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February 3, 2010

Prospectus Hit and Run

The Lay of the Land

by Jay Jaffe

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In preparing a recent column regarding the Dodgers' payroll situation, I made reference to the competitive ecology in which the team competes. "Competitive ecology" is a phrase introduced into the Baseball Prospectus lexicon by Keith Woolner, who wrote about it several times in the context of market-size issues and better revenue-sharing plans. For my money, he summarized it best in a pre-BP post to a Red Sox mailing list that was far ahead of its time:

I happen to feel that baseball teams inhabit their own competitive "ecology," in which teams can play each of many different roles and still be successful. Some teams will rely upon developing their own talent, pouring effort and resources into a farm system, and producing top-quality talent that they can retain for a few years at less than market rates (the Expos). Other teams will prefer to wait for talent to be proven, and then use their resources to acquire it, paying more than if they developed the talent themselves, but without the associated risks of "unproven" players (the Yankees).

...The optimal strategy for any given team depends on its current composition, its financial resources, the state of its farm system, the quality of decision makers, the long-term financial commitments it has already made, and the state of the competition (either in the division or league). More importantly, though, it depends on how the owner and/or GM makes the tradeoff between its two dimensions of value, winning and money. At some point, the decision-maker has to ask the questions "How much is a win worth?" or "What's the value of a championship?" These can be partially answered using marginal revenues, the financial appreciation in value of the franchise, effect on television contract revenue, and less tangible aspects...

Talent development, marginal revenues, the value of a win, these are discussions we're still having more than 13 years after that post was written on October 27, 1996, the day after the Yankees ended their 18-year World Series championship drought. They're still interesting and relevant discussions, particularly as new tools are brought to bear upon them. With that in mind, I decided to take a look at the six divisions, integrating an approach I've used in the past with some of the recent work done by my colleagues. While this won't wind up covering every single element Keith outlined above, it touches upon several of them to provide an interesting lay of the land.

Let's start with a simple look at division strength according to both raw won-loss records and Hit List Factors (the average of the actual, first-, second-, and third-order winning percentages from our Adjusted Standings page, used in compiling our weekly power rankings-see here for further explanation).


Division       W-L     Win%    HLF
AL West      344-304   .531   .519
AL East      421-389   .520   .529
NL West      420-390   .519   .521
NL East      395-415   .488   .495
NL Central   468-502   .482   .471
AL Central   382-430   .470   .475

The AL West posted the majors' top winning percentage in 2009, as three of its four teams-the 97-win Angels, 87-win Rangers, and 85-win Mariners-finished with winning records. That's the first time since 2004 that's happened, though prior to that it wasn't entirely uncommon; leafing backwards through the calendar, it happened in 2002, 2000, and the strike-shortened 1995 season as well. They're all far cries from the 1994 season, when the 52-62 Rangers held first place when the strike hit. They topped the list thanks to some Pythagorean-based overachievement, particularly on the part of the Angels, whose win total exceeded their third-order projection by more than 10 wins for the second straight year, and by more than eight wins for the third straight year, both records. Such overachievement pushed their actual winning percentage ahead of their various Pythagenpat projections and to the top of this list. On the flip side is the AL East's relative underachievement in such matters, including the third-order shortfalls of the Blue Jays (9.5 wins) and the Rays (8.2). Those pushed the division's winning percentage behind that of the AL West and just one game ahead of the NL West. It's worth noting that both the AL West's raw winning percentage and the AL East's Hit List Factor were high enough to place them in the wild card era's top 10s in their respective categories.

Since these division records are so weighted down by the .500 records that result from intradivision play and constitute anywhere from 35-48 percent of each team's schedule (44 percent for the four five-team divisions), it's helpful to look at the interdivisional actual (W0) and first-order (W1) Pythagenpat winning percentages:


Division       W-L       W0     W1
AL West      230-190   .548   .527
AL East      241-209   .536   .552
NL West      240-210   .533   .526
NL East      215-235   .478   .491
NL Central   232-266   .466   .455
AL Central   201-249   .447   .454

AL West teams won nearly 55 percent of their games outside the division. Having taken their lumps from their rivals (23-34), even the last-place A's put up a non-disastrous 52-53 record outside the division, while actually outscoring opponents 513-494. The Mariners, just two wins better outside the division at 54-51, were outscored 458-408. Meanwhile, the AL East teams should have won about 55 percent of their interdivisional games, but every club in the division except for the Yankees lagged at least 25 percentage points behind their projected record in such contests. Most damagingly, the Rays went 44-46 outside the division despite outscoring opponents 446-428, both underwhelming showings for a team that went 40-32 inside the division. In the NL West, the Rockies (59-31) had the majors' top winning percentage outside the division (.656), helping them overcome a 33-39 intradivisional record to win the wild card. The Giants (50-40) made the division the only one with two teams at least 10 games above .500 in interdivisional play. The Dodgers (49-41) weren't quite so impressive outside the division, but they smoked their NL West rivals at a 46-26 clip.

At the other end of the spectrum, the AL Central teams won just about 45 percent of their games outside the division. The Tigers (47-43) were the only team to post a winning record beyond the Central; the White Sox were 45-45 and the Twins were just 41-49. It was a similar story in the NL Central, where the Cardinals (45-37) and Astros (43-41) were the only teams with winning records against other divisions. The Cubs (36-46) were downright awful against outsiders, foiling their division-leading 47-32 record inside the Central and giving the team the dubious honor of the worst interdivision record of any team that finished above .500. In the NL East, the Phillies (49-41) were the only team above .500; both the Marlins and Braves went 45-45. All three teams had intradivisional records within three games of each other, and it was the Braves (.611) who had by far the best Pythagorean record among the three. Meanwhile, the Nationals (34-56) had the NL's worst interdivision record, though that was still better than their 25-47 intradivision record. The full data is here, for those who want to see more.

Getting back to the overall records and Hit List Factors, in 2009, the two Central divisions bottomed out. That's the second time in three years that's happened; in 2008, it was the two Wests:


Year   Division       W-L     Win%    HLF
2008   AL East      435-374   .538   .549
2008   NL Central   500-470   .515   .498
2008   AL Central   407-405   .501   .505
2008   NL East      396-412   .490   .495
2008   AL West      315-332   .487   .475
2008   NL West      375-435   .463   .474

Year   Division       W-L     Win%    HLF 
2007   NL West      422-390   .520   .516
2007   AL West      333-315   .514   .502
2007   AL East      408-402   .504   .525
2007   NL East      405-405   .500   .504
2007   AL Central   404-406   .499   .490
2007   NL Central   459-513   .472   .469

Taking the past three years together:


Division      Win%    HLF
AL East       .520   .534
AL West       .511   .499
NL West       .500   .503
NL East       .493   .498
AL Central    .490   .490
NL Central    .490   .480

Not surprisingly, the AL East has been head and shoulders above the pack in terms of the strength of its teams, despite some Pythagorean underachievement, followed by the two Wests, which have been strong in two of the three years. The NL East has made a fairly weak showing, though they did produce the 2008 World Series champion Phillies. The two Centrals are in the basement, separated by just one-tenth of a point of winning percentage (.0001).

Having gotten the lay of the land in terms of wins and losses, we turn our attention to money. Factoring payrolls into the equation, specifically end-of-year payrolls, which include salaries, signing bonuses, earned incentive bonuses, buyouts of unexercised options, deferred cash, and more (BP alumnus Maury Brown has got the details here), here's how the divisions ranked in 2009 according to Marginal Payroll dollars per Marginal Win, which is computed according to the formula (club payroll - (28 x major-league minimum)) / ((winning percentage - .300) x 162):


Division      Avg Payroll   Win%      MP/MW
NL West       $85,634,258   .519   $2,102,663
AL West       $90,797,019   .531   $2,128,263
NL Central    $93,843,462   .482   $2,795,709
NL East       $97,489,694   .488   $2,838,477
AL East      $119,028,142   .520   $3,028,880
AL Central    $95,379,003   .470   $3,048,658

The two Wests, which had the lowest average payrolls of any division, were very close in terms of MP/MW, and got considerably more bang for their buck than the rest of the divisions. What may be the most surprising is the AL Central's relative inefficiency. While the Orioles ($4.4 million) spent more per marginal win than any AL club, the Royals ($4.3 million) and Indians ($4 million) both spent more than the Yankees ($3.8 million, not even high enough to crack the top five), while the Tigers ($3.4 million) and White Sox ($3.1 million) both spent more than the Red Sox ($2.8 million).

Turning to the three-year picture, we see that aside from the AL East, there isn't much that's separating the teams by this measure:


Division      Avg Payroll   Win%      MP/MW
NL West       $85,968,141   .500   $2,311,548
AL West       $94,038,461   .511   $2,436,833
NL East       $87,713,776   .493   $2,461,417
AL Central    $89,639,497   .490   $2,555,610
NL Central    $90,966,392   .490   $2,600,034
AL East      $119,257,244   .520   $3,034,541

The two West divisions remain the most efficient entries; while the AL East is by far the most expensive on a per-win basis, the two Centrals are getting very little for their money.

That said, focusing solely on a Marginal Payroll dollars per Marginal Win basis is still rather simplistic. Building on the work of Nate Silver, Neil deMause, and the late Doug Pappas, last summer Shawn Hoffman introduced and then revised a more comprehensive model of payroll efficiency which incorporates the marginal-revenue-per-win curve and estimates of market size based upon gate receipts to calculate expected marginal revenue, while also accounting for the value of high draft picks for teams who finish at the bottom of the standings.

In Shawn's articles on the subject, he's used opening day payrolls (which are easier to locate) and third-order wins (to strip out luck) in calculating payroll efficiency. I'm less interested in those distinctions here, so I've used end-of-year payrolls and actual wins. Shawn's Payroll Efficiency Ratings are expressed as a ratio of Estimated Marginal Revenue (derived from win totals and market size) to Expected Marginal Revenue (derived from payroll). Over a long period, that ratio for all of the teams is right around 1.0, but over the three years in question, it's off by a bit on either side: 1.07 in 2009, 0.91 in 2008, and 0.92 in 2007. Because I'm not concerned with inflation or gains in efficiency over time, I've normalized each year individually, so that a team or a division with a PER' of 1.20 can be read as one that's 20 percent more efficient than the annual average. Here's how the six divisions shake down over the past three years via my tweaks to Shawn's methodology:


Division      2007   2008   2009  '07-'09
AL West       1.12   1.00   1.17    1.09
NL West       1.03   0.83   1.20    1.02
AL East       0.99   0.98   1.08    1.01
AL Central    1.16   0.98   0.82    0.97
NL Central    0.84   1.18   0.89    0.97
NL East       0.99   1.00   0.84    0.94

The AL West is the runaway winner in terms of recent payroll efficiency, having not fallen below the major-league average in any of the past three years thanks to the Angels, who at 1.44 rank as the game's most efficient team. The division holds its spot despite carrying the 2008 Mariners, who produced the time span's lowest PER' (0.44) via the distinction of becoming the first 100-loss team with a $100-million payroll thanks to the, um, expertise of former GM Bill Bavasi. It's also worth noting that despite Billy Beane's showing in Shawn's look at the entire decade, the recent numbers don't paint a particularly happy picture of the A's, who at 0.93 were below average in efficiency.

The NL West's above-average efficiency is driven by the Rockies, who at 1.43 top the NL over this time span, with the Diamondbacks (1.15) and Padres (1.04) finishing above average as well. The Dodgers (0.92) were 40 percent above average last year, but they were at least 24 percent below average in each of the previous two seasons thanks to some awful salary decisions on the part of Ned Colletti (among them Juan Pierre, Andruw Jones, and Jason Schmidt). The AL East's above-average showing is driven by the Rays (1.33) and Red Sox (1.16), and dragged down by the Orioles' MLB-low 0.70; the Yankees, for those interested, come in at 0.92. The AL Central features the Indians and Twins both at 1.23 over the time span, and the other three teams between 0.81 and 0.89, with the Royals not surprisingly bringing up the rear. The NL Central's efficiency champs are the Brewers (1.16), followed by the Cardinals (1.09), with the Pirates (0.77) in the basement. As for the NL East, the Phillies (1.30) and the Marlins (1.06) are the only above-average teams, with the Nationals making the league's worst showing (0.71) and the Mets particularly poor (0.77), which is what happens when you miss the playoffs three years in a row despite carrying the league's highest average payroll.

Finally, we turn to Matt Swartz's work on service-time contracts and wins. Matt's work classifies each team's annual WARP3 production by whether they received it from players with minimum-salary service time, arbitration-eligible service time, free-agent eligible service time, or players from Japan and other Asian countries with less than six years of service time. The minimum and arbitration-eligible groups constituted the Non-Market (NM) salaries, while the free agents and Asian players constituted the Auction Market (AM) salaries. What I like about this distinction is that it provides a neat breakdown from which one can infer teams' relative abilities to produce talent from within and to buy it on the open market, by extension providing something of a proxy for team age via the distribution of the two.

Knowing, for example, that the average team produced 28.3 WARP via Non-Market salaries and 13.4 WARP via Auction Market salaries in 2009, a ratio of about two to one, we can see that the Dodgers (29.4 NM, 31.7 AM, 61.1 total) were slightly above average in terms of their in-house production and well above average in terms of their open-market production, a reflection of the team's superior resources and a surprising result relative to the widely-held perception that they're a young squad. On the other hand, the Astros (13.9 NM, 18.0 AM, 31.9 total) were well below average in terms of what they produced from within, a showing that jibes with their farm system's decrepit state, and a bit above average via what they procured from outside, though not nearly enough to make them very competitive.

Expressing the results as per team per year, and ranking them according to the percentage of WARP they received from their Non-Market salaries over the three-year period:


              -------2009-------    -------2007-2009---------
Division       NM     AM    Tot      NM     AM    Tot    %NM 
NL West       30.2   13.2   43.4    31.1   11.6   42.7   72.8
AL West       30.5   11.3   41.8    27.9   11.3   39.1   71.2
NL East       30.9   10.3   41.2    30.3   12.4   42.7   71.0
AL Central    28.1    9.1   37.1    27.4   11.4   38.8   70.6
AL East       29.1   19.1   48.2    27.4   19.7   47.1   58.2
NL Central    22.4   16.5   38.9    23.2   17.1   40.3   57.5 

As with some of the other tables above, one could probably devote a whole article to this data, but I'll hit just a few points before getting to the larger take-home messages. Here we see that AL East teams have received considerably more production out of their Auction Market salaries than any other division, including more than double what the AL Central teams received last year. The NL Central teams' internal production was by far and away the majors' worst in 2009, reflecting the relative weakness not only of Houston's system, but also those of the Cubs and Pirates. The NL East got the most out of their internal production thanks to the Phillies, Braves and Marlins, all of whom got at least 38.4 WARP via that channel.

Integrating all that we've learned above, I'll close with the following observations about the past three years:

  • The AL East has been the game's strongest division competitively, and also has its most expensive division due to its reliance on Auction Market talent, a pair of results owing plenty to the Yankees and Red Sox. Even so, the division has been slightly above average in its overall efficiency, not surprising given that it has produced the last three AL pennant winners and two of the last three World Series champions.
  • The AL Central has been the league's weakest division competitively, and not a terribly efficient one economically. Particularly of late, its teams are getting relatively little production from Auction-Market talent, though not because they're not actually spending money towards that end.
  • The AL West is one of the game's strongest divisions competitively, and it is by far the most efficient economically. The division has been relatively fruitful in producing talent from within, with both the Angels and A's ranking among the majors' top 10 in Non-Market WARP, but what really separates the Halos from the pack is that they've done that and gotten a good amount of value from their Auction Market salaries.
  • The NL East has been a mediocre division competitively, and the game's least efficient one economically thanks in large part to the Mets' inability to capitalize on their high Auction-Market expenditures and to the Nationals' inability, period. Even so, the division is high on the list in terms of Non-Market production thanks to the Phillies and Marlins.
  • The NL Central has been the weakest division in the league, particularly hampered by poor internal talent development. No division receives less from their in-house resources in terms of either actual WARP or as a percentage of total WARP, thus making for a relatively inefficient division, economically speaking. The Cardinals and Cubs trail only the Yankees in terms of Auction-Market production over the past three years, receiving far more of it than they do Non-Market production.
  • The NL West has been a largely competitive and efficient division driven by its ability to produce talent from within, with the Rockies and Diamondbacks making particularly strong showings in that department. The Dodgers have produced an above-average amount of talent from within as well, though their penchant for chasing Auction-Market talent has had very mixed results; they've received by far the most WARP in the division via this route, but it's led to some rather inefficient teams.

Nine tables and a whole lot of data later, that's the lay of the land, at least from one analyst's vantage on a dreary February day. Obviously, buried within these generalizations are the specifics of each team's competitive ecology, the details of which could fill 30 articles (or a book). While there's a lot of talk about that of the AL East and the effect those behemoths in Boston and the Bronx have on their rivals' spending and talent procurement plans, there's considerably less discussion about the competitive ecologies of other divisions. Here's to hoping that this is a small step in the direction of changing that.

Special thanks to Shawn Hoffman and Matt Swartz for data assistance.

Jay Jaffe is an author of Baseball Prospectus. 
Click here to see Jay's other articles. You can contact Jay by clicking here

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