Summarizing Our Thoughts on Baseball

Posted on December 10, 2006 by

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The free agent market in baseball is in full-swing and already gobs of money have been offered and accepted. With the money flying the cries about the disparity between the haves and have-nots are once again being heard. So perhaps it is a good time to review what The Wages of Wins says about money and baseball.

1. The relationship between market size and wins in baseball is very weak. In fact, if you take the Yankees out of the sample, there is no statistical relationship between the size of the market where a team plays and its fortunes on the field. What this means is that where a team is located does not appear to guarantee success, or doom a team to failure.

2. The relationship between payroll and wins is also rather weak. Payroll only explains 18% of wins in baseball. That is a stronger relationship than what we observe in basketball or football, but it still does not appear to be the case that teams can simply buy a championship in baseball.

3. We found that competitive balance in baseball is primarily influenced by the size of the underlying population of talent (not the rookie draft or free agency). So although the amount of money in the game has increased across time, competitive balance has not become any worse. In fact, relative to the first half of the twentieth century, competitive balance is better today.

4. Unfortunately, although we have published at least ten papers on competitive balance, it is not entirely clear that fans care about the level of balance in a league (wish we knew that before we wrote the papers). Studies have not found a very strong relationship between the level of competitive balance in baseball and fan interest.

5. It has also been noted in the literature that leagues do not desire perfect balance. If wins generate more revenue in New York, leagues would do better if New York teams won more often than teams located where wins are less valuable.

Given all this, when people argue

a) teams can simply buy a championship in baseball and

b) money is threatening the future of baseball

it appears they are wrong on both counts. Teams cannot simply buy a championship. And even if money was harming the level of balance in the game, we are not sure fans would really care.

In sum, the haves vs. have-nots stories give sports writers something to comment on during the off-season. But it is not clear that much of this story is actually consistent with the empirical evidence.

– DJ

Posted in: Baseball Stories