Frequent readers of The Wages of Wins Journal might have noticed that Marty and Stacey are not contributing much anymore. Marty’s excuse is The New York Times. Today he has penned his fourth Keeping Score column for the nation’s leading paper. Given the difference between what The New York Times pays (a sum greater than zero) and what The Wages of Wins Journal pays (a sum equal to zero), readers looking for Marty’s words are in this forum are likely to be disappointed.
Although Marty’s words are infrequently seen here, the story he tells in “When it Comes to the World Series, Luck Conquers All” should be familiar to readers of The Wages of Wins. In Chapter Three we note that “playoffs are for fun, not for science.” Because the playoffs in baseball are such a small sample of games, drawing conclusions from these games is difficult.
Despite the sample size problem, Bud Selig still takes playoff outcomes – specifically the fact that seven different teams have won the title in the last seven years — as a sign that his policy of revenue sharing is working.
As Marty notes today, if revenue sharing had any impact at all it would be seen in reduced payroll disparity. Yet in the last five years the difference between the “haves” and ‘have nots” in baseball has actually increased (a similar point was made at the Sports Economist a few days ago, although the link is a bit hard to follow. The post is titled “Is Revenue Sharing Working” and it appeared on October 26.)
Still, the World Series title is currently rotating through the league. What explains this trend? Marty points to the increased participation in the playoffs. As baseball moved from two teams in the playoffs, to four teams in 1969, to eight teams in 1995, the ability of baseball’s best to take the crown has diminished.
Revenue sharing has nothing to do with what we see in the playoffs. All we are witnessing is how unpredictable baseball is over a very small sample.
Keeping with the theme of money and baseball, let me preview the next offering from Stacey. Stacey has also been absent from this forum for awhile, primarily because of his teaching responsibilities at the University of Sioux Falls. With the next entry in this forum he will make his return. His subject: Why we really, really believe that money cannot buy love in baseball.
– DJ
3 responses so far ↓
Dean Oliver // November 5, 2006 at 1:25 pm
What is the theoretical reason for a luxury tax NOT creating more equitable salaries among franchises? Not being an economist, it seems that a tax that goes from the rich to the poor should never cause greater imbalance. It may be overwhelmed by other effects, but are we suggesting that the tax caused greater inequity?
If the tax is overwhelmed by other effects, does that mean that the tax should be higher?
Martin B. Schmidt // November 6, 2006 at 11:19 am
Hi Dean,
First – I pretty sure that I did not make the claim that the luxury tax caused greater payroll inequity.
As it happens payroll is quite variable across time and so are measures of payroll inequity. It would therefore be inappropriate to take a single observation in time and argue policy from it.
Having said this – I think there is an argument, perhaps only theoretically – that revenue-sharing and a luxury tax can cause greater payroll disparity. With these in place a team earns revenue from two sources – the revenues generated by your team’s performance and the revenues generated by the performance of other teams. Throw in the fact the amount of sharing and tax a team receives is a function of the relative revenue performance of the team.
In which case there is an incentive to not spend funds on players because by performing worse at the gate I increase the share of funds I receive from these sources – revenue sharing and the luxury tax. I would think that for some profit-maximizing firm this would make sense.
Consider that according to the Kansas City Star: “(A)ccording to two sources with knowledge of the numbers, the Royals received about $55 million last year (following the 2005 season) — more than $30 million coming from a central fund that distributes money to all 30 teams, and another $20 million-plus in revenue-sharing dollars given to teams with local revenues below the game’s average.”
If you improve on local revenues – perhaps by paying more for players – you lose on the revenue-sharing dollars. The worse I do in terms of local revenues, the more I gain in the other teams’ dollars. Different teams will choose different path depending on the characteristics of their respective local market.
Dean Oliver // November 6, 2006 at 12:18 pm
Is this the question: Basically, is the efficiency gained by paying more for players (added revenue – added cost) better than the efficiency gained by receiving money from big revenue teams (smaller added revenue)?
If you’re in a town where winning doesn’t add revenue (not sure that it exists), then it pays to just not pay for players, regardless of what fraction of money you get from the Yanks.
If you’re in a town where winning adds a lot to revenue, then you just need to be sure you’re adding the right players, the right manager with your cost expenditures. If you’re not particularly good at defining these guys, it may be best to pay minimum wage and just hope one turns out good. Paying little is the conservative strategy.
Does this make sense?
Do we know from the data whether we’re in a situation in baseball where it pays to not win for many teams? For any teams?