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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.