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October 9, 2006

The Ledger Domain

Breaking Down the 2006 Season by Marginal Payroll/Marginal Wins

by Maury Brown

"Efficiency is doing things right; effectiveness is doing the right things."
--Peter F. Drucker

There's something sweetly seductive about the stealthy nature of a Major League Baseball team that seems completely outgunned, yet at the end of the season, has overpowered teams that seemed stacked with more weapons than two, maybe three teams combined. It’s that cold efficiency that gets us going--doing things right. But efficiency is really only part of the equation; as Drucker suggests, being effective is the key. You can be efficient all you like, but if the outcome isn’t effective, or in this case, if it doesn't lead you to the promised land of the playoffs, then all the efficiency in the world is moot, right?

Michael Lewis mined this topic to the hilt in Moneyball. The book chronicled Oakland GM Billy Beane's use of objective analysis to outwit his fellow general managers. Forced to gather a collection of undervalued players by an ownership that afforded Beane a pretty skinny player payroll, Beane's Athletics clubs outperformed teams that had payrolls two, three, or even four times as high… in the regular season. After all, as we noted in Baseball Between the Numbers, Billy Beane’s s*** didn’t work in the playoffs. Or, rather it didn’t work until this season.

In the ledger domain of MLB, this is somewhat by design. Bud Selig has stated ad nauseum that revenue sharing would level the playing field, making it easier for the small revenue-making clubs to get into the playoffs. It sounds fair. It’s the logical extension of how a league should function--all clubs have an even ability to compete for player talent. But don’t kid yourself--MLB wants to see big markets in the playoffs to generate maximum television ratings. Some may long for the days of seeing the Royals or the Brewers in the World Series, but execs at Fox and MLB sweat out the regular season, hoping for a New York club or the Dodgers or Angels to make it into October, and ideally all the way to the World Series. During this current collective bargaining agreement, that’s usually been the case: big market, high payroll clubs have been in the postseason.

With the 2006 regular season in the books, it's time to look at whether this season was different than years past. Who were the teams that got the most bang for the buck? Who was the least efficient? Who threw money around like it was going out of style? Which GMs were simply smarter than the others and invested wisely, while others flushed ownership's money down the toilet? And lastly, has revenue sharing really worked? Is Selig's claim that revenue sharing helps lower revenue making clubs compete, or are clubs such as the Royals, Pirates and Devil Rays destined to mediocrity because, as they claim, "We simply can’t compete with the Yankees and Red Sox of the world"?

To answer these questions I’ve used Doug Pappas' Marginal Payroll/Marginal Wins formula. As Doug wrote in March of 2004: