December 22, 2010

2010 baseball salaries & wins correlation [Charts]

The Yankees led the majors in luxury tax for the eighth year in a row (every year in its existence), but they’ll pay more than $7 million less than they did last year.

The Yankees and Red Sox were the only two teams hit with the competitive balance tax this year, and thus will have to send the commissioner’s office checks for $18 million and $1.49 million, respectively.

For a full breakdown of luxury taxes paid by teams in its history (not including this year), check out this reader-friendly table from this article. The Yankees have paid approximately 92 percent of all the luxury taxes in baseball history (including this year) — just three other teams have paid.

Luxury tax is based on team payrolls, which include team salaries and prorated shares of signing bonuses. After analyzing data for team salaries, which I would expect to be very similar to team payrolls, I reached this conclusion: High team salaries do not necessarily translate to wins, and low team salaries do not necessarily translate to losses.

The correlation between team salaries and wins for all of baseball in 2010 was just .368 (0 meaning no correlation, 1 meaning absolute correlation).

(Click the graphs to enlarge)
2010 mlb salaries graph
To best show the correlation, I kept the order of the teams from above in the graph below.
2010 mlb wins graph
If those two charts meant nothing to you, here are some facts:
  • The fifth-lowest payroll team In the majors, the Rangers, reached the World Series.
  • The Rays beat out the Yankees in the AL East for a division title despite spending $134 million less on their players.
  • The Cincinnati Reds beat out the Chicago Cubs in the NL Central even though they spent $78 million more than the Reds did on players.
  • Of the highest eight team salaries, just two of those teams reached the playoffs.
2010 wasn’t an anomaly either, I analyzed the same statistics from 2009 for one of my courses at Quinnipiac. The correlation between team salaries and wins was actually higher in 2009 at .508. Still, the statistics do not show baseball needs a salary cap.

The NBA has a salary cap, but since it is a “soft cap” the majority of teams exceed it and are forced to pay a luxury tax — just like baseball teams do. The NFL is in its first year without a cap.

So then why does baseball need a salary cap? I have no idea. You tell me.

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