Major league baseball has achieved competitive balance. Whether you choose to call it parity or mediocrity, the difference between the best and worst teams in the league has seldom been so narrow.
Max/Min Winning Percentage Comparison, 2001 to 2014
Note: 2014 data is as of the August 25, 2014.
Source: Baseball-reference.com (data) and proprietary calculations.
So, how has baseball been able to fulfill Bud Selig’s dream of league-wide balance? The combination of increased revenue sharing and a soft cap created by the luxury tax are two key reasons, but there are several others as well. Clearly, the economic landscape in baseball has shifted, but does that really mean the end to big market teams wielding financial influence in the standings?
Before considering that question, it’s important to point out that payrolls in baseball aren’t really coincident indicators. Because baseball’s collective bargaining agreement denies a player access to the free market for at least the first six major league seasons of his career, it’s often the case that salaries lag performance. As a result, players are often paid as much, or more, for how they’ve produced in the past than what is expected from them in the future. Due to this incongruous relationship, it’s easy to see why payroll wouldn’t necessarily correlate strongly with winning percentage in the current year.
Correlation Between Payroll and Past Success, 2000 to 2014
Note: Periods are as follows Y2Y (current year to current year), Y2LY (current year to last year), Y2LY2 (current year to two years ago), etc. Average period includes all periods ending from 2000 to 2014. Other period ends displayed are a snapshot. Source: Baseball-reference.com (win-loss data), Cots contracts (opening day payroll data with pro-rated signing bonuses), and proprietary calculations. Continue Reading »