would be made in ticket sales if each park were to sell out, I would think that sellouts in Fenway and GAB would return similar amounts of cash.

Now, postulate: it is easier to sell tickets if the team wins games. I think we all believe this is true.

While fans want their team to win more games, the goal for most owners is to make more money, regardless of how many games their team wins. Winning a championship is secondary to turning a profit, for most owners. Again, an assumption but one I think most will agree is true.

Therefore, it depends on what you want to measure: Wins (or championships, if you prefer) is the fans' measure of success. Profit is the owners' measure of success. Payroll/win, or wins/payroll, is a measure of the efficiency of a front office in producing a winning team; no more, or less, than that. What does it mean? Well, it's one way of evaluating a front office. I don't think it should be the only way, any more than I think all hitters should be evaluated by RBI.

[rejtable]

The other thing to add here is that, no matter which side of the W/Profit$ is usefull/not useful you are on, profit is tough figure to get for MLB teams. Forbes publishes estimates every year, and by most accounts they are probably solid. BUT, they are still Forbes' estimates, and nobody except the owners really know if they are right.

Payroll, however, is a public figure, and therefore available quite easily. Doug Pappas has reams of payroll data taken from a variety of sources (especially AP lately), and MLB teams have no real qualms with the figures.

[Crash Course]

This was interesting: http://www.chicagosportsreview.com/nationalopinion/nationalopinionview.asp?c=107403

And Michael Lewis the author is certainly not the first or last to point out that in a short span with multiple variances, one man made a system work. But the success of Billy Beane, and his textbook disciples (beyond putting some scouts out of business in the short term) is inherently flawed. If Moneyball has become the current euphemism for using certain statistical measures and philosophies to make wins out of spare change, shouldn’t the idea that wins mean more revenue and thus greater spending be tossed?

I do know this: a euphemism for penny-pinching but resourceful still means, “Probably not rich.”

The fact is, Billy Beane is bright, and has devised a fantastic system, and has even spawned some disciples, who’ve had at best varying levels of success. But will it breed long-term success? To a business man, that might actually include getting enough bodies in the seats to watch this “genius” and his winners. This in turn, would mean increased revenues, greater income, greater investment, and thus, no use for geniuses.

Would you rather be resourceful and a genius because your scheme worked, or wealthy, and rich enough to make mistakes? Politically, would you rather be a genius, and the first person to make socialism work, or rich and resourceful, creating the incentive that allows the people to produce your geniuses for you?

The fact is, in sports, “genius” is a long-term word tossed around far too often in the short.

Vince Lombardi was a coaching genius. I’d be a liar if I hadn’t at one time called anybody from Mike Holmgren to Wayne Fontes just the same.

And as we watch sports, let us also watch for geniuses. Most importantly, however, listen for them too.

In a sports world filled with euphemism, “genius” has but one true meaning.

Victory.

[SmedIndy]

Well, one thing is wrong with that - Boston isn't exactly poor. Neither is LA.

The fact is that Oakland has not done what Pittsburgh, or Milwaukee, or Cincinnati have done and just cried poverty. They went out and made a system where they can WIN (yes victories) and keep in their budget.

They play in a terrible park and in a community that has always been luke warm in their support, even in the halcyon days. The revenues won't be there.

[mgoettsche]

It would be absolutely wrong to look at wins per profit. The various revenue streams that ultimately determine whether a team makes a profit are primarily fixed, and the value of these fixed streams are largely based on long-term factors, such as market size and brand. Additionally, there is a significant lag between a team's ability to win and a corresponding jump in the gate. Thus, the gate from an individual game/win (or even a season of individual games/wins) has little bearing on that organization's ability to make a profit.

There is a lot to say on building a brand here, but I won't. I will argue that a team's brand is the single greatest factor toward determining the value of the team, and ultimately the value of the revenue streams the team can command in the future.

Profits/win is a very short-term measure of a teams success, as it measures one year at a time. It does not reflect success on the field, and it does not reflect success in building one's brand. In fact, on many counts, it reflects a diminishing of one's brand. Just a couple of analogies:

1) Lets say the Yankees made $50m in profit in two successive years. The first year they won 70 games and missed the playoffs, and the second year they won 100 games and won the WS. Profits/win would indicate that they were more successful the 1st year, making nearly $200k more per win than they did in the 2nd year. Which year were they actually more successful? Which year better contributes to their long-term success?

2) On a profit/win measure, the LA Clippers would have been the most successful organization in the NBA for the past decade. Sterling gets a nice cut from teams paying the luxury tax, doesn't spend a lot of money on payroll, and plays in an arena that sells out most of the time. The Clippers were the most profitable, and they didn't win that much. From a pure $$$ standpoint, Sterling is running a nice business...heck, he can churn out perennial losers and still make a killing!

If all owners measured viewed success by this short-term metric, you'd have the Enronization of MLB, and I think very quickly the game would lose whatever support it has now.