Macro and micro baseball economics

In an email thread yesterday between several of us, strausmouse said, regarding baseball salaries and World Championships (and in particular, the Yankees): “you can try and buy a championship every year. Hasn’t worked out lately though, has it?” It got me thinking about whether you can ever buy a world championship and my gut tells me that you cannot.

Prior to writing this entry, I began compiling statistics of baseball team salaries back to 1988 but it was taking too much time, so much of what I am going on here is a hunch, but if I get more time, I will finish compiling the numbers and see if they match my hunches. So, before I get started, I could be wrong, but this is what my gut tells me.

I don’t believe you can buy a World Series championship, in the sense that you have an enormous budget and pay for the best players. I suspect that when push comes to shove, teams with the higher salaries in general do not have a statistical correlation to winning the World Series. Let me be clear on this point. What I am saying is that a team with a high salary and world championships are not correlated. In other words, a high salaried team may win a world championship, but it will have less to do with salary than with other factors. This is somewhat intuitive by virtue of the fact that the team with the highest salary does not win the world series every year. To be correlated, changes in salary would also affect changes in world championship titles. But as anyone who knows the history of baseball will tell you, this is not the case.

So what does a $190 million salary buy a team, if not a championship? I say it buys a team consistency which in turn buys a team a trip to the post season. My hunch is that, when all of the salary statistics are compiled, you will find a direct correlation between teams with high salaries and teams that make it to the post season. And I believe the reason for this is consistency. A team with a high salary can afford to offer larger contracts for longer periods of time. Four, five, six, even seven year contracts are possible. The more of these contracts a team has the more consistent they can be (players change less frequently, etc.) This in turn leads to more success on the playing field over longer periods of time which in turn leads to more division titles. The New York Yankees and Boston Red Sox have high salaries and in the last decade, both teams have been consistently making it to the post season. Ditto the Atlanta Braves. Or the St. Louis Cardinals. There will always be exceptions: The Oakland Athletics, for instance. But I suspect the aggregate data will show a correlation between salary and post-season visits.

But if a team has a high salary, and consistently makes it to the post season, why don’t they win more world championships? This is complete speculation on my part, but here is what I think. The regular season and post season are really like two different seasons. Once you reach the post season, you have a “clean slate” and have to play up to 19 games to win a World Championship. However, you can play as few as 3 games to be knocked out. Again, it goes back to consistency. In a span of 162 games, a team will sweep some series, win some series, lose some series, and on occasion, split a series. Teams that make it to the post season tend to have better records, and therefore tend to win more series than they lose. But they still go through streaks were they lose a series or two or three in a row.

In the post season, you cannot lose a series. Losing a series means being eliminated. Imagine a team who, during the regular season has a tendency of winning two out of every three series it plays. In the post season, if that same team wins two out of three series, it still does not win a World Championship. (And depending on which series was lost, it may not make it past the Divisionals.) If high salaries are, in fact correlated with making the post season (which demonstrates consistency in winning), then they are still not necessarily a measure of World Championships. It takes more than consistency. It takes luck.

During the course of the regular season, the order in which series are won and lost make no difference. In the post season, it makes a huge difference. During the regular season, a consistent team could lose three series in a row. In the post season, a team must win three series in a row. This may happen from time to time over the course of 162 games, but what about over the course of 19 games?

Finally, there are quirks to the post season play that make it more challenging. On that leaps to mind is that you gain some familiarity (on both sides) when playing a team 7 games in a row. You face the same pitchers more than once in a short period of time, etc.)

In conclusion, I suspect that consistency in the regular does not correlate to consistency in the post season. Since consistency in the regular season probably does correlate to team salary, and consistency in the regular season does not correlate to consistency in the post season, then team salary probably does not correlate to winning World Series Championships.

Again, this is speculation on my part. I have not yet done the math to back it up, but when I get some time, I’ll play around with it and see what the numbers say. But I wanted to point this out because too often I hear people assuming that salary correlates to winning championships, and then they are surprised when a team like the Yankees haven’t won more frequently.