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Laffer's Curve
by Jim Laffer

Payroll Success?
The Reinsdorf Legacy


by
Jim Laffer
 

The question has been raised many times inside WSI's “Sox Clubhouse” message board. Does Jerry Reinsdorf owe the fans a higher payroll or has he been fair to them and to the team with the amount of money he has spent through the years of ownership? Some say that he is doing all that can be expected and that he shouldn’t have to go broke to field a winner. Others respond that he needs to open up his wallet and guarantee a winner for several years in a row to bring the fans back; that he has damaged the trust they have in him and that it is on him to prove he is interested in more than making a buck. The ones who think JR has done an okay job of running the club insist that more money doesn’t guarantee a winning club and like to point out that the two most recent World Series winners were “low budget” well built teams. No one can argue that spending money wisely is the ultimate answer for winning in Major League Baseball, or in professional sports in general. Hiring experienced, quality management in the front office and dugout while providing those people with good scouting both for amateur athletes and game time decisions will help any team be more successful, but does money actually translate into championships? Do small market teams who live within a budget stand as good a chance of winning it all, or are they struggling to compete against the big market guys who have an inherently stacked deck to work with?

 

There are two separate sides to this issue. The first side is regular season wins – or the ability to make the playoffs. The other side is the post season. Many like to claim that the post season is a crap shoot and that it is comes down to luck in a short series. The question is, "Does a higher payroll actually make it more likely that a team will have success on either of these levels?" On the surface the answer seems self-evident. Sure, more money means higher priced free agents (read: all-star caliber players) means more homeruns, RBI’s, walks, wins, lower ERA, better defense, etc. etc. So, naturally more money means a deeper squad and a better chance at winning the big prize. That’s the simple answer. Do the stats actually bear it out?

 

I took the payroll figures since 1988 (as far back as I could find them) and created a spreadsheet to compare both regular season success (wins) and playoff success (made the playoffs, won the Pennant, won the World Series) and compared them to those payroll numbers. I also set up a separate set of numbers just for the White Sox. I wanted to see how the Sox payroll has stacked up against major league numbers through those years. Since all of them fall under Reinsdorf’s regime, these numbers are to a large extent his legacy for the fans and players. The numbers weren’t exactly earth shattering in their results, but at least we can refine the data a bit and stop relying on anecdotal evidence.

 

For the purposes of this article, I broke the 16 year stretch into 3 sections. Each section is marked by the addition of two teams to the league. That means each section has different payroll averages and slightly different expected win totals (because of the strike in 1994-95). Teams that have been in the league for the entire time are being compared to numbers for all of the years while teams that joined later are compared to the averages only for the years they have actually existed. This actually works out fairly well as a tool also, because payrolls have increased so dramatically over that time frame. In 1988 the league average payroll was just over $11 million and the Sox spent just under $6 million total for the entire team. Contrast that with the current state of the league where bench players sometimes make $6 million to do nothing at all.

 

Wins vs. Payroll

 

This part of the analysis is pretty straightforward. It isn’t surprising to think that high payroll teams will do better over the course of a long season. More available money means the ability to pick up talent to fill a hole or cover an unexpected injury. Every year “low-budget” teams that are “out of the race” in June and July trade off high priced talent that is headed for free agency. The big market teams swoop in and grab the players in exchange for low cost talent or minor league prospects. Still, the results are hard to ignore.

 

The top half of the league in terms of payroll difference (average yearly payroll minus average league payroll) win an average of 5.66 games per year more than the bottom half of the payroll teams (Table 1). The discrepancy between the top third and bottom third is even more pronounced coming in at 7.66 games per year. In addition, only two of the top 10 teams have a win average below the expected totals. In the bottom third only one team is beating their expected win total – Oakland with a remarkable 6.5 games won above average. The worst team in the league from a payroll dollar difference and win difference is Tampa who averages over $18M below average payroll and weighs in with a hefty -17.5 on their expected win total. Percentage-wise they are not as bad as Montreal who averages 44% below average payroll, but comes in with only a -1.5 on the expected win total.

 

The top producers are no shock. They read like a who’s who of baseball teams. The Yankees, Dodgers, Red Sox and Braves are the top 4 average percentage plus spenders on the list. The Braves and Yankees both average well over 8+ wins above expectations with the Braves themselves topping 10+ wins. That has translated well for those teams as the Braves have made the playoffs every year (that they have occurred) since 1991 and the Yankees are on a nine year run of their own.

 

So, where do the Sox stack up against the elite teams of the league? They have an average payroll that ranks 19th in the league by percentage average – falling in at -10.78% over this period of time. They actually have been a solid producer given those constraints coming at 10th (+2.31 wins above expectations) on the average win chart. Those are solid numbers, though not as good as the aforementioned Oakland (-23.5%, +6.5 W) or Houston (-6.6%, +3.31 W). In fact, the Sox are doing well by league standards. There are only three teams in the top half of win expectations with below average payrolls. Meanwhile in the bottom half of win expectations there are only 3 teams (Baltimore, Texas and the Cubs) with higher than average payrolls. I am sure it comes as no surprise to most Sox fans that the Sox are one of the best in the league at spending low but managing to win more than they lose while the “lovable losers” on the other side of town pay a premium for the right to use that nickname.

 

Playoffs vs. Payroll

 

Okay, so money equals regular season wins which can thus produce playoff appearances, but does money equal success in the post-season? In a word, yes. The three main categories for the purposes of this article are: made playoffs, won the Pennant, won the World Series.

 

Over the last 16 years, the average playoff team has had a payroll 18.23% above league average (Table 2). Every single season has seen an average playoff payroll that exceeds league average for that season. Some years the difference has been minor (less than 3%), but that has only occurred twice. Since 1992 the average playoff payroll has been over 10% higher than the league average every year. Several years it has been over 20% higher and once almost 40% higher than league average.

 

To win the Pennant or the World Series it takes even more money. The average pennant winner has outspent the rest of the league by almost 30%. The World Series winner actually has spent slightly less than that on average (28.8%), but that is not surprising from the way the data was formed. Only once since 1992 has the pennant payroll percentage been less than league average. And, while the last two World Series winners have been “low budget teams” the previous 10 years not a single below average payroll has won it all – exceeding league average by over 50% over the course of that decade.

 

So, once again, we are left asking, “What about our Sox?” The numbers are not good, Sox fans. As you already know the Sox have averaged almost 11% below league average on payroll since 1988 and have made the playoffs only twice in that period of time. From 1988 until 1992 the Sox were consistently below league average for payroll expenditures. The first four years they were consistently 40%+ below league average. Then in 1993 the trend reversed itself. The Sox consistently added payroll and were above league average every year until 1998 – peaking in 1997 at 43%+ above league average. We all know what happened next and the subsequent years have seen only 1 year above league average and that one just barely (2001, +0.31%). The following years have seen more cheapness than anything else and even though the Sox have made strides in attendance, bouncing back from the horrific 1998 and 1999 numbers, the payroll has not. Last year the Sox payroll was 28% below league average. The Sox two playoff appearances during this time frame are marked by widely different payroll numbers. In 1993 they were a solid 13% above league average but in 2000 they came in at almost 45% below the average league payroll.

 

In fairness to the other side of this issue, some of this data may be a result of the specific situation over the past decade. Several big money clubs have made the playoffs and won it all, the foremost of them being the Yankees. There maybe a valid argument that the data merely shows that big money clubs have been successful and not that success is caused by big money. That may or may not be the case. I do not have the statistical background to investigate the issue, but certainly anyone who claims that money doesn’t at least increase your odds of regular season and post season success isn’t paying attention to the numbers.

 

Conclusion

 

So, where does all of this leave us as Sox fans? Honestly, I don’t know. The Reinsdorf regime has managed a modicum of success over the period of time in question. They have done more with less than most of the teams in the league. They have managed to hold down salaries and still field winners for the most part. They have had a couple of pennant capable teams in the past 16 years and have managed to win more than they have lost. But, is it enough? Should Sox fans be happy with a payroll that regularly falls below the league average? I say the answer is no. I look at seasons like this past one and wonder if an extra $10-20 million spent might have put the Sox over the top and into the playoffs. I wonder how long fans of a team in the 3rd largest market in baseball have to suffer with a payroll consistently in the bottom half of the league.

 

There is no substitute for talent be that on the field or behind the scenes. JR has consistently proved he will not spend the money to guarantee that talent. He prefers to do things on the cheap and let the chips fall where they may. It’s been 86 years since the last Championship banner was raised on the southside. It has been 44 years since a Pennant was raised. With JR at the helm, the Sox have managed to get good bang for the buck, but unfortunately for Sox fans there haven’t been enough bucks.

 

See Table Here.


Jim Laffer is a lifelong Chicago sports nut living on the North side of Chicago.   He was raised in Hyde Park and graduated from UIC in December, 2000.  He grew up in a house famous for developing insights into economic phenomenon.  Thus he doesn't believe it when the White Sox start crying poor.

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