A report by American Baseball Perspective with contributions by Fargo Dinosaurs GM Cristian Shofar

Tuesday, October 7, 2008

This report looks to explore how team financial situations correlate with success as defined by a.) winning percentage, and b.) power ranking.  As this season has progressed through the trading deadline, it appeared to me that there was a "buyer's market" present.  Many teams were either substantially out of contention or simply in need of reducing salary, and more often both.

The following numbers will show the financial rankings of all PEBA teams in regards to overall payroll.  These payroll numbers include both player and staff payroll.  The variance in staff payroll is obviously much smaller than that of player payroll and is likely negligible (i.e.  the driving force behind the disparity is the player salaries).

Here we see a difference of roughly $104,000,000 million dollars between the top team (New Jersey) and the bottom team (Tempe).  This is actually pretty similar to the disparity previously seen in Major League Baseball (if we ignore the NY Yankees) where the Detroit Tigers sat around $138,000,000 and the bottom team Florida Marlins came in at about $21,000,000.  So in this sense PEBA is matching the disparity present in major league baseball.

The following chart shows how payroll relates to winning percentage in PEBA for the recently completed 2008 season.  Teams are ranked by their winning percentage and payrolls are listed to the right.

Here we see the impact of payroll on a team’s ability to win at the completion of our second season in PEBA.  A couple points follow for discussion.  First, a high payroll does not guarantee a successful winning percentage as Duluth, Fargo, Reno, and San Antonio can attest.  Tempe, whose payroll is $10 million less than the second lowest payroll (London) finished with the 17^th best winning percentage in the league.  Secondly, having a high payroll may not guarantee success, but having a low payroll will almost guarantee not making the playoffs.  Gloucester was the only team in the top ten to have a payroll below $70 million.

The next chart shows the relationship between payroll and power rankings.  I did this to consider some of the peripheral stats, the Pythagorean records, and the team winning percentages together.  This may be a better indicator as to how well team’s performed, and at least gives us another chart to look at, which can be fun.

Here again we find the advantage present in having a high payroll and putting a good product on the field, although Gloucester’s performance ranks higher here (7^th) than on the winning percentage chart (9^th).  Once again though, they are the only team in the top ten with a payroll under $70 million.

There’s enough variance in the bottom halves of these two charts to indicate that payroll difficulties can be overcome and inversely that high payroll advantages may still result in a poor product on the field.  What I think is going on here is a result of the multi-year contracts that were assumed into the league following the initial league draft prior to the 2007 season.  There are some bad contracts (i.e.  below replacement level performances being rewarded with multi-million dollar salaries and 4-year contracts) floating around that are just going to have to be worked through.  Additionally there is room for growth in market size through capital proliferation (CP) during the off-season.  Finally, these “losing” teams will have a chance to stock up their farm systems through receiving early round draft choices.

I am concerned that the talent gap between the “good teams” and the “bad teams” at the ML level is extreme enough that it’s created a buyers market in regards to trades and that the talent level returned to the selling team in regards to prospects is not enough to really improve that team’s minor league system.  Financial stress has contributed to this buyers market as many of teams have had to work through the before mentioned “bad contracts” to meet owner budget lines.  It may take a few more seasons to close the talent gaps between the top performing teams and the bottom performing teams and for these teams to build their farm systems and field contending teams.