The value of money in Major League Baseball is so different than the value that it has in the NFL, NHL, and NBA. In Major League Baseball there is no salary cap and it is the only major market sport to not have one. Yes, there is a luxury tax but it doesn’t quite pose the same value as something like a salary cap does. So, this would lead one to believe that money has such a major impact on Major League Baseball in comparison to the other sports. However, baseball has entered a new age of analytics and it has seemed to shake up the financial aspect of the game, but just how much has this changed the game? Do franchises like the Yankees, Red Sox, and Dodgers who have monopolized the game still have power over other organizations?
Before collecting and formatting the data my answer to this question is yes. I do believe that money has declined in its value in baseball. In recent history teams at the bottom of the pile have been finding ways to win. They win through analytics. Each organization has its own “Moneyball” scheme as they implement a new strategy that other organizations overlook. However, does that data back up my hypothesis? Yes, it does. My conclusion to my experiment does support my hypothesis but I also came across another interesting conclusion that I didn’t anticipate.
The first step in my experiment was to gather data. I used the well known Lahman database in R to extract the data. I pulled out every single team’s payroll in addition to the corresponding number of wins they recorded each season. The database dates back to 1985 for the data that I was looking for and runs through the 2016 season. To collect the data from the past 3 years I just manually entered the data as I collected it from USA Today.
The second step in my experiment was to correlate each teams’ payroll to their wins each season. I took that data and entered it into a data frame in R and created a scatter plot. That scatterplot came out as overwhelming and difficult to draw any major conclusions from.
When looking at the graph I could see that my hypothesis may be true but that the data wasn’t in a presentable format. You can notice though that from 1990 to 2005 you see a rise in monetary value before taking a dip around 2000. After 2005, it’s evident that the value of money starts to decline. So, my hypothesis has traction but I figured that if I grouped each season into years of 5 then I may be able to create a more direct picture. I did just that and created a more presentable scatterplot as seen below. The point in 1985 represents the correlation between payroll and team wins from 1985 through 1989. Simply put, each point includes that season as well as the next four seasons for a total of five seasons. This pattern continues throughout the scatter plot.
Now it is very evident that ever since 1995 the value of money in Major League Baseball is on the decline. My hypothesis was correct. Below is a table of the exact R values to help provide more context to the scatterplot.
The table helps to provide an ever-clearer picture as to just how much the value of money is declining in baseball. One odd part though about the table is the extremely low values between 1985 and 1994. It’s not until after that span of time that we see a huge jump in the value of payroll and its gradual decline. So, what is the cause of it? Why are those numbers so low in the first place and how do they take such a large jump?
It became evident that I needed to conduct another experiment within my original one. I formulated another hypothesis. I believed that in the time period when the R-value is so low (1985-1994) that this was a time when teams didn’t monopolize the market. It was during these times that payrolls aligned closer to each other. Which is much different from the game we see today with a wide range between the top teams in payroll and the ones that sit at the bottom.
To test my hypothesis I calculated the standard deviation of payroll for each of the 5-year groups. What I found is presented below in a table.
It is very evident that over the course of the past 30 plus years in Major League Baseball the market has grown in such a manner that there is a wide variation between how much organizations spend. This is the conclusion I expected, however, I didn’t expect these values to be so significant.
So, how is it that as the variation of payroll in the market is growing that money is losing its value? The answer is simple, analytics. The use of analytics in Major League Baseball has grown into a juggernaut and is widespread across the league. This has forced the market back into balance and the teams that once monopolized the game are losing their power. The organizations that have the highest payrolls may still rule the free agency market but those big acquisitions don’t carry as much value as they once did. Don’t get me wrong the teams with the highest payrolls still have an unfair advantage over the rest of the league but no more are the days where they have power over everyone else. Teams have found ways to win regardless of payroll and have reset the market as close to an equal playing field as the game has seen in a long time.