The Numbers (Part Four): Player Compensation

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.