On the previous post we discussed essentially two questions: First, whether there is a relationship between team payroll and wins. Second, has this relationship changed in time? If so, where are the peaks? Where are we now? Let's continue digging this topic up.
Question 3: Will money buy you a ring or a post-season ticket? If so, how much should we spend?
Let's start by saying that nothing will buy you a championship ring. But money can and will improve your odds! I'd say it can get your foot in the door.
The following graph shows the probability of reaching playoff, winning the American or National league or winning the World Series at the beginning of each season (BoS). I have split teams into 3 tiers depending on their payroll total each year. The low tier refers to the bottom 33% payroll total of all teams in a season, medium tier goes from 33% to 66% and top tier is the top 34%. Keep in mind I am analyzing data from 1976 to 2015, excluding 1994 due to the strike. I have also added to the graph below the expected probability for each event e.g. playoff appearance, league win and World Series win. The expected probability is the natural probability each team has at the beginning of the season; for example, each team has 1/30, or ~3.3%, chance of winning the World Series. In the long run, in a very competitive and balanced league, the numbers should be closer to the expected rates, however they are not.
Did you see that? Let's state the obvious first: Large payroll team had done better than the rest of the teams i.e. got to the playoff as well as reached and won the WS more frequently than low and medium tiers. Let's digest that again: top tier teams are almost 4 times more likely to reach the playoff than low tier. As we move along in the post season, as expected, high budget teams win more often. While in the rich teams got to the playoff at a ~80% better rate than expected, they won the WS at a ~106% better than expected.
Let's look at the tiny 0.3% of low-tier teams that won the WS. I should say team. I am talking about the Miami Marlins in 2003. They are the only low-tier team that has won the WS, since 1976. Amusingly, they beat the NYY.
Now, these numbers do not show the full picture because I am compounding the effect of being eliminated in the previous step of the event I am measuring. For example, you can't win the WS if you did not win your league. You can't win the league if you did not make it to the play-off. Let's dial back and think of the probability of winning the World Series once you are in the World Series. The same situation happens with the league championship probability. Let's calculate out of the teams that are already in playoff. The graph below shows the probability of winning at the beginning of each event (BoE). Does that make sense? I hope it does.
Let's go over each event, from left to right: First, playoff appearance probability remains the same as before. Mid- and low-tier budget teams reached the playoff with a lower probability than you would expect. The second bucket is related to winning the league (read: reaching the WS) once you are in playoff. For example in 2015 there were 10 teams in playoff (5 teams per league). The expected probability of those teams to reach the WS is 20%. With the inclusion of the Wild Card and then the second Wild Card, that number has decreased but historically sits on a 31%. While Top and mid-tier payroll teams have reached the WS more frequently than benchmark would suggest the difference is small and, interestingly, higher for mid-tier teams. It is important to notice that poor teams have a little more than half the expected chances of reaching the WS, once they get to the playoff. So even if you assume low tiers teams at this stage are good (they are in the playoff after all), they have performed considerably worse than the rest. This is a finding in itself.
If we move to World Series, the situation gets even tougher for low budget teams. Similarly to the League win breakdown, rich and mid-tier teams have performed better than the average, but in this case, rich ones have done slightly better than mid tiers. If we think about this, we would expect this result because two very good teams are facing each other - no matter how much they are playing their players. On the other hand, low tiers ball clubs have fared badly in this situation, accomplishing only one WS win (the aforementioned Marlins in 2003) in 7 attempts. It looks that their chances are reduced by ~71%. Again, remember we are talking about good/great teams playing the WS, but again and again have failed to deliver.
So I would like to highlight the findings so far in this question:
Question 4: Are there big spenders? If so, who are they? Have they changed over the years?
If you are still reading, I have reached my objective.
To answer this question I have plotted the average versus the standard deviation of the z-score for each team. I have also bucketed teams into 4 types of spenders e.g. High, Mid-high, mid-low and low. The table below shows the number of seasons per team with their payroll labelled as high, medium and low tier. Please take a look at those:
Please remember low tier refers to the bottom 33% payroll total of all teams in a season, medium tier goes from 33% to 66% and top tier is the top 34%.The answer to our first sub-question seems relatively straight forward. As you can see, there are 3 teams (NYY, BOS and LAD) who have been significantly above the pack, in terms of average payroll. The NYY has been a high tier payroll team in 39 out of 40 seasons. Boston and LAD have been in the top tier 33 and 28 times out of 40, respectively. These teams have big payrolls consistently and therefore are the truly big market teams. You may argue that NYM or LAA are big market teams and you would not be entirely wrong. They are definitely wealthy but payroll comparison shows they have not been in the league's top 34% payroll on at least 40% of the last 40 seasons.
I have also highlighted in red the teams that I have classified as low spenders. These are PIT, MIA, MIN, TBR and WAS. TBR has never been in the top tier, which is the lowest spender in the league followed by MIA - what is going on in Florida? You may argue that SDP and/or MON are low spenders and I would not try to persuade you to think otherwise. The line is thin but had to be drawn somewhere.
Another interesting insight is payroll variance. No team has been more consistent than STL or TBR. On the other side of the spectrum we have PHI and SEA. This is probably a reflection of how these organizations are run. Below there is a plot of accumulated payroll z-scores and win percentage (for the entire period 1976-2015). If you have been following baseball for a few years most of this resonates with you: CHC, SEA COL and NYM have historically been underperforming while STL, ATL, CIN and OAK usually find non-payroll related ways to win.
With the best fit-line information (Expected W% = 0.0296*Payroll Z-score + 0.4994), I have calculated the expected winning percentage (read: what 'should' have happened) and compare it to what actually happened. This will quickly allow us to identify good performers over the 40-years period. In essence, in the table below I am highlighting what teams are furthest away from the dotted line in the graph above.
We have one last question to discuss in this post and it is whether deep pocket teams have changed over time. I think by now you know the short answer to this is 'yes, they have' however the truth of the story lies in the details. I partly addressed this question with the Standard deviation of the Z-scores before, however I would like to share a view of how this picture has evolved by decades.
I sliced teams into 4 categories. First there are the downward spenders. It is interesting how some teams e.g. MON, MIL, CIN and PIT moved from mid-high payroll spenders to (very) low ones. It looks as if they re-shifted their spending priorities in the mid-80's and have stuck with that strategy since. The second bucket (Swingers) is teams that have swung between high and low payroll tiers, depending on how the wind blows. Teams such as CLE, PHI, MIN, COL or DET are here. The third group (Upward) is comprised of those teams who have progressively moved into the upper tier e.g. SEA and WAS. These are big city, relatively new franchises that have not had on-field success. Finally there is a group (Keepers) that have remained constant on payroll spending. These are the likes of NYY, BOS, LAA, LAD, SDP, MIA, TBR.
In summary, it looks like money matters since the relationship between payroll and wins is weak but statistically significant. However, the influence of payroll is not as big as we may originally have thought. Money definitely influences which teams go to the post-season i.e. post season chances are directly proportional to payroll, but once a team is in the post-season, payroll predictive power goes down i.e. it does not pay off to over-invest in payroll (did you hear that Theo?). Thus there seems to be a diminishing returns curve during the season as the value of $1 extra in payroll changes depending on where you are in the curve. Ideally, a GM wants to spend just enough to get his/her team to the playoff because, after that point, the field is more leveled, raising the question of whether move those resources should be allocated to other areas e.g. manager, front office, player development. I guess that's part of another post.
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By Oswaldo Gonzalez