“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:

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)

For the club payroll, I’m using the Opening Day payroll figures from USA Today. Opening Day payroll figures are used as it defines what a club intends to do at the start of a season. If a club starts to tank a month or two into a season, they may dump payroll and write the season off. In that case, using year-end player payroll would skew what the original intent was envisioned for the club. The formula assumes a 25-man active roster and three-man disabled list. As for the major league minimum, for 2006 that figure was $327,000. When using these variables in the left side of the equation, we see the club’s actual payroll to yield its marginal payroll.

For the right side of the equation, which yields the marginal wins, Pappas set .300 (48.6 wins in a season ) as the winning percentage of a club made up entirely of replacement-level players. That figure is subtracted from the actual winning percentage for each club for the season. Finally, the multiplier on the right side of the equation is the number of games played in a complete non-work stoppage-shortened season, 162 games.

When dividing 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.

With these figures in place, here is the breakdown of the 2006 Marginal Payroll/Marginal Wins. (Payroll here refers to the opening day payroll.)

2006 American League Standings
EAST        W  L   Pct.  Payroll       Marginal Payroll  M-Wins Cost per M-Win
NY Yankees  97 65  .599  $194,663,079  $185,507,079      48.4   $3,832,791
Toronto     87 75  .537  $71,915,000   $62,759,000       38.4   $1,634,349
Boston      86 76  .531  $120,099,824  $110,943,824      37.4   $2,966,412
Baltimore   70 92  .432  $72,585,582   $63,429,582       21.4   $2,963,999
Tampa Bay   61 101 .377  $35,417,967   $26,261,967       12.4   $2,117,901

CENTRAL     W  L   Pct.  Payroll       Marginal Payroll M-Wins  Cost per M-Win
Minnesota   96 66  .593  $63,396,006   $54,240,006      47.4    $1,144,304
Detroit     95 67  .586  $82,612,866   $73,456,866      46.4    $1,583,122
Chicago Sox 90 72  .556  $102,750,667  $93,594,667      41.4    $2,260,741
Cleveland   78 84  .481  $56,031,500   $46,875,500      29.4    $1,594,405
Kansas City 62 100 .383  $47,294,000   $38,138,000      13.4    $2,846,119

WEST        W  L   Pct.  Payroll       Marginal Payroll M-Wins  Cost per M-Win
Oakland     93 69  .574  $62,243,079   $53,087,079      44.4    $1,195,655
LA Angels   89 73  .549  $103,472,000  $94,316,000      40.4    $2,334,554
Texas       80 82  .494  $68,228,662   $59,072,662      31.4    $1,881,295
Seattle     78 84  .481  $87,959,833   $78,803,833      29.4    $2,680,402

2006 National League Standings

EAST        W  L   Pct.  Payroll       Marginal Payroll M-Wins  Cost per M-Win
NY Mets     97 65  .599  $101,084,963  $91,928,963      48.4    $1,899,359
Philly      85 77  .525  $88,273,333   $79,117,333      36.4    $2,173,553
Atlanta     79 83  .488  $90,156,876   $81,000,876      30.4    $2,664,503
Florida     78 84  .481  $14,998,500   $5,842,500       29.4    $198,724
Washington  71 91  .438  $63,143,000   $53,987,000      22.4    $2,410,134

CENTRAL     W  L   Pct.  Payroll       Marginal Payroll M-Wins  Cost per M-Win
St. Louis   83 78  .516  $88,891,371   $79,735,371      34.7    $2,297,849
Houston     82 80  .506  $92,551,503   $83,395,503      33.4    $2,496,871
Cincinnati  80 82  .494  $60,909,519   $51,753,519      31.4    $1,648,201
Milwaukee   75 87  .463  $57,568,333   $48,412,333      26.4    $1,833,800
Pittsburgh  67 95  .414  $46,717,750   $37,561,750      18.4    $2,041,399
Cubs        66 96  .407  $94,424,499   $85,268,499      17.4    $4,900,488

WEST        W  L   Pct.  Payroll       Marginal Payroll M-Wins  Cost per M-Win
San Diego   88 74  .543  $69,896,141   $60,740,141      39.4     $1,541,628
LA Dodgers  88 74  .543  $98,447,187   $89,291,187      39.4     $2,266,274
Giants      76 85  .472  $90,056,419   $80,900,419      27.7     $2,920,593
Arizona     76 86  .469  $59,684,226   $50,528,226      27.4     $1,844,096
Colorado    76 86  .469  $41,233,000   $32,077,000      27.4     $1,170,693

Of the eight clubs that made the playoffs, three of them had the highest player payrolls for their respective divisions (Yankees, Mets, and Dodgers), and Detroit ($82,612,866) had the second-highest player payroll in the AL Central, over $20 million behind the White Sox ($102,750,667).

But along with the high payrolls, this season sees two clubs in the playoffs that had the lowest player payrolls in their divisions (the Twins and A’s), while San Diego ($69,896,141) sits in the middle of the NL West, between the Giants and the Diamondbacks. When compared to the other 30 clubs, Opening Day payrolls rank the Padres 17th, the Twins 19th, and the A’s 21st.

Adding fuel to Selig’s assertion that revenue sharing is working, the Standard Deviation between the payrolls has remained tight, as well. This season saw the Standard Deviation in player payroll drop 5.7% between the 2005 and 2006 seasons; not since 1994 has there been a drop in year-to-year figures.

How do the clubs break down in terms of spending per marginal win? One might think that the Yankees would own this category, but another club beat the Yankees handily in this department. The underachieving Chicago Cubs take the award for spending the most per win this season at a whopping $4,900,488 per marginal win. The Yankees, by comparison, pulled in at $3,832,791.

By division, the least and most efficient clubs break down as follows.

AL East          Club        Marginal Wins   Cost per Marginal Win
Least Efficient   Yankees     48.4            $3,832,791
Most Efficient    Blue Jays   38.4            $1,634,349

AL Central       Club        Marginal Wins   Cost per Marginal Win
Least Efficient   Royals      13.4            $2,846,119
Most Efficient    Twins       47.4            $1,144,304

AL West          Club        Marginal Wins   Cost per Marginal Win
Least Efficient   Mariners    29.4            $2,680,402
Most Efficient    A's         44.4            $1,195,655

NL East          Club        Marginal Wins   Cost per Marginal Win
Least Efficient   Braves      30.4            $2,664,503
Most Efficient    Marlins     29.4            $198,724

NL Central       Club        Marginal Wins   Cost per Marginal Win
Least Efficient   Cubs        17.4            $4,900,488
Most Efficient    Reds        31.4            $1,648,201

NL West          Club        Marginal Wins   Cost per Marginal Win
Least Efficient   Giants      27.7            $2,920,593
Most Efficient    Padres      39.4            $1,541,628

The most efficient club, hands down, was the Florida Marlins. At a remarkable $198,724 per marginal win, they are the club that got the most bang for the buck. As mentioned at the beginning of all of this, it’s a matter of being effective with the investment. At this point in the playoffs, Billy Beane is looking like the head of the class among his fellow GMs. All that aside, whether the A’s or Tigers win the ALCS, it’s clear that a club with a low to mid-level player payroll will be in the World Series. In contrast, if the Mets win, a club in the top five in terms of player payroll ($101,084,963) will be the National League opponent.

On the whole, it’s incorrect to say that revenue sharing is the cure with which Selig can erase MLB’s disparity ills. The introduction of the Wild Card has been an important factor contributing to the ability of clubs that don’t sit within the highest levels of player payroll to compete. What will be of keen interest will be the changes to the revenue sharing system within the next CBA. From those changes, we’ll see whether 2006 was a trend, or an anomaly.