Tango: Don't be fooled, payroll matters

April, 13, 2010
4/13/10
11:28
AM ET
Imagine a league in which you have a three-team division made up of the Yankees, Red Sox and Mets, and two of those teams make the playoffs each year. And imagine a league in which you have a 15-team division made up of low spenders, like the Royals, Pirates and Twins, among others, and only two of them make playoffs each year. This would be a ridiculous league format, right? Well, welcome to 1998 through 2009!

In that time period, the Philadelphia Phillies had a league-average payroll and won at least 89 games three times. That makes the Phillies pretty much league average for that time frame. Some teams, like the Oakland A's, did much better. That club spent two-thirds the league average on payroll (67 percent Payroll Index), while winning at least 89 games six times. On the flip side are the Baltimore Orioles, with a 109 percent Payroll Index, and they didn't win 89 games even once in the last 12 seasons. (For the purposes of this study, we're defining teams with 89 wins as "playoff-level." That way, we don't penalize teams for winning 92 games in a tough division while rewarding a team that reaches the postseason with 83 wins in a weak division.)

If we list each team by how much it spent on salary, we see that the eight biggest spenders had nearly half (48 of 100) of the playoff-level teams. That is, half the playoff-level teams are coming from one of the eight big spenders. There is a very strong link between payroll and winning.

Suppose we split the 30 teams into four divisions by payroll. The big-spender division would have the Yankees, Red Sox and Mets. And that's it. Those three franchises combined for 24 playoff-level teams in the last 12 seasons out of a total of 100. That's basically 25 percent (one-fourth).

Let's create a second division of spenders that includes the Dodgers, Braves, Cubs, Mariners and Angels. Those five franchises also had 24 playoff-level teams.

We'll create a third division of normal spenders with seven teams: Cardinals, Rangers, Orioles, Giants, Astros, Diamondbacks and Phillies. Those seven franchises had 25 playoff-level teams.

Finally the money-saver division has the remaining 15 teams, and those franchises had 27 playoff-level teams.

That is, each of these divisions will send an average of two teams to the playoffs each season. Indeed, MLB may as well realign along payroll lines, and put three teams in one division and 15 in another. In that case, we would still see the Yankees, Red Sox and Mets in the playoffs just as often as we're used to.

The current MLB alignment masks the inequity because it looks as though each team has a fair chance of making the playoffs: They all start at zero, and they all face similar-sized divisions. But the reality is that the teams with the biggest payroll are not starting at zero. They have a huge leg up. And aligning the league as I'm showing here makes that quite clear.

The 15 franchises in the money-saver division averaged a 75 percent Payroll Index, and a bit less than two playoff-level teams each. The three franchises in the big-spender division averaged a 170 percent Payroll Index, and eight playoff-level teams each. The chance of making the playoffs can be summarized with a simple little equation:

Chance of Playoffs = (Payroll Index / 2) - 23

If you spend at the league average (Payroll Index = 100 percent), your chance of making the playoffs is 27 percent. If you spend at double the league average (Payroll Index = 200 percent), your chances are 77 percent. And if you spend at half the league average, your chances dwindle to almost 0.

Once you see it like this, it's very obvious that something needs to change. Either keep the inequity in place, but realign to make it plainly obvious that it is inequitable. Or create a system where payroll is not such a huge decider. But don't hide behind the idea that payroll is not that important.

Tom Tango writes the Inside The Book blog.

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