The Numbers (Part Four)

Player Compensation

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.