Monday, November 23, 2009

A Salary Cap Would've Stopped Hitler!

Alan Greenspan comes to me for discussions on economic theory and Bud Selig gets my input of baseball issues of the day, so I occasionally feel the need to spew my knowledge to the masses. It’s just the right thing to do, yo. Hence, we’re here to celebrate the Yankees of 2009 and World Series Champions (I hate that “world champions crap – did they beat everyone in the world? No!) as they prove the point about money being meaningless in baseball. Huh? you might ask? Didn’t the Yankees spend way more than everyone else and buy the title? In the words of the great White Goodman, let me hit you with some knowledge.

Rob Neyer of ESPN has a terrific blog, called Sweetspot. Check it out. It’s not quite as terrific as Bowling in the Dark…but not much is. Some Guy and I have a media behemoth on our hands, and the Rob Neyers of the world can get in line! Anyway, Neyer wrote a good blog entry about this topic. The basic point is that the Yankees can buy a playoff spot every year, but the last eight years (many of which the Yanks outspent everyone by even more than they did this year) taught us that the championship cannot be bought (only some timely talent and Lady Luck can grant that).

Isn’t revenue sharing a good thing? How about the luxury tax? The Yanks pay way more than anyone else – is that a bad thing? It’s a problem that the clubs are not required to re-invest monies earned through the luxury tax or in revenue sharing in the team. This has NOTHING to do with a salary cap. Simply implementing a rule that says “All clubs must invest the money they receive through the luxury tax or revenue sharing back into the team payroll” would probably alleviate a lot of what the lazy mainstream media types are complaining about.

I find it irritating when people talk about teams forcing cities to build them new stadia (plural of stadium?). It’s not true that a team does not have to pay for a new stadium. It’s simply market forces. The team says “you, Mr. City, build me a stadium or we’re leaving”. And most of the time Mr. City does just that, not calling the bluff of the team. The City of Tampa has called the bluff – no new stadium for a long time. It’s ludicrous when the team doesn’t build its own stadium. For the Yankees to get this grand new stadium (with some tickets costing $5K a game!) for free is a bunch of garbage. But no one made Mr. New York City do that for the Yankees. Screw you, Mr. New York City!

Next – we all talk about “small market” and “large market” teams. Do you know which teams are which? Below is a chart of the baseball markets arranged by population, using numbers from the 2000 census:

Markets of more than 10 million people

21,199,865 New York Mets, New York Yankees
16,373,645 Los Angeles Angels, Los Angeles Dodgers

Markets of 5-10 million people

9,157,540 Chicago Cubs, Chicago White Sox
7,608,070 Baltimore Orioles, Washington Nationals
7,039,362 Oakland Athletics, San Francisco Giants
6,188,463 Philadelphia Phillies
5,819,100 Boston Red Sox
5,456,428 Detroit Tigers
5,221,801 Texas Rangers

Markets of 3-5 million people

4,682,897 Toronto Blue Jays
4,669,571 Houston Astros
4,112,198 Atlanta Braves
3,878,380 Florida Marlins
3,554,760 Seattle Mariners
3,251,876 Arizona Diamondbacks

Markets of 2-3 million people

2,968,806 Minnesota Twins
2,945,831 Cleveland Indians
2,813,833 San Diego Padres
2,603,607 St Louis Cardinals
2,581,506 Colorado Rockies
2,395,997 Tampa Bay Devil Rays
2,358,695 Pittsburgh Pirates

Markets of 1-2 million people

1,979,202 Cincinnati Reds
1,776,062 Kansas City Royals
1,689,572 Milwaukee Brewers

A few things jump out on this list, at least to me. Look at the 5-10 group. Why are the Cubs, White Sox, Orioles, Nationals (get a pass for recent move), Phillies, Tigers and Rangers so bad more often than not? Okay, perhaps one could argue that more recently the salaries have grown more disproportionate, and the Cubs and Phillies (at least) have been competitive. But then why are the others so bad? One may also argue that the 5-10 is too large a spread to look at. Perhaps, but note that the first three cities share two teams each. The same person is highly unlikely to attend games of both teams or buy stuff from both teams. Next, look at the 2-5 million ranges (smushing two groups together – and yes, I just used the word “smushing”). Atlanta, Minnesota, Toronto, Cleveland, Arizona and St. Louis have been fairly regularly competitive. What advantage do they have over Houston (also pretty competitive, but less consistently so than the first group), Seattle, San Diego, Colorado, Tampa and Pittsburgh? Florida is a special case, as they have no attendance and build up for a run then tear down (no other team has this particular model). I also think Minnesota is a special case, as its owner is one of the richest in the league, and they don’t spend up to their revenue level. So how does one analyze that?

In fact, the most compelling argument FOR a cap may just be the final four teams on the list. Pittsburgh, Cincinnati, Kansas City and Milwaukee have certainly been the most inept teams over the last 20-30 years. But does correlation equal causation? Certainly, a significant part of the reason for their ineptitude is revenue-driven. But it’s important to recognize that a significant part is also inept-management-driven. Is the fortune of those four teams enough to drive the creation of a salary cap? And if you believe that it is, how do you explain the similar results seen by fans in Baltimore, Dallas, Detroit and Chicago (until recently)? Thus, I think that population is not what you’re looking for as an explanation.

Population is only a part of the equation. What you really should look at is team revenue. This is somewhat population-driven, but not always. Seattle is a large-revenue club. Oakland is a small-revenue club. Why? Too many reasons to list here. But the point is that if you talk population and not revenue, you’re not seeing the entire ball of wax. Is there a correlation between revenue and post-season potential? Of course. Let’s explore that next.

There is a good book that I have only read parts of thus far, called “Baseball Between The Numbers”. Since only 12 of 30 teams can make the playoffs in a given year, most teams won’t come close to making the playoffs (2008 being an outlier there, as deep into the season there was a disproportionately large number of teams still “in the running” for a playoff spot – I think this is also evidence against the need for a salary cap, but I digress). So let’s look at playoff appearances over time, since one of Some Guy’s main arguments has been that the higher-spending teams will be more consistently competitive than the lower-spending teams. Doing some statistical analysis that I am way too dumb to understand, the authors found that the correlation between team revenue and post-season appearances (the R-squared) is .51. Meaning that half of getting to the post-season is determined by revenue. Is that enough for a cap? I don’t know. But the authors make a good point – teams make a lot of money by getting to the post-season, so could the correlation really be telling us that those who make the post-season have higher revenues? Maybe, but this isn’t what we want to know. So they did a comparison of appearances in the playoffs to TV market size – go back to the above chart. It is here that my analysis above really shines (the chart was from a different source, and the analysis was all mine. Eat it Greenspan!). The correlation between post-season appearances and TV market size is only .11, meaning that only 11% of the reason for a team making the playoffs is due to TV market size. This, it should be obvious, is not enough to support creating a salary cap.

I really believe that when people say “a salary cap would be good for baseball” they really mean “I hate the Yankees for being able to buy all the best players.” “Baseball Between The Numbers” goes on to discuss how the authors believe a cap would (or would not) affect the competitive balance, and I won’t go into that here. But to quickly look at football’s cap – the Cowboys and the Raiders spent the most money on salary in 2008 (there are many complicated ways to fit lots of salary into a hard salary cap under the NFL rules). Where did that get both of those teams? The lesson, from this admittedly tiny sample size? Even with a cap, there are teams that have more money to spend than others – and even then, you’re still not guaranteed to be any better than any other team.

Rob Neyer thinks that the Yankees can buy their way to the playoffs every year. He’s a smart guy and maybe they can, but most large-revenue teams cannot. It’s pretty hard to argue, however, that revenue has no bearing on the fates of baseball teams. Spending has escalated in the past twenty years, but in 1990 the Baltimore Orioles were the highest spending team. The Dodgers have spent money like scary monkeys for a long time, with only the recent playoff fruit to show for it (and that is in SPITE of some terrible spending, on the likes of Juan Pierre, Andruw Jones and Jason Schmidt).

Okay, maybe money is not irrelevent, as the first paragraph of my post suggested with tongue firmly in cheek. But spend wisely, my billionaire team owning friends. Go ahead and try to buy your way to the playoffs. Good luck once you’re there.


  1. Nicely done. But I feel your focus on the $$$-to-success ratio allows for a huge factor in the salary cap discussion to be overlooked: the extremely detrimental effect the huge spending has on the mid and lower-market teams. We don't need a salary cap to hinder the big-money teams, we need it to protect the small-money teams.

  2. Dr. Brainsmart - can you point to any evidence of this? And which teams ARE the small-money teams? And what are you trying to protect them from? And one more - what would you use to protect them? Criticisms are fine - have any proposed solutions that would be better than the current system?