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March 9, 2004

Marginal Payroll/Marginal Wins

1977-1979

by Doug Pappas

In Baseball Prospectus 2004, Doug Pappas wrote an essay looking at the best teams from 1995 to 2003 in terms of marginal payroll/marginal wins. Starting today, Doug will look back on prior years using the same metrics. We'll reprise his introduction from BP '04 here, then pick up in 1977 for Part I of this multi-part series. You can ask Doug questions about this series, and other business of baseball issues, in tonight's Chat.

The oft-recited assertion that "small markets can't compete" in Major League Baseball is usually supported by a table showing that "winners" like the Yankees, Dodgers, and Red Sox spend far more on players than "losers" like the Devil Rays, Pirates, and Brewers. This argument is misleading in at least three respects.

First, "small market" is often mistakenly used as a synonym for "low revenue." A team's revenue, and the size of the payroll it can support, is far more dependent on its recent success (and the terms of its stadium lease) than on the size of its market. According to MLB's official revenue figures for 2001, the Seattle Mariners took in more money than any other club except the Yankees--over three times as much as the Florida Marlins, who play in a larger market. Playing in a 35-year-old stadium, the Cardinals outgrossed Baltimore, Philadelphia and Detroit, all of which occupy markets at least twice the size of St. Louis. Cleveland and Minneapolis-St. Paul are almost exactly the same size, but the Indians grossed $100 million more than the Twins.

Second, a snapshot of one season's "winners" and "losers" ignores the ebb and flow of team fortunes. If Major League Baseball had proposed contraction 10 years earlier, the Indians and Mariners would have been among the leading candidates for extermination. The Oakland Athletics, heroes of Moneyball for doing more with less, had the majors' highest Opening Day payroll in 1991, the same year the Pirates won their third division title in a row. Over the past 20 years, the Padres and Twins have played in more World Series than the Dodgers or Red Sox. Most tellingly of all, the original list of eight clubs considered for contraction, prepared in December 2000, included all three of the clubs which have won the World Series since then.

Third, and most importantly, some teams are better run than others. In 2003 only two of the five teams with Opening Day payrolls of more than $100 million made the playoffs. Two others finished last. The world champion Marlins started the season with a payroll of $49 million; that's less than the Reds or Pirates spent, and even less than the Tigers paid for their 119-loss disaster. If the Marlins can win the World Series with a $49 million payroll, these clubs can't blame their failure on a lack of resources.

Player contracts are investments. In baseball as in the business world, some investments are better than others. MLB's three-tiered salary structure makes a strong farm system the best investment of all, because the reserve system and limits on eligibility for salary arbitration ensure that young players are systematically underpaid. The St. Louis Cardinals have paid Albert Pujols just $1.7 million for three seasons in which he finished fourth, second and second in the MVP voting--$100,000 less than they paid Steve Kline to pitch middle relief in 2003. Smart clubs realize that the worst investment of all is an aging or mediocre player, signed as a free agent for top dollar, who performs no better than a prospect or waiver claim can be expected to play.

The easiest way to measure front office efficiency is simply to divide a club's payroll by its wins to come up with "dollars per win." However, neither side of this equation reflects reality. The worst team a club can field won't go 0-162, and despite some owners' best efforts, it's impossible to spend $0 on a major league roster. It's then necessary to look at marginal wins and marginal payroll.

The Marginal Payroll/Marginal Wins (MP/MW) system evaluates the efficiency of a club's front office by comparing its payroll and record to the performance it could expect to attain by fielding a roster of replacement-level players, all of whom are paid the major league minimum salary. The formula is:

(club payroll - (28 x major league minimum) / ((winning percentage - .300) x 162)

The left side of this formula assumes that a replacement-level club would play .300 ball. That translates to 48.6 wins in a 162-game season, which before the 2003 Tigers was worse than any actual major league club since the institution of the amateur draft. The previous low was the 52-110 (.321) record of the NL's two 1969 expansion clubs, the Expos and Padres, who began play with no minor league system, no way to sign free agents, and no players any other NL club really wanted to keep. After subtracting the replacement-level .300 winning percentage from the club's actual winning percentage, the resulting number is multiplied by 162 to calculate the number of marginal wins over a full 162-game season. This adjusts the formula for strike-shortened seasons and clubs which fail to make up a postponed game or two.

The right side of the formula assumes a 25-man active roster and three-man disabled list. It uses Opening Day payroll numbers where available, because these are the best measure of a team's expectations entering the season. Once the season begins, payrolls vary with the club's performance: Bad teams trade away their higher-salaried players, while contenders add payroll for the stretch drive. Opening Day payrolls are available for most seasons since 1986; for the others, I've used payroll figures reflecting rosters as of Aug. 31. Either way, the formula multiplies the major league minimum by 28, then subtracts this number from the club's actual payroll to yield its marginal payroll.

Finally, the MP/MW formula divides a club's marginal payroll by its marginal wins. The resulting figure reflects how much money a club has spent, per win above the theoretical minimum. The lower the number, the more efficiently the club spent its cash. Comparing this number to the club's actual winning percentage provides another way to evaluate teams:

Low MP/MW, good record: Efficient ballclub (2003 Marlins, Athletics)
Low MP/MW, bad record: Not spending enough to compete (2003 Devil Rays)
High MP/MW, good record: Spending its way to the top (2003 Yankees)
High MP/MW, bad record: Poorly-run club (2003 Mets, Rangers)

The following presents MP/MW results for every team from 1977 through 1979, together with commentary on each season. Over the next few days, we'll run teams' MP/MW for the years 1980 to 1994.

Table 1. Marginal Payroll/Marginal Win, 1977


Team       W    L    Pct     Marg   8/31       Marg         Marg $/
                            Wins   Payroll     Payroll      Marg Win
Baltimore  97   64   0.602   49.0  $1,774,800  $1,242,800   $25,362 
Boston     97   64   0.602   49.0  $1,907,350  $1,375,350   $28,067 
Cleveland  71   90   0.441   22.8  $1,719,600  $1,187,600   $51,994 
Detroit    74   88   0.457   25.4  $1,166,625    $634,625   $24,985 
Milwaukee  67   95   0.414   18.4  $1,360,875    $828,875   $45,048 
NY Yankees 100  62   0.617   51.4  $3,474,325  $2,942,325   $57,244 
Toronto    54   107  0.335    5.7    $858,000    $326,000   $56,840 
                                                         
California 74   88   0.457   25.4   $2,415,050 $1,883,050   $74,136 
Chi WSox   90   72   0.556   41.4   $1,630,500 $1,098,500   $26,534 
Kans City  102  60   0.630   53.4   $2,399,050 $1,867,050   $34,963 
Minnesota  84   77   0.522   35.9     $951,850   $419,850   $11,688 
Oakland    63   98   0.391   14.8   $1,142,500   $610,500   $41,274 
Seattle    64   98   0.395   15.4     $954,025   $422,025   $27,404 
Texas      94   68   0.580   45.4   $2,099,825 $1,567,825   $34,534 
                                                         
Chi Cubs   81   81   0.500   32.4   $1,725,450 $1,193,450   $36,835 
Montreal   75   87   0.463   26.4   $1,645,575 $1,113,575   $42,181 
NY Mets    64   98   0.395   15.4   $1,469,800   $937,800   $60,896 
Phldelphia 101  61   0.623   52.4   $3,497,900 $2,965,900   $56,601 
Pittsburgh 96   66   0.593   47.4   $2,485,475 $1,953,475   $41,213 
St. Louis  83   79   0.512   34.4   $1,782,675 $1,250,675   $36,357 
                                                         
Atlanta    61   101  0.377   12.4   $1,714,175 $1,182,175   $95,337 
Cincinnati 88   74   0.543   39.4   $2,759,800 $2,227,800   $56,543 
Houston    81   81   0.500   32.4   $1,399,325   $867,325   $26,769 
LA         98   64   0.605   49.4   $2,444,700 $1,912,700   $38,719 
San Diego  69   93   0.426   20.4   $1,846,500 $1,314,500   $64,436 
San Fran   75   87   0.463   26.4   $2,204,500 $1,672,500   $63,352 

Nineteen-seventy-seven was the first season played under the modern rules governing free agency. Although player salaries jumped almost 50%, the average salary was still only four times the major league minimum…and for all their cries of poverty, the owners reported smaller losses in 1977 than in either of the two previous seasons.

The best predictor of a club's 1977 payroll was its 1976 record. Three of the four 1976 winners led their divisions in payroll; the fourth, Kansas City, finished a close second behind California, where Gene Autry had signed free agents Don Baylor, Bobby Grich and Joe Rudi in hopes of winning the AL West. When the Angels actually won two fewer games in 1977, they finished with the AL's worst record of payroll to wins. Division rival Minnesota achieved the near-impossible: Calvin Griffith actually fielded a cheaper team than the expansion Seattle Mariners.

In the NL, Ted Turner spent the Braves' money like a drunken sailor. Turner spent the summer of 1977 winning the America's Cup, having been suspended from baseball for publicly coveting San Francisco's Gary Matthews before his contract expired. The previous October, Turner had told Giants owner Bob Lurie at a World Series cocktail party that the Braves would outbid the Giants for Matthews. Accused of tampering, Turner explained, "I had had about six vodka and tonics and I was feeling no pain. It was all in fun."

Table 2. Marginal Payroll/Marginal Win, 1978


Team       W    L    Pct     Marg    8/31      Marg        Marg $/
                             Wins    Average   Payroll     Marg Win
Baltimore  90   71   0.559   42.0     $82,660  $1,726,480   $41,147 
Boston     99   64   0.607   49.8    $147,803  $3,550,484   $71,305 
Cleveland  69   90   0.434   21.7     $77,013  $1,568,364   $72,269 
Detroit    86   76   0.531   37.4     $61,012  $1,120,336   $29,956 
Milwaukee  93   69   0.574   44.4     $91,986  $1,987,608   $44,766 
NY Yankees 100  63   0.613   50.8    $188,880  $4,700,640   $92,557 
Toronto    59   102  0.366   10.8     $63,593  $1,192,604  $110,770 
                                                    
California 87   75   0.537   38.4    $141,814  $3,382,792   $88,094 
Chi WSox   71   90   0.441   22.8     $81,321  $1,688,988   $73,945 
Kans City  92   70   0.568   43.4    $106,532  $2,394,896   $55,182 
Minnesota  73   89   0.451   24.4     $51,317    $848,876   $34,790 
Oakland    69   93   0.426   20.4     $49,258    $791,224   $38,785 
Seattle    56   104  0.350    8.1     $58,484  $1,049,552  $129,574 
Texas      87   75   0.537   38.4    $121,244  $2,806,832   $73,095 
                                                        
Chi Cubs   79   83   0.488   30.4     $96,222  $2,106,216   $69,283 
Montreal   76   86   0.469   27.4    $105,589  $2,368,492   $86,441 
NY Mets    66   96   0.407   17.4     $86,235  $1,826,580  $104,976 
Phldelphia 90   72   0.556   41.4    $159,039  $3,865,092   $93,360 
Pittsburgh 88   73   0.547   39.9    $127,852  $2,991,856   $74,896 
St. Louis  69   93   0.426   20.4     $89,333  $1,913,324   $93,790 
                                                         
Atlanta    69   93   0.426   20.4     $69,699  $1,363,572   $66,842 
Cincinnati 92   69   0.571   44.0    $132,847  $3,131,716   $71,222 
Houston    74   88   0.457   25.4     $70,558  $1,387,624   $54,631 
LA         95   67   0.586   46.4    $135,884  $3,216,752   $69,327 
San Diego  84   78   0.519   35.4    $106,759  $2,401,252   $67,832 
San Fran   89   73   0.549   40.4    $106,346  $2,389,688   $59,151 

Before the 1978 season, Bowie Kuhn lamented that the players were now receiving 26.3% of MLB's total revenue. He warned that "as these numbers move up toward 30%, in my judgment the game could be in a position of having some difficult problems." After the season, MLB's financial statements showed continued improvement even though salaries rose another 30%.

Not that this trend was visible in Queens, where for the second consecutive season the New York Mets finished with the NL East's lowest payroll. Club president M. Donald Grant, whose M almost certainly does not stand for the 12-letter name I gave him at the time, stubbornly adhered to his own notions of Fiscal Responsibility, spending both cheaply and poorly as the crosstown Yankees won the loyalty of countless fans who had grown up with the Amazin' Mets. (No, I'm not bitter or anything.)

The AL East looked much as it would 25 years later, with the free-spending Yankees and Red Sox locked in an epic struggle that extended beyond the last day of the regular season. Division rival Detroit was the majors' most efficient spender, thanks to great young talent like Alan Trammell, Lou Whitaker, Lance Parrish and Jack Morris. The Kansas City Royals again showed California why it's better to build a team than buy one.

Table 3. Marginal Payroll/Marginal Win, 1979


Team       W     L   Pct     Marg    8/31      Marg        Marg $/
                             Wins    Average   Payroll     Marg Win
Baltimore  102  57   0.642   55.3    $101,266  $2,247,448   $40,623 
Boston     91   69   0.569   43.5    $145,692  $3,491,376   $80,192 
Cleveland  81   80   0.503   32.9     $98,023  $2,156,644   $65,545 
Detroit    85   76   0.528   36.9     $63,377  $1,186,556   $32,132 
Milwaukee  95   66   0.590   47.0    $137,309  $3,256,652   $69,305 
NY Yankees 89   71   0.556   41.5    $199,236  $4,990,608  $120,219 
Toronto    53   109  0.327    4.4     $67,044  $1,289,232  $293,007 
                                                         
California 88   74   0.543   39.4    $155,564  $3,767,792   $95,629 
Chi WSox   73   87   0.456   25.3     $74,673  $1,502,844   $59,372 
Kans City  85   77   0.525   36.4     $91,583  $1,976,324   $54,295 
Minnesota  82   80   0.506   33.4     $70,703  $1,391,684   $41,667 
Oakland    54   108  0.333    5.4     $41,220    $566,160  $104,844 
Seattle    67   95   0.414   18.4     $61,830  $1,143,240   $62,133 
Texas      83   79   0.512   34.4    $128,806  $3,018,568   $87,749 
                                                      

Chi Cubs   80   82   0.494   31.4    $104,116  $2,327,248   $74,116 
Montreal   95   65   0.594   47.6    $142,829  $3,411,212   $71,683 
NY Mets    63   99   0.389   14.4     $93,607  $2,032,996  $141,180 
Phldelphia 84   78   0.519   35.4    $197,926  $4,953,928  $139,941 
Pittsburgh 98   64   0.605   49.4    $174,439  $4,296,292   $86,969 
St. Louis  86   76   0.531   37.4    $116,628  $2,677,584   $71,593 
                                                         
Atlanta    66   94   0.413   18.2     $90,366  $1,942,248  $106,571 
Cincinnati 90   71   0.559   42.0    $165,144  $4,036,032   $96,190 
Houston    89   73   0.549   40.4     $73,660  $1,474,480   $36,497 
LA         79   83   0.488   30.4    $134,305  $3,172,540  $104,360 
San Diego  68   93   0.422   19.8    $103,819  $2,318,932  $116,986 
San Fran   71   91   0.438   22.4    $120,737  $2,792,636  $124,671 

After the 1978 season, Bowie Kuhn was not happy to see Luis Tiant and Tommy John sign with the two-time defending champion Yankees. Kuhn warned: "It's inevitable that this process will lead to a group of elite teams controlling the sport." Thirteen other clubs would win the World Series before the Yankees' next title.

The first of these clubs was Willie Stargell's Pittsburgh Pirates, who held off the Montreal Expos to win the NL East. In the NL West, Cincinnati's aging Big Red Machine held off a surprising challenge from the ultra-efficient Astros, who boasted the division's lowest payroll.

In the American League, Toronto, Oakland and Seattle were so bad that 10 of the 11 other clubs finished above .500. Detroit and Toronto occupied opposite ends of the efficiency scale: The Tigers, with their nucleus of promising young talent, won 32 more games than the Blue Jays, who outspent them while hoping that Danny Ainge and Alfredo Griffin would become their Whitaker and Trammell. Gene Autry's free-spending Angels finally won their first division title, but fell to Earl Weaver's Baltimore Orioles in the League Championship Series.

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