The Huddle: How Cost Efficient Is The AL East?

The Yankees are constantly berated for buying championships. So much so that they’ve been dubbed “The Evil Empire.” As it turns out, the nickname may be deserved, but if the Yankees are The Evil Empire, the Baltimore Orioles should be called something like The Malicious Federation.

As most fans will reluctantly admit, baseball is a business. The owners are in the business for two reasons: to make money and to win games. By this reasoning, the most efficient teams are the ones who win the most games while spending the least amount of money.

It’s a fairly simple concept that most people are familiar with and most fans have had a conversation about in one form or another. Almost every fan will remember wondering how it was possible in 2008 that the Rays won 97 games with a payroll of less than $45 million while the Yankees won 8 less games with a payroll of almost $210 million.

In situations like 2008, it becomes incredibly clear how inefficiently the Yankees spent money in comparison to the Rays, but it doesn’t show precisely how efficient or inefficient a team was. If you really want to judge how good a job your team’s front office is doing, you need a more specific measure than “they spend less and win more than Team X.”

Luckily, there’s a stat for that.

Developed by Doug Pappas of Baseball Prospectus in 2004, Marginal Payroll Per Marginal Win measures how efficient a team’s spending is. It’s a fairly simple statistic despite its very daunting name. Here’s how it works:

Since a team must pay a player a certain minimum salary and there are 28 players on a major league roster (25 man active roster plus 3 man disabled list), you subtract the league minimum salary multiplied by 28 from the team’s payroll. This figure is your marginal payroll. Pappas also theorized based on research that a team consisting of 28 random players earning the league minimum could win approximately 30% of their games (48.6 games assuming a 162 game season). So, you take the number of games the team won and subtract 48.6 and you get the marginal wins. Divide marginal payroll by marginal wins and you have the Marginal Payroll Per Marginal Win. In formula form, it looks like this:

(Payroll-(28*league minimum salary))/(Wins-(games played*.3))

What this figure tells us is how much additional money on top of the league required minimum the team spent for each win above the number of wins a random team of scrubs could earn. In other words, the formula tells us how much money the team spent per win above the number of wins which could be attained assuming no additional money was spent above the league required minimum.

What the formula does is gives us a precise way to measure something we already know: the teams who spend the least and win the most are the most efficient clubs.

In this column, I’m going to use this formula to evaluate the efficiency of the five teams in the AL East over the past 11 years since 2000. On Sunday, I’ll continue with the AL West and then move to the AL Central and so on. By the time I’m done, hopefully it will shed a little light on which teams are the most efficient and how they achieve their efficiency.
The obvious starting point is with the team everyone loves to hate. The chart bellow provides information on the past 11 seasons for the Yankees with the furthest right column containing their Marginal Payroll Per Marginal Win for each year.

It should come as no surprise that the Yankees spend a lot of money and also win a lot of games. They spend so much money, however, that they also spend a lot of money per win. Interestingly, the cost per marginal win has been trending upwards over the past ten years despite the fact that the team appeared in three World Series in the first half of decade (won in 2000 and lost in 2001 and 2003) and only one in the second half of the decade (won in 2009). The chart below shows the team’s spending progression over the past decade:

In other words, the Yankees have been getting less and less efficient over the past decade. This result isn’t really very surprising considering they have continued to spend more and more money. One can imagine that adding $5 million to a payroll of $200 million will have a significantly lower impact on winning games than adding $5 million to a payroll of $40 million. In other words, one can easily theorize that money becomes significantly less valuable the more of it you spend. We’ll be able to test this statistically once we have data for all of the clubs.

The Red Sox are a bit of a different story:

As you can see, there’s much less rhyme and reason to the way the Sox numbers fluctuate. You can see this more exactly in the graph:

Wins and Payroll are less correlated than with the Yankees showing that despite the Sox best efforts to mimic the Yankees by shelling out large sums of money for big name free agents, their spending hasn’t had a drastic impact on their performance. They also spend much less money than the Yankees and spend much more efficiently on the whole, so the comparison may not be warranted to begin with, but you can put one in the win column for the camp that believes you don’t have to spend the most to win in baseball.

The Blue Jays have managed to keep their marginal cost per marginal win below $3 million in each of the last 11 seasons which is something that no other team in the AL East can say (not even the Rays), but they also haven’t found a way to win many games.

If the Sox chart indicates you don’t have to spend money to win games, the Blue Jays chart indicates the opposite. They’ve been efficient in their spending but it hasn’t translated into success on the field. With a smaller payroll, you have to be even more efficient to compete which is something the Blue Jays haven’t been able to do. What’s the lesson here? Money may not buy you championships, but it does buy you the freedom to spend a little less efficiently and still get away with it.

If all of this research has done one thing, it has emphasized how poorly run the Baltimore Orioles are. In the past 11 years they’ve never notched more than 78 wins but have had a Marginal Price per Marginal Win over $3 million during five seasons, two of which were over $4 million.

There’s not much else to say here as the numbers pretty much speak for themselves. It’s been a tough decade for the O’s.

On the other hand, the Rays have managed to defy all odds and win a tremendous amount of games with very little money (at least in the latter half of the decade).

After a tough start to the decade, the Rays turned inward to their farm system and became the envy of almost everyone in the league as they developed many of today’s star players while paying them next to nothing.

Even in the middle of the decade while the team wasn’t winning, the Rays kept their payroll so low that they maintained incredible efficiency. The efficiency certainly paid off in the last three years as they’ve been able to modestly increase their payroll to reflect growing support for a team that proved how important developing minor league talent is to being an efficiently run ball club.

So, what does all of this mean? Below is the summary of the above data taking the average Marginal Price Per Marginal Win for each team over the last decade. Not surprisingly, the Yankees are the least efficient club, rightfully earning their nickname as the Evil Empire.

That being said, at least the Yankees win games with their money. It’s much worse for baseball to have a team like the Orioles spending boatloads of cash and not winning any games. The Yankees bring in a tremendous amount of profit to the MLB because they are successful at what they do and have some of the best players in the game. The Orioles certainly can’t say the same. If baseball fans want to get mad at a team from the AL East it should be the Orioles not the Yankees.

What jumps out at you? Let me know what I missed in the comments section.

Check back on Sunday for similar analysis on the AL West and come back over the next few weeks to see the rest of the divisions and figure out exactly what all of this means for the MLB as a whole.

No related posts.