Predicting Long-Term Success in the MLB

I’ve decided to revive an old research paper topic of mine. I examined the motivations of Major League Baseball (MLB) team owners to be successful. I had initially started my work with the assumption that all owners defined success as winning. What I found was actually one of two things:

1) teams will push for ‘all in’ years where big money short term deals are made, but over time, payroll and wins are relatively low

2) owners are more concerned with profitability from an average team in a big market location

There are obviously outliers, such as the Yankees. They historically have a strong fan base (which = more $$), high payroll, and the attraction to get and keep top-tier players.

But, for the most part, team owners are more interested in what will boost revenue. Whether that means signing a few big names to sell jerseys and increase attendance or saving on payroll to increase profit margins.

I’m interested in the relationship between WAR (Wins Above Replacement), win percentage, and payroll. For this analysis, I use team averages for each team over ten years from 2010–2019. Here’s what I found:

The basic assumption from this data is that the average team will win about 50% of games, and the average payroll expenses are about $105 million. There is a considerable variation in payroll, but it is safe, for this purpose, to assume this average. Additionally, I am defining ‘above average win percentage’ as a winning season or winning team given that the average is 50% and anything greater is a positive win percentage.

One common question is, can teams buy wins? This means focusing on payroll to field what may be subjectively seen as the best team. While this may be seen within a single season or over a few years, aggregating data over a longer period, there is little correlation between teams with higher than average wins and a higher than average payroll.

So, how do you beat this 50% win average? It may make sense to invest in payroll, but it takes a lot more than money to win. Below are the teams with above-average payroll and win percentage.

Here’s what I concluded: There are two sweet spots. The first is more standard (highlighted in yellow) with a balance of high talent and high payroll, resulting in sustained winning. These teams are the Red Sox, Dodgers, Yankees, Giants, Cardinals, and Nationals — all big-name teams with big-name players widely considered historically successful. The other I call the “Billy Beane” sweet spot (highlighted in green), which capitalizes on cheap talent to produce above-average seasons. These teams are the Indians, Cubs, Brewers, Athletics, and Rays.

I have attempted to classify and identify where the outliers in each category fall short. In the above-average win percentage column are the Braves and Rangers. Looking at the graphs above, these teams fall just short of the average in both payroll and WAR, finding substantial success every now and then. The Diamondbacks and Astros have above average WAR but low payroll and little sustained success. These teams may sign a top-tier player here and there but largely depend on home-grown talent. Then there are the teams with a high payroll and low WAR and win percentage. These teams either have a really low WAR or a really low win percentage. I’m not quite sure what is affecting this, and it seems each team has its own reason for getting stuck with a high payroll. I’m sure more data would expose a better explanation for this.

There is a lot that goes into creating a successful organization, both on and off the field. Just as economics tries to rationalize irrational human behavior, the best we can do is analyze and anticipate what will be successful and what creates success. Baseball is a funny game, too, where the best team and the worst team could split a double-header depending on the day. And teams that are predicted to win often fall flat. Being able to predict a team’s success is a challenge, but the numbers don’t lie.