Efficiency and effectivity; two words that are the hallmarks of any well run organization. In Major League Baseball, often times, you can win the World Series, and have one but not the other.
In a league where there is a soft salary cap in the form of the competitive balance tax, or as it is more commonly known, the Luxury Tax, clubs that have deep pockets to work from can spend far more on player payroll than the majority of the other 30 clubs in the league. As an example, the New York Yankees had an Opening Day payroll that was almost as much as the player payroll for the bottom six teams by player payroll combined (Nationals, Pirates, Athletics, Rays, and Marlins).
But, as we saw this year, all that money could not get the Yankees’ foot in the door of the playoffs. As the old adage goes, it’s not how much money you spend, it’s how well you spend it.
With that, we can look at how much a team spends per win – a bang-for-the-buck metric called Marginal Payroll/Marginal Wins.
The formula works like this.
As a baseline, we’ll create a fictitious marginal team. Even the worst teams made up of near minor league players would not lose every game. So, we’ll say that a truly mediocre team would win only 30 percent of their games. For salary, we’ll set every players at the league minimum, which for 2008 was $390,000 . And finally, we’ll make the roster 25, plus 3 replacement players to allow for the DL..
By having this baseline team, we can use the winning percentage for each team in MLB for 2008 at the end of the season, along with their Opening Day payroll to determine what their marginal payroll would be and how much it costs a club per marginal win. We'll use Opening Day payroll instead of end of year payroll as a measurement of the intent of the club's spending as the season started. The formula, created by the late Doug Pappas, looks as follows:
(club payroll - (28 x major league minimum) / ((winning percentage - .300) x 162)
So, the lower the figures derived out of this formula, the better. In other words, if your cost per marginal win is lower, you are spending less per win – you’re efficient.
But remember, being efficient isn’t always being effective. As an example, Oakland spent $1,387,533 per marginal win this season based upon the third lowest Opening Day payroll of $47,967,126. The problem is, the A’s were second to last in the AL West with a 75-86 record. It didn’t cost the A’s much per win, but then again, they didn’t win enough games to make the playoffs.
On the other hand, you can be effective but inefficient. The Dodgers spent $3,040,001 per MW and won the NL West, but they spent nearly twice as much per win as the Diamondbacks ($1,655,171 per MW), who just missed the playoffs.
And, then there is the ultimate yin and yang of this formula: those teams that spent little per marginal win, but still won enough games to reach the playoffs, and those that spent a truckload of cash on player payroll only to sit at the bottom the standings.
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As we present analysis around the figures for this past season, we encourage you to view the PDF file we have provided breaking down all 30 clubs by this “bang for the buck” metric (select the image to view).
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Spending by the Truckload, and Losing Anyway
Of the four categories your team could land in, this is the one you’d least like to be in. It’s never easy having a large player payroll, but it’s beyond painful to spend money, only to flush it down the drain.
The unfortunate leader in this category for 2008 was the Seattle Mariners who had Opening Day player payroll of $117,993,982 but wound up losing 101 games or 39 games out of first place. For every one of the scant 61 wins the Mariners had, it cost them a staggering $8,634,999 per marginal win. It will be interesting to see how much salary the M’s shed in the off-season under new general manager Jack Zduriencik.
The other clubs that spent wildly but finished poorly include the Detroit Tigers (74-88, ODP of $138,685,197, cost per MW $5,030,126) and the San Diego Padres (63-99, ODP of $73,677,617, cost per MW $4,358,168) And while they didn’t finish in the cellar, we’d be remiss if didn’t mention the Yankees. With MLB’s largest player payroll at $209,081,579 and spent $4,904,990 per marginal win. The Bronx Bombers went 89-73 and missed the playoffs for the first time since 1995.
We should mention the New York Mets, who for the second season in a row, missed the playoffs on the last day of the season while posting an Opening Day payroll of $138,293,378, went 89-73 and posted $3,152,806 per marginal win, and the Washington Nationals, who had a reasonable Opening Day payroll of $54,961,000 but posted the worst record in the league at 59-102. Put them together, and the Nationals had a cost per marginal win of $4,115,981.
Spending, but Getting to the Playoffs
Call this the “burning money but we don’t care because we made the playoffs” category. These teams may not be efficient, but at least when they spent they can say that it garnered results.
At the top of this list sits the Los Angeles Dodgers who went 84-78 and won the NL West. The club posted $118,536,038 on Opening Day player payroll or $3,040,001 per marginal win. To place this in perspective, the Dodgers spent almost twice as much per win as the second place Diamondbacks who had a skinny $1,655,171 per MW.
Other notables in this category include the Chicago White Sox (89-74, ODP $121,152,667, cost per MW $2,748,944), Chicago Cubs (97-70, ODP $118,595,833, cost per MW $2,211,003) Boston Red Sox (95-67, $133,440,037 ODP, cost per MW $2,640,518), and the Angels (100-62, ODP $119,216,333, cost per MW $2,106,933).
Being Efficient, but Not Making the Grade
These were the teams that knew well enough not to spend every cent they had, but had to have done so knowing they had little to no chance making the playoffs when the season began, or in some cases, overachieved and wound up on the edge of making the playoffs.
The Florida Marlins are the best example, and with this year's figures, maybe ever. Owner Jeffery Loria snubbed his nose at the revenue sharing system, and rolled out a team with by far the lowest payroll in MLB at $21,836,500. To place this in perspective, the Rays had the second lowest Opening Day player payroll in the league at $43,820,598, over twice what the Marlins opened the year with. Still, in a weak NL East, the Marlins very nearly made the playoffs posting an 84-77 record, or a staggering $305,784 cost per marginal win. Just imagine if Loria had spent at a remotely respectable level of player payroll. Would there have been both South Florida teams in the playoffs?
Other examples include the Pirates (67-59, ODP $49,365,283, cost per MW $2,089,418), Kansas City (75-87, ODP $58,245,500, cost per MW $1,792,633, and Cincinnati (74-88, ODP $74,277,695, cost per MW $2,494,397).
Your Efficiency and Effectivity Winner
Here’s where you want to be. You spent wisely and went deep into the playoffs. And while everyone may look at the Tampa Bay Rays’ figures (they are hands down the winner in this category), we need to add a bit of a footnote.
Yes, the Rays had the second lowest Opening Day payroll in the league at the aforementioned $43,820,598, won the AL East with a 97-65 record, which comes to an incredible $679,764 per marginal win. The footnote? The roster is almost entirely the creation of draft picks meaning the club has offered this incredible collection of talent a fraction of what they will be worth when they hit arbitration eligibility and free agency. None the less, it is an incredible feat that the Rays have pulled off this year. To place this in perspective, with the exception of the Brewers at $1,692,854 per marginal win, no team that made the playoffs spent less than $2 million per marginal win. The only team that came close to matching Rays and Brewers were the Twins who just missed winning the AL Central with an 88-75 record, $62,182,767 ODP, which translates to $1,311,068 per marginal win.
This season wound up being a wonderment on a number of levels. Who would have thought that predictive contenders in the Tigers and Mariners would end the season so horribly? Who in their wildest dreams would have expected to see the Rays in the World Series, or the Twins and the Marlins post respectable records?
It seems that there is a new world order in MLB these days. Some have contended, and it's looking more truthful by the day, that the drug testing policy has changed how GMs build their teams. Veteran free agents, that at one point were viewed as effective well past their prime, have been passed over in favor of developing talent internally.
With that change, young talent is in again. That bodes well for those clubs that have stunk up the standings in the past (that would be you, Tampa Bay) and are now parlaying good draft picks into the core of their teams. Low revenue-making clubs are also seeing the value of wrapping up this young talent by way of long-term contracts. Players such as Evan Longoria and Troy Tulowitzki have signed contracts that will keep them with their respective teams through their arbitration eligibility years and early free agency.
As the numbers show, it is now possible for teams with low payrolls to have a successful regular- and post-season. As reported earlier this week, the challenge is for these teams once deemed to be nothing more than doormats of the league to contend over multiple seasons. That is the challenge of the low- to mid-revenue making clubs going forward.