Team Payrolls - Does It Really Matter?

[Crash Course]

Many people out there like to harp about high team payrolls. The gripe you hear most often is about the size of the Yankee's payroll - and how much the spend, etc. The contention of many is that New York does not spend its money as wisely as Oakland or some others teams.

In fact, in the 2004 Baseball Prospectus, the late Doug Pappas did a feature about "Marginal Payroll/Marginal Wins 1995-2003." This was not the first study to put a payroll dollar sign on a win - and it will not be the last.

But, in the end, just how important is it, really, on what a team spends on payroll - in terms of measuring the success of that team?

If the Yankees spend $189 million for 101 wins and Boston spends $130 million for 98 wins, at the end of the day, the important thing - in terms of what matters in baseball - is which team got more wins. Last time I checked, there's not a column on the official baseball standings that reads "Payroll Spent Per Win."

Heck, if the Yankees want to spend $250 million dollars on their payroll - and only get 87 wins for it - does it really matter? It's their money and if they want to piss it away, it's their decision - and, other than impacting their profit, what does it mean?

On the other side, if a team wins 95 games and does it on a payroll of $55 million, just what have they won? Simple - they've won 95 games. They do not get extra credit for doing it in $55 million - outside of the circle of analysts and fans who like to write about and discuss the dollars spent on each win. They do not get home field in the playoffs, or an extra draft pick, or an award from the Commissioner's Office.

Now, some may claim that payroll size matters because the cost of the payroll is passed to the fans in the form of ticket prices. But, the truth is that teams establish prices for tickets on what they expect people will be willing to pay for them - not on the size of their team payroll. It's all supply and demand with tickets. Look at the difference between the payrolls of the 2004 Red Sox and the Yankees - then look at the difference in ticket prices at Fenway and Yankee Stadium. If payroll was the driver here, ticket prices at Yankee Stadium would be much higher than at Fenway - but, they are not. It's Fenway, and the Sox, who have the high priced ticket - because the supply and demand in Boston allows them to do that there.

And, of course, others will say that payroll matters because it allows teams to have better teams. For example, some will say that the Royals can never compete with the Yankees because the Yankees can afford a higher payroll. Well, yes, that is true - there is revenue in New York that is not there in Kansas City. No argument here on that. There are some proposed answers to that gap (as we all know) - but, that's not the focus of this piece.

The focus here is the fascination of some who want to put a payroll dollar sign on wins. And, the question being raised is "Who cares? Does it really matter in comparing the win totals of teams?"

If a team wants to eat into its profits and spend that money on players - outside of the ownership of that team, who and what does it impact? And, if it impacts no one and nothing, why make such a big deal of it?

Or, is it just petty jealously over the fact that some teams choose to focus on winning over spending (or anything else) whereas some others are just as interested in their profit and losses as much (or more than) as wins?

[captain_napalm]

I've often said, it's not how much you spend, it's how you spend it.

I'm sure people wouldn't be griping about the Yankee payroll, if the Yanks finished in 3rd or 4th every year. I'm a bit amused that no one looks at the fact that a couple of contracts the Yanks have taken on were given by Texas (Alex Rodriguez) & Los Angeles (Kevin Brown).

I've also said elsewhere, that I'd rather the Yanks be run with more emphasis on player development. I was under the impression that they had the financial resources to put a scout in every city, in every country. They could cross-check with other sports such as football, soccer, track & field, etc. There is no reason why they couldn't have a steady pipeline of players to step up whenever someone departs.

My :2cents:

[captain_napalm]

Also wanted to submit this, WRT the ticket price angle. Courtesy of Sean Latham's baseball archive (Ticket FAQ)

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Q4: What is the relation of ticket prices to salaries?

High salaries do not cause high ticket prices, since salaries do not affect the ticket price which maximizes revenue. That's why the beginning of the free-agent era, which was the period in which salaries increased by the greatest factor, was also a period in which ticket prices declined in real dollars.

However, high ticket prices are an important part of the reason for high salaries. If one million more fans will watch a contending team than a fourth-place team, and they pay an average of $12 for their tickets, then it is worth $12 million in extra ticket revenue for the team to become a contender. The team should thus be willing to pay $12 million build a contender by signing players. Since many teams could gain about the same amount from the improvement, the players will earn about that much money as free agents. (Actually, they will earn more, because tickets are not the only source of revenue; a good team will also earn more from TV and the playoffs.)

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Q6: Why are baseball ticket prices lower than prices in other sports?

This is also a result of supply and demand; prices will be high when demand is high and supply is low.

Basketball and hockey arenas are smaller than baseball stadiums. If basketball teams charged the same prices that baseball teams charge, they would have 50,000 fans wanting to attend every game, and that many fans won't fit in an arena. Instead, they charge $70 for good seats and still fill most or all of them.

Football tickets are limited in supply because of the very short season; with eight games rather than 41 in basketball or 81 in baseball, there are far fewer tickets available even with large stadiums. Also, since football games are so infrequent, there are many fans who make major trips to attend the games, and the ticket price is only a small part of the cost of these trips. The result is that many teams can sell out
their stadiums with high-priced season tickets.

[captain_napalm]

And another thing...

To those who want to see fans frustrated with lack of action from their team (and calling them out for outright lying about payroll & revenue), check out the U.S.S. Mariner.

[Crash Course]

Got a link?

[Crash Course]

Also wanted to submit this, WRT the ticket price angle. Courtesy of Sean Latham's baseball archive (Ticket FAQ)

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Q4: What is the relation of ticket prices to salaries?

High salaries do not cause high ticket prices, since salaries do not affect the ticket price which maximizes revenue. That's why the beginning of the free-agent era, which was the period in which salaries increased by the greatest factor, was also a period in which ticket prices declined in real dollars.

However, high ticket prices are an important part of the reason for high salaries. If one million more fans will watch a contending team than a fourth-place team, and they pay an average of $12 for their tickets, then it is worth $12 million in extra ticket revenue for the team to become a contender. The team should thus be willing to pay $12 million build a contender by signing players. Since many teams could gain about the same amount from the improvement, the players will earn about that much money as free agents. (Actually, they will earn more, because tickets are not the only source of revenue; a good team will also earn more from TV and the playoffs.)
The only problem with the last part is it assumes that some owners will spend the money and not stick it in their pocket - as we know some do.

[KCBOOMER]

Baseball remains the only business in which people with a straight face will maintain that having more funds than the other guy is not an advantage.

Name one advantage that a club with lesser funds has on the club with greater resources?? Their only hope is to do things better. Sure, I can scout better than you despite you having more money to spend on scouting. Sure, I can develop players better than you despite having less money to spend on development and developmental staff. Sure, I can make savvy trades, but what stops you from doing the same thing (see scouting)?

You hypocrits who argue money is no advantage are the very first to say "we need to buy so-so" in the off-season to shore up your weaknesses. Why don't you do the things you tell the smaller clubs to do?? You are the ones saying that's the way to do things.

[Crash Course]

No one here, I suspect, is debating or claiming that more revenue is not an advantage. The point here is - what's the big deal about payroll dollars per win?

95 wins on $55 million and 95 wins on $120 million is just 95 wins, at the end of the day. If some team wants to spend the extra $65 million to get those wins, whose problem, outside of their own, is it? No one's. So, why harp on it?

[captain_napalm]

Got a link?

Sure

http://ussmariner.com/ is the site itself

http://ussmariner.com/index.php?p=2007 is the part I'm referring to; "Continuing Expectations Game"

U.S.S. Mariner is written by the same guys who wrote strikethree.com. I've been reading these guys for a while now. You should see some familiar names if you read Baseball Prospectus

[captain_napalm]

Baseball remains the only business in which people with a straight face will maintain that having more funds than the other guy is not an advantage.

Name one advantage that a club with lesser funds has on the club with greater resources?? Their only hope is to do things better. Sure, I can scout better than you despite you having more money to spend on scouting. Sure, I can develop players better than you despite having less money to spend on development and developmental staff. Sure, I can make savvy trades, but what stops you from doing the same thing (see scouting)?

You hypocrits who argue money is no advantage are the very first to say "we need to buy so-so" in the off-season to shore up your weaknesses. Why don't you do the things you tell the smaller clubs to do?? You are the ones saying that's the way to do things.
Even so, I'd have a hard time believing that George M. Steinbrenner III has more money than Carl Pohlad, AOL/Time Warner, Tribune, Disney (when they were in the game), etc. All these guys could break the bank if they wanted to. So why don't/didn't they?

Crying about the big bad Yankees solves nothing. They will spend what they will, no matter what kind of restraints MLB puts on them. History has shown that. A salary cap won't help, if the current revenue sharing scheme is any indication. Steinbrenner wants his team to win a world series. Plain and simple. I wish other owners had that same dedication and committment to their fans

[Jim Rice]

No one here, I suspect, is debating or claiming that more revenue is not an advantage. The point here is - what's the big deal about payroll dollars per win?

95 wins on $55 million and 95 wins on $120 million is just 95 wins, at the end of the day. If some team wants to spend the extra $65 million to get those wins, whose problem, outside of their own, is it? No one's. So, why harp on it?

I think all would agree that the added resources, if spent properly, make competing easier. Which, conversely, means that it's harder to win with less, if for no other reason than clubs in that position having almost no margin for error. And, if that's the case, I don't have a problem giving proper credit to those owners/GMS who manage to win despite severe disparity in the resources available to them. It's the "Rocky" syndrome. Since the colonies defeated the British, our country has prasied the successful underdog. Personally, I don't see anything wrong with that.

[Crash Course]

I have no issue with praising the underdog, if that's what one must do - but, to do it while bashing anyone who does not fit that mold, at the same time, is somewhat questionable behavior - for lack of a better expression.

Say that you had Roger Clemens, Matt Young, Eric Hetzel, Nate Minchey, and Tom Bolton all in a room together. To say out loud "Clemens, you've done a great job at pitching" would be fine. But, to be only able to say "Clemens, you've done a great job at pitching" if you also add "...but, Young, Hetzel, Minchey, and Bolton, you all suck at your job" says something about the person talking out loud, no?

[Crash Course]

Baseball remains the only business in which people with a straight face will maintain that having more funds than the other guy is not an advantage.
Thought you might find this interesting from the recent S.I. (http://sportsillustrated.cnn.com/2004/writers/tom_verducci/11/02/hot.stove/index.html):

Next time someone tries to tell you big-market clubs dominate the sport, hit them with this: the National League has sent seven different franchises to the World Series in the past seven years, the first time that's happened. And in the past eight years, more than half the franchises in baseball (16) have reached at least the League Championship Series and been no worse than three wins away from the World Series.
Go figure.

[PianoMonkey]

What amazes me most about this particular debate is that it persists. Both sides seem to understand the salient points:

(big money) != (winning), but

(big money) >> (little money) and
(big money) + (Luck) > (little money) + (Luck).

Do money-rich markets "dominate" the sport? No, of course not. But poor markets can NEVER "dominate" the sport. They'll always be there, prying away a share of the glory, but they'll always be the underdog.

No reason to blame anybody--or any team--for it, though. Its the reality of the sport, at least for the forseeable future.