2007 Payroll Efficiency
On the heels of the commissioner's office disclosing the final 2007 payrolls for the 30 major league clubs, I thought it might be instructive to analyze payroll efficiency by comparing team salaries to wins.
The payrolls shown below are for 40-man rosters and include salaries and prorated shares of signing bonuses, earned incentive bonuses, non-cash compensation, buyouts of unexercised options and cash transactions. In some cases, parts of salaries that are deferred are discounted to reflect present-day values.
The following table, ranked by club payroll (in millions of dollars), also includes team wins.
Team Wins $ Pay NYY 94 218.3 BOS 96 155.4 LAD 82 125.6 NYM 88 120.9 CHC 85 115.9 SEA 88 114.4 LAA 94 111.0 PHI 89 101.8 SF 71 101.5 CWS 72 100.2 STL 78 99.3 DET 88 98.5 HOU 73 97.2 BAL 69 95.3 TOR 83 95.1 ATL 84 92.6 TEX 75 78.9 OAK 76 78.5 CIN 72 73.1 MIL 83 72.8 MIN 79 71.9 CLE 96 71.9 ARI 90 70.4 SD 89 67.5 KC 69 62.3 COL 90 61.3 PIT 68 51.4 WAS 73 43.4 FLA 71 33.1 TB 66 31.8
The 2007 total payroll was $2,711,274,581 or approximately $90.4 million per team. The median was slightly higher than the mean. While the New York Yankees' record payroll of $218.3M added about $4.5M to the average, the teams below the median exerted an even greater impact on the mean than those above the mid-point. To put the payroll dollars in perspective, please note that MLB reported $6.075 billion in total revenues last season, or just north of $200M per team.
The information presented in the above table can be displayed in a graphic format, as shown below.
Based on this graph, we can categorize teams by the four quadrants as well as by the trendline. Starting in the upper-right end of the graph and moving clockwise, the northeast quadrant includes teams that won more games than average with a higher-than-average payroll. The southeast quadrant depicts clubs that won more games than average with a lower-than-average payroll. The southwest quadrant includes teams that won fewer games than average with a below-average payroll. The northwest quadrant lists teams that won fewer games than average with a higher-than-average payroll.
The red trendline indicates the positive correlation of team payroll and wins. The correlation coefficient works out to 0.5328. Teams above the line were less efficient and teams below the line were more efficient in terms of getting the most bang for their buck (as measured by payroll and wins).
Due to the fact that it's the goal of all teams to win the World Series, I'm going to excuse Boston from any list of inefficient clubs. Yes, the Red Sox paid up for their success, but it's hard to argue with the fact that they won it all. While Boston may not have been the most efficient in terms of regular-season wins vs. payroll, John Henry, Theo Epstein & Co. were clearly the most efficient in terms of winning World Championships – especially in view of the competition within the division.
Aside from the Red Sox, which teams were the most and least efficient last year?
There were five clubs that won more than 81 games with payrolls under the average of $90.4M. The best of the best was Cleveland, followed by Colorado, Arizona, San Diego, and Milwaukee. To their credit, the Indians, Rockies, and Diamondbacks all made the playoffs with COL advancing to the World Series. Congratulations to Mark Shapiro, Dan O'Dowd, and Josh Byrnes for doing the most with the least. Honorable mention goes to Kevin Towers and Doug Melvin.
The Los Angeles Angels, Philadelphia Phillies, Detroit Tigers, and Atlanta Braves also deserve praise for their payroll efficiency. The Angels and Phillies won division titles before falling in the first round of the playoffs. In the meantime, the Minnesota Twins, Washington Nationals, Florida Marlins, Pittsburgh Pirates, and Tampa Bay Rays should share the award for "doing the best while pinching pennies."
The clubs in the northeast quadrant and above the trendline had mixed results. All of these teams won more than their share of games, but they did so at a cost. In the case of the Yankees, George Steinbrenner, Brian Cashman & Co. did it at a huge cost. Two-hundred-and-eighteen-million dollars huge. New York's payroll was roughly $63 million higher than the No. 2 team (Boston), $128 million above the mean, and more than $186 million or nearly seven times above the lowest payroll (Tampa Bay). The Yankees made the playoffs so it wasn't a total loss. The Chicago Cubs won the NL Central and were the only other team in this group that at least got something in return for their large commitment to player payroll.
Moving to the least efficient teams, Baltimore, San Francisco, Chicago White Sox, and Houston failed miserably in their quest to buy a division title, much less a league or world championship. Mike Flanagan and Jim Duquette (Orioles), Brian Sabean (Giants), Kenny Williams (White Sox), and Tim Purpura (Astros) get the booby-prize award for (mis)managing payroll efficiency. Purpura was fired after the season and was replaced by current GM Ed Wade.
For more information on this subject, be sure to visit the Business of Baseball to check out Maury Brown's article By the Numbers: 2007 Player Payroll for the 30 MLB Clubs. Brown breaks down the data in even more detail, listing teams with the largest increases and decreases in player payroll from Opening Day while ranking playoff teams by cost per marginal win, a concept developed by the late Doug Pappas. In addition, Brown has recently published Unusual MLB Contract Clauses and Salary Arbitration.