Not All Payroll Differences Are the Same

When the Yankees won the World Series last year there were predictable complaints that the Yankees had bought their World Series victory. Others argued that in baseball championships can’t be bought offering the fact that the Yankees had the highest payroll, by far, in baseball for several years running andhadn’t won in 2004-2008. It seems clear that, at least on some level, the Yankees bought the championship in 2009, just as the Phillies bought the championship in 2008 and the Red Sox did in 2007. All these teams invested money and ended up winning the World Series. The more accurate way to phrase it is that the Yankees paid more for their championship, have had the highest payroll for the last several years, by a significant margin, and that while high payrolls don’t guarantee championships, they certainly help a great deal.

Roughly speaking, with regards to payroll, the 30 Major League franchises can be divided into four groups. Group I includes teams like the Pirates, Padres and Marlins who generally have total payrolls of less than $55 million and rarely compete. Group II is something of baseball’s middle class and consists of teams with salaries in the $70-$100 million range. This group includes teams like the Mariners, Reds or Blue Jays. Group III includes teams with payrolls in the $100-$140 million range like the Angels, Cubs, Mets, Phillies and Red Sox. These are mostly reliably good teams, who can sign expensive free agents, retain their own players and are in or around the playoffs most years. Group IV isn’t really a group because it has only one member-the Yankees. The Yankees are in their own group because the gap between the Yankees and the rest of the teams, even those with the second or third highest payrolls is enormous. In 2009, for example, the difference in payroll between the first and second highest payrolls, the Yankees and the Mets was about the same as that between the Mets and Diamondbacks, who had the 22nd highest payroll.

The teams in group I raise the biggest challenge to competitive balance in the Major Leagues. It is extremely difficult to win a championship, or even sustain a good team over several years with a payroll under $60 million. The group II teams are in a significantly better situation, but still cannot compete for the elite free agents as much as they might like and can almost never sign two highly paid free agents in a year. They can, however, pick up a well paid veteran for a stretch drive every few years. Groups III and IV are in the best position as they can go after free agents and retain their own stars. However, the Yankees are in a qualitatively different position than the teams in group III. They are able to spend, or waste, money on expensive middle relievers, and veteran backups, rarely lose a star player to free agency and can always add a player or two when needed.

This structure is not great for the game as some teams rarely contend while others more or less always do. However, the assumption that this structure is static and cannot be changed should not go unchallenged. The failure, for example, of the Florida Marlins to pay for a competitive team cannot be attributed to small market size alone. Nor is it impossible that the Mariners will continue to build on this off-season and move into group III. There are of course exceptions, the plight of small market teams such as the Royals, Pirates, Reds or A’s is serious one which will not go away easily.

The most problematic issue regarding team salaries may well be the enormous gap between the Yankees and the teams in group III. This difference in payrolls is not, however, entirely reflective of differing abilities to pay players. Clearly the Yankees have an ability to pay far higher salaries than the Reds or Royals, but this is less true of the Yankees relative to the Mets and Red Sox.

The difference in payroll between the Yankees and the Dodgers, Angels, Red Sox or, most particularly, the Mets, cannot be so easily explained by market size. Nor can it be attributed to a willingness by the Yankees to lose money to put a better team on the field The gap between the Yankees and these other teams is more the result of extremely high ticket prices at Yankee Stadium, aggressive marketing, the value of the YES network, a Yankee business model that consistently seeks to maximize profit and reinvests a fair amount of that profit back into the team and, for better or for worse, a commitment to try to win the world championship every year. The teams in group III could all take advantage of these same strategies, or very similar ones, so that they could spend more on payroll but for the most part they do not, or they do it less effectively.

While fans of teams in group I have a legitimate and serious gripe-and one that will not be easily resolved. Group III teams like the Red Sox and particularly the Mets, are in a very different situation. Most fans of other teams see these teams as having high payrolls, appearing in the playoffs most years and benefiting from baseball’s payroll structure, but the Red Sox and Mets, and their fans, frequently see the salary comparison only with regards to the Yankees, not the Giants, Diamondbacks or Indians. However, if I were a Mets fan, I might be angry at the Yankees for being the Yankees, but I also might, in moments of more serious and honest thought be angry at my team for not building a business model, given many of the same structural advantages, which would make it possible to compete with they Yankees on team payroll.