“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.