Payrolls and Playoff Probabilities in Major League Baseball

By Somberg, Andrew K.; Sommers, Paul M. | Atlantic Economic Journal, September 2012 | Go to article overview

Payrolls and Playoff Probabilities in Major League Baseball


Somberg, Andrew K., Sommers, Paul M., Atlantic Economic Journal


JEL L83

Many people have already studied team performance in Major League Baseball, using innumerable offensive and defensive components of the game to explain variations in win records. However, from the fan's perspective, what matters more than the team's winning percentage alone is the likelihood that their team will play well enough to make the playoffs, ultimately win their league championship, and maybe even win a World Series.

We examine the relationship between team payroll and the probability of playing in the postseason between 1998 and 2011. We want to know if there is empirical support for the claim that the more equally the payroll is distributed among team members, the more likely the team is to play in the postseason.

Since the dependent variable in our regression analysis (Playoff) is dichotomous (either the team is a division winner or a wildcard team and makes the playoffs, or it does not), a probit framework will be used to analyze the likelihood of postseason play. One explanatory variable will be the team's total payroll in a season as a percentage of the league average payroll that season (hereafter Payroll), and a second explanatory variable will be the coefficient of variation (CV) of players' salaries on a team in a given season, that is, the ratio of the standard deviation of salaries on a given team to the team's average salary. The larger the value of the CV, the greater the dispersion of salaries around the mean, that is, the more unequal the salary distribution. Team salary data on all thirty teams for each year between 1998 and 2011 are from USATODAY (http://content.usatoday.com/sportsdata/baseball/mlb/salaries/ team). Two additional binary explanatory variables (Yankees and Braves) were included in the regression, one for the New York Yankees, who missed the postseason only once between 1998 and 2011, and one for the Atlanta Braves, who advanced to the postseason nine times, more than any other National League team over this period. We chose to use 1998 as the starting year for two reasons. First, in 1998, the major leagues expanded to the current thirty teams, with the creation of the Arizona Diamondbacks in the National League (NL) and the Tampa Bay Devil Rays (currently known as the Tampa Bay Rays) in the American League (AL). Moreover, in 1998, the Milwaukee Brewers moved from the AL to the NL Central Division. …

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