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January 12, 2002

The Numbers (Part Four)

Player Compensation

by Doug Pappas

Part One
Part Two
Part Three

As the long-time owner of an unsuccessful small-market team, Commissioner Bud Selig has 30 years of practice arguing that "small markets can't compete." (The Brewers' mediocrity surely couldn't be management's fault.) Inevitably, Exhibit A in this argument is a table similar to the first two columns below, which show some teams spending two or three times as much as their rivals on player salaries.

Salaries tell only part of the story. Two of the three most expensive teams in 2001 missed the playoffs. The A's, with the majors' second-best record, ranked #26 in payroll. More fundamentally, "small market" is often mistakenly used as a synonym for "low revenue." A team's revenue, and the payroll it can support, is more a function of the team's recent success than of the size of its market. As the population data here shows, metropolitan Minneapolis is larger than Cleveland, Miami is larger than Seattle, and Philadelphia is larger than Phoenix and St. Louis combined.

Player salaries are investments. A team that spends its money wisely wins more games, and in any market, a winning team means higher attendance and more public interest which ultimately translates to larger media contracts and more money for the owner. Conversely, a team perceived as too cheap to sign quality players will alienate its fans and have less to spend. A team which spends poorly, like the Orioles or Devil Rays, has the worst of both worlds: higher expenses without higher revenues.

Here's how the 2001 payrolls break down:

Team Player
Compensation
(in thousands)
Adjusted Player
Compensation
(in thousands)
Winning
Percentage
Marginal $/
Marginal Win
Boston Red Sox $118,471 $118,471 .509 $3,115,000
New York Yankees 117,936 101,936 .594 $1,867,000
Los Angeles Dodgers 116,077 116,077 .531 $2,754,000
Cleveland Indians 102,491 100,491 .562 $2,061,000
Atlanta Braves 99,671 97,042 .543 $2,135,000
Arizona Diamondbacks 99,434 86,434 .568 $1,691,000
New York Mets 99,144 99,144 .506 $2,581,000
Texas Rangers 92,793 92,793 .451 $3,262,000
Seattle Mariners 83,946 76,409 .716 $941,000
Toronto Blue Jays 83,801 83,801 .494 $2,253,000
St. Louis Cardinals 80,148 78,660 .574 $1,479,000
Baltimore Orioles 79,783 79,783 .391 $4,530,000
Chicago Cubs 78,091 78,091 .543 $1,653,483
San Francisco Giants 72,185 72,185 .556 $1,427,000
Houston Astros 71,577 71,058 .574 $1,308,000
Colorado Rockies 69,983 69,983 .451 $2,329,000
Chicago White Sox 66,721 66,721 .512 $1,564,000
Detroit Tigers 57,184 57,184 .407 $2,549,000
Tampa Bay Devil Rays 57,000 57,000 .383 $3,272,000
Pittsburgh Pirates 53,227 53,227 .383 $2,992,000
Anaheim Angels 52,239 52,239 .463 $1,486,000
Milwaukee Brewers 51,164 51,164 .420 $1,963,000
Philadelphia Phillies 49,384 49,384 .531 $972,000
San Diego Padres 46,089 46,089 .488 $1,086,000
Cincinnati Reds 45,410 45,410 .407 $1,870,000
Oakland Athletics 43,821 41,135 .630 $526,000
Kansas City Royals 42,704 42,704 .401 $1,815,000
Florida Marlins 42,084 42,084 .469 $1,062,000
Montreal Expos 37,676 37,676 .420 $1,269,000
Minnesota Twins 30,494 30,494 .525 $480,000
AVERAGE $1,943,000

Marginal salary per marginal win = (Adjusted player compensation - $13,000,000) / ((Winning percentage - .300) x 162)

The first column of data is each club's total 2001 player compensation, as reported by MLB. These figures are higher than those generally published: they include salaries for everyone on the 40-man roster, plus bonuses, termination pay received by players whose options aren't exercised, and $6 million per team for pensions, insurance, benefits, and related expenses.

The easiest comparison would be simply to divide a club's payroll by its wins to come up with "dollars per win," but neither side of this equation reflects reality. The worst team a club can field won't go 0-162, and despite Carl Pohlad's best efforts, it's impossible to spend $0 on a team. This simple formula also errs by ignoring the postseason: it suggests that the 2000 Cleveland Indians, who missed the playoffs despite a 90-72 record, had a better year than the 87-74 Yankees who won the World Series.

A better measure is to look at marginal dollars per marginal win. Using MLB's accounting, the cheapest possible team would cost its owner about $13,000,000: $5,000,000 for 25 players making the major league minimum of $200,000; another $800,000 for four minimum-salaried players on the DL; $1.2 million for the remaining 11 men on the 40-man roster; and $6 million for benefits. I estimate that such a team would win 30% of its games, roughly a 49-113 record, 13 games worse than the 2001 Devil Rays and five games behind the 1998 "fire sale" Marlins. (The exact number used doesn't matter when comparing teams from the same season.)

A team's marginal spending per marginal win thus equals its payroll, minus postseason revenues and minus the $13 million minimum, divided by its winning percentage minus .300, times 162 games. Using the Yankees for an example: ($118,000,000 payroll - $16,000,000 postseason money - $13 million minimum) / ((.594 - .300) * 162), or $89 million/47.6 wins, or about $1.87 million per marginal win. That's the same as the Cincinnati Reds spent to finish 66-96.

The average club spent just under $2 million per marginal win. The four most efficient clubs--the Twins, A's, and Phillies, who won most of their games despite very low payrolls, and the 116-win Mariners--spent about half as much. At the other end of the spectrum, the four members of the $3-million-per-win club illustrated four different types of bad management. The Orioles paid top dollar to hold onto the remnants of a 1993 All-Star team; the Devil Rays wasted money on free agents instead of developing a farm system; the Rangers bid against themselves for Alex Rodriguez and had no money left for pitching; and the Red Sox' bench earned more than the entire Twins team.

Next time: "National and Other Local Expenses," or "Where All the Profits Go."

Doug Pappas is chairman of SABR's Business of Baseball Committee. His writings on the subject are archived at http://roadsidephotos.com/baseball/. Although his early professional experiences included helping the USFL win $3 in its antitrust suit against the NFL and watching Bowie Kuhn flee to Florida one step ahead of his bankrupt firm's creditors, he continues to practice law in New York.

Related Content:  Team Expenses

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