What do the Boston Red Sox and the St. Louis Cardinals have in common? Both are in the World Series right now, of course. And both have payrolls at well over $100 million, putting them in the upper reaches of the Major Leagues.
Are those two facts related? Data suggest they are. During the last 10 years, the payrolls of teams that make it to the American League and National League Championship Series have generally averaged higher than the league average. This year, the discrepancy is particularly wide. The four teams that made it to the NLCS and ALCS had an average payroll of nearly $160 million, compared to a league average of $106 million. The league median payroll was even lower, at $92 million.
Of course, it's not a hard-and-fast rule that money buys championships. If it were, the New York Yankees would be in the World Series every year. The truth is a bit more complicated.
"The actual performance during the regular season is an accurate reflection of the quality of the team and there is a bimodal distribution of wins based on payrolls," says John Vrooman, economics professor at Vanderbilt University, in an email to U.S. News. That's a pretty stat-heavy statement, but boiled down, Vrooman says winning is based on how good the team is, but money can have a lot to do with quality.
He explains there are two types of teams: high-payroll clubs that stock their roster with expensive players and smaller, mid-market clubs that buy "discounted bargain talent." High-payroll clubs can have some of the most talented players in the league, says Vrooman, but it can come at a steep price tag – perhaps too steep.
"[T]heir performance is somewhat risky business and very often the clubs are overpaying for their wins," he writes.
Meanwhile, teams like the Tampa Bay Rays and the Oakland Athletics, which have among the lowest payrolls in the league – both around $60 million – have often made it into the postseason.
Given a team's ability to buy talent, it can surprise even sports economists when lower-payroll teams succeed.
"I find it astonishing that teams in any sport, but especially baseball – the difference in team payrolls is so huge relative to other sports that teams like the Oakland A's or Tampa Bay Rays can get into the playoffs," says Todd McFall, sports economist and visiting professor of economics at Wake Forest University. "I still am floored that that happens."
There have been years where lower-payroll teams have done remarkably well. In 2007, three of the teams that made it to the championship series started off the season among the 10 bottom payrolls in the league. In 2006, teams with a wide range of payroll levels also made it to the playoffs.
Still, though some lower-payroll teams do make it to the division series sometimes, teams with more money at their disposal have been more likely than their lower-paying brethren to advance. In the last 10 years, 16 teams in the top 20 percent of payrolls have made it to the championship series, along with 14 in the second 20 percent. The bottom three-fifths of the league have fared far worse.
So why don't all teams simply shell out massive sums for the best players? For one thing, having the money for Alex-Rodriguez-level salaries is not a luxury every team can afford. But there's also the reality that baseball is a business. Teams have to balance the desire to win games with the desire to reap profits. And different teams fall at different places along that spectrum.
"There's an interesting trade-off here I think between profit-maximizing and win-maximizing," McFall adds. Cutting down on salaries means a boost to profits. However, investing in winning games can also bring in more revenue: "If you invest in winning, fans are going to come to your games," he adds.
The Yankees, with Derek Jeter and Alex Rodriguez, fall decidedly on the win-maximizing end of the spectrum, McFall says, but their investment in that top talent depends heavily on those players doing a fantastic job and justifying their salaries. Meanwhile, he cites teams like the Kansas City Royals and the Pittsburgh Pirates as being in the profit-maximizing space. Pittsburgh made it into the post season this year, and Kansas City just fell short.