Does cash rule everything? An in-depth look at the relationship between spending and winning in the MLB

As money continues to play a major role in professional sports, I decided to examine if cash really rules everything in regards to winning the World Series in Major League Baseball.

THE BASICS 

To understand spending in baseball, one must consider all the different ways that a team can create income. To keep it simple, there are four main ways a team can get money. One way, the sport, is the (according to Forbes) “portion of a team’s value attributable to revenue shared among all teams.”

Another is the market. In baseball, it is common for teams to be split up into two categories: big-market teams and small-market teams. Big-market teams are those who play in the nation’s consolidated statistical metropolitan areas (CSMA). Small-market is the opposite, as teams that play in smaller CSMA’s.

An example of big-market teams are the Boston Red Sox, New York Yankees/Mets and Chicago Cubs/White Sox. Small-market teams are squads like the Cincinnati Reds, Kansas City Royals and Milwaukee Brewers.

The big-market teams usually attract more fans, which leads to higher ticket prices. This usually leads to big-market teams spending more on players because they can afford to. All in all, Forbes explains how “larger ticket sales and higher ticket prices together increase a team’s revenue, allowing team owners to reinvest more money into their organization while still turning a profit.”

It is important to note that, just like in anything, there are exceptions. Sometimes, big-market teams cut payroll, while small-market teams increase theirs, in hopes of drawing more fans.

The third way a franchise can receive money is through their stadium. This includes their home games, premium seating and any non-baseball events that the stadium hosts.

Lastly, the team’s brand is of course a major cash cow. With all this being said, it is clear that certain teams will have way more income, in which they can spend on payroll to create a better team.

Unlike all other major sports, the MLB does not have a salary cap. This means that as long as a team can afford it, they can buy whatever and whoever they want. No matter what, the Yankees will always be able to afford anyone, unlike the Royals, who must intelligently create a winning roster with limited cash.

Let’s use the Royals and Yankees as an example to show the massive differential in payroll. In 2011, the Yankees payroll exceeded $200 million dollars. The Royals that year? A little over $38 million. Yankees star third baseman, Alex Rodriguez, made $31 million that year. One player made almost more than an entire roster.

nEW RULES

Some rules were created in the past to try to create a competitive balance. A collective bargaining agreement (CBA) was created as a way to share revenue.  In this CBA, all 30 teams are, by definition,  “required to deposit a percentage of their local revenues into a pot at the end of the season. Luxury tax funds and a portion of the league’s “Central Fund”- comprised of monies from television contracts- are also put into the pot.”

The luxury tax is a specific amount of money chosen at the start of each year, and the teams cannot go over that said amount. If they do, they receive penalties.

First time offenders must pay 22.5 percent of salaries above the threshold. Second time offenders must pay 30 percent, third time offenders must pay 40 percent and fourth time offenders (and anything after that) must pay 50 percent of salaries above the threshold.

Then, the poorer teams receive the majority of the pot.

Sure, it redistributes the wealth, but it still allows the big-market teams to spend away. The Yankees have been number one in payroll 13 times from 2001-2016, while being taxed over $300 million dollars.

QUICK FACTS

• Of the ten World Series winners from 2001-2010, six ranked in the top 10 in payroll.
• During the 2001-2010 seasons, 61.5 percent of the league’s playoff teams were among the top 10 biggest spenders. 23.1 percent ranked 11^th-20^th in total end-of-year payroll and 15.4 percent were among the league’s poorest 10 teams.
• In the 2016 season, nine out of the 10 playoff teams were in the top half of highest payroll spending. Of the top half of spending teams, only one team (Angels) were not in contention to make the playoffs in the last week.

TABLES

ANALYSIS

The first table consists of each season’s World Series winner, as well as their payroll ranking. The most striking statistic is the fact that 16 out of 17 winners finished the season in the top half in league payroll. Nine of these 17 winners finished in the top 10.

What does this tell us? It is clear that the World Series winner is almost always a rich, big market team. Since 2000, 94 percent of the World Series winners have been in the top half in payroll to end the year.

The second table shows us the less fortunate teams, who were able to advance into the postseason. I went back and looked at the last 17 postseasons and found that low payroll teams are still finding success. Of the last 17 postseasons, 15 of 17 have featured a team in the bottom 1/3 in payroll.

HOW THE 2016 CUBS (4^TH IN YEAR-END PAYROLL) BUILT A CHAMPIONSHIP TEAM

• The 2016 NL Most Valuable Player happened to be Cubs third basemen, Kris Bryant. Bryant was drafted three years earlier by the Cubs. The first 3-4 years of a rookie contract are considered the pre-arbitration years in which the team decides what the player’s salary will be. This is usually around league minimum. Since Bryant falls under this, his 2016 salary was less than 700k. An MVP who hit 39 home runs made under a million dollars.

  

• Their All-Star first baseman, Anthony Rizzo, was acquired in 2012 in a trade with the San Diego Padres. The Cubs were able to acquire Rizzo and one other player, for Andrew Cashner.
• Jake Arrieta was acquired by the Cubs for Steve Clevinger and Scott Feldman. Clevinger and Feldman are two below average players at their respected positions. Jake Arrieta finished top 10 in NL CY Young voting in each of the last three years.
• 2015 offseason: Signed Ben Zobrist (2016 World Series MVP) and Dexter Fowler, and both would go on to be All-Stars in 2016.
• 2016 MLB trade deadline: Cubs traded for Aroldis Chapman. Chapman went on to post a ridiculous 1.01 ERA in 26.2 innings in the regular season.

HOW THE 2003 FLORIDA MARLINS (25^TH IN PAYROLL) BUILT A CHAMPIONSHIP TEAM

• 2002 Offseason: The Marlins signed Ivan Rodriguez. Rodriguez, who is now in the Baseball Hall of Fame, was signed to just a one-year deal. He hit .297 with 16 home runs and 85 RBIs in the 2003 season, which was good for 23^rd in MVP voting. He hit .313 in 2003 playoffs, and was named NLCS MVP.

  

• Acquired rookie Dontrelle Willis in March 2002. In his first major league season, making under $300K, he was able to win the 2003 NL Rookie of the Year with 14 wins and an ERA of 3.30.
• In the 1999 MLB June Amateur Draft, the Florida Marlins drafted Josh Beckett second. Beckett would go on to win the 2003 World Series MVP. On the biggest stage, in 16.1 innings, the 23-year-old allowed only two runs and struck out 19.
• Acquiring infielders like Mike Lowell and Luis Castillo in previous years played a big role in defeating the Yankees. Lowell and Castillo, who both were All-Stars in 2003, made a combined $7.7M in that year. Two star infielders for the Yankees, Jason Giambi and Derek Jeter, made a combined whopping $27M.

CONCLUSION

As we can see, money plays a huge role in the MLB.  The teams with more money clearly have a better shot to win the World Series. Buying the best players will usually lead to success, but so will smart moves and good drafting. The latter part of that sentence proves that all 30 MLB teams have a chance to create a winning team. That being said, cash rules almost everything in the MLB.

Featured image by Zimbio.com

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