The Evil Empire Takes On Partners (Baseball’s 2011 Payrolls, Part 2)

The white gap below the blue line in the chart above shows the payroll gap between the Yankees and the other top spending teams in baseball.  The gap still exists, but it’s a lot smaller than it used to be.

The gap between the Yankees and the second-highest spending team in baseball has shrunk from 69% in 2005 to just 17% (over the Phillies) in 2011.  The shrinking Yankees – Phillies gap is shown below:

Instead of the Phillies, let’s focus on our red-hosed neighbors to the north.

Based on the reported numbers, the Yankees – Red Sox payroll gap is now just 25% … but these reported numbers are misleading.  If we include the signing bonus paid this year by the Red Sox to Carl Crawford, the Yankees – Red Sox gap shrinks to 21%.  If we also include a prorated portion of the posting fee paid by the Sox to sign Daisuke Matsuzaka, and the roughly $16 million salary increase the Sox are currently negotiating with Adrian Gonzalez, then the Yankees – Red Sox payroll gap shrinks to something close to 5%.

5% is pretty close to zero.  There’s really not much difference between the Yankees payroll and the Red Sox payroll, or for that matter between the Red Sox payroll and the Phillies payroll.

If you’re still hung up on the Yankees’ ability to sign free agents, then you’re stuck in the past: stuck in 2009, to be more precise.  Since 2009, the Red Sox and Phillies have dominated the free agent market:

  • John Lackey signed by the Red Sox last year to a 5 year $16.5 million per year contract
  • Roy Halladay signed last year by the Phils to a 3 year $20 million per year deal
  • Carl Crawford signed by the Red Sox this year to a 7 year $20 million+ contract
  • Cliff Lee signed by the Phils this year to a 5 year deal that with options is worth over $25 million a year
  • the upcoming Red Sox signing, estimated at around $22 million per year, of Adrian Gonzalez

I haven’t even mentioned the Red Sox’s $17 million per year extension of Josh Beckett and the Phillies’ $25 million per year extension of Ryan Howard.  In contrast to the Phillies/Red Sox spending frenzy over the past two years, the Yankees’ signing of Rafael Soriano looks like frugality personified.

In short, it’s no longer accurate to refer to the Yankees as the solitary Evil Empire of payroll, as if the Red Sox and Phillies were part of some kind of Rebel Alliance along with the Royals and Rays. The Yankees, Phillies and Red Sox are now co-partners in the Evil Empire … if indeed it still makes sense to talk about payroll spending as some form of evil.

Indeed. I recall in 2009 that my friends in Philadelphia bemoaned the fact that they were facing a World Series opponent with a payroll nearly twice that of their Fighting Phils.  But what now that the Phillies have a payroll nearly twice that of their closest division rivals, the Atlanta Braves?

In similar fashion, I read (and thoroughly enjoyed) Jonah Keri’s account of how the Rays bested the Yankees in the 2010 regular season, in spite of the Yankees’ 2010 payroll being nearly three times larger than that of the Rays.  But what of the fact that the Red Sox’s 2011 payroll is more than four times greater than that of the Rays?

The emergence of the Red Sox and Phillies as payroll behemoths is part of a trend we can see throughout baseball: in nearly every division in the Major Leagues, there’s a growing payroll disparity between the haves and the have nots.   In other words, it’s not just the Rays, O’s and Jays that are being dominated (from a payroll perspective, at least) by richer division rivals.  The Pirates, Indians, Royals, Marlins and even the Braves are experiencing a similar fate.  I’ll look at this phenomenon more closely in Part 3 of this series.

But let’s return to my original focus, on our NY Yankees.  Will we see a continuing trend, where the richer teams in baseball are able to narrow and even close the spending gap with the Yankees?  My answer is maybe … but I doubt it.  There’s still a wide gap between the Yankees and the rest of baseball in terms of ability to earn revenue — and when it comes to baseball economics, the key is the money coming in the door, not the money flying out the window.  Even after revenue sharing, the Yankees’ revenues are (according to Forbes) 57% higher than that of their nearest rival (again, the Boston Red Sox).  Let’s remember that the Yankees entered the 2010-11 off-season hoping to sign both Cliff Lee and Andy Pettitte — if this had occurred, then the 2011 Yankees – Red Sox payroll gap would have been something closer to 40%, and we’d be having a completely different kind of discussion.  At some point in the next few years, the Yankees will utilize their revenue superiority to employ a new group of free agents, and baseball will once again have cause to single out the Yankees for their willingness to outspend everyone else.

But for the moment at least, the Evil Empire is a trio, not a solo act.  To my friends who are Phillies and Red Sox fans: you must acknowledge that your favorite team now resembles Darth Vader, not Luke Skywalker. Search your feelings. You know it to be true.

9 thoughts on “The Evil Empire Takes On Partners (Baseball’s 2011 Payrolls, Part 2)

  1. Funny the Philly fans complained about payroll. Who did they beat the year before? What was their payroll?

    • Yes, funny thing, that. You may notice whenever a fan of a particular team advocates a salary cap, how often the cap is set at or slightly above that team's current payroll.

  2. Great article Larry. A question I have is do you think the increase in payrolls of these other teams is an attempt to "catch up to the Yanks" so to speak? Did the Yanks lead by example and other teams are following suit? And if so, if teams are spending more to make their teams better, isn't that good for baseball rather than bad?

    • You said this is "a question you have" but I count two questions plus one follow-up question.

      We can start from the premise that the primary economic motive of all baseball teams is to maximize revenues. Not wins. Revenues. When NESN (the Red Sox's regional sports network) announced declining ratings last year (and when #1 Sox fan Bill Simmons said that the team was boring), you pretty well knew that the Sox were going to do something splashy in free agency.

      So no, I don't think the Phils or Red Sox are trying to catch up with the Yankees' payroll. I think that both teams would love to catch up to the Yankees' revenues, and I'm sure that both teams look at the way the Yankees operate to see if they can learn anything from how the Yankees earn their money (as, I'm sure, the Yankees look to other teams for new revenue-generating ideas). But the economic market for baseball is still mostly a local thing — the Phillies are going to maximize revenue by best understanding how to exploit the Philadelphia market.

      Your second question could take me columns to unpack! First, I don't assume that teams spend more in an effort to make their teams better. I assume that teams spend what they spend in an effort to maximize revenue. These two efforts may be related, but they're not the same thing. For example, the Phils' decision to extend Ryan Howard's contract made little sense to the sabermetric crowd, but it might make sense if you assume that Howard has a unique value in the local Philadelphia market.

      As for what's good for baseball … I think it is good for baseball that Cliff Lee plays baseball, but I can't see how baseball is any better in 2011 because Cliff Lee received a substantial raise in pay. So long as Cliff Lee is being paid enough so that he can devote full attention to his craft (i.e., so he doesn't have to work a second job), it shouldn't matter to baseball how much more he might be paid. You might take a broader view and say that it's good for baseball to pay its stars a lot of money, since that money will help attract great athletes to play baseball instead of football or basketball or soccer. But I suspect that life doesn't work this way, and that the current attention young athletes receive from college recruiters and basketball summer camps is more attractive than the possibility of a big baseball free agency payday many years down the road.

      • Haha… Yeah sorry about that Larry. I started with one question which led to two more and then I didn't reword it correctly to reflect.

        Thanks for the reply though! It's hard to think of the business side of a baseball team when as a fan wins and a team being competitive are what really matter. A lot of time those things seem to go hand in hand, but I can see where they wouldn't. I appreciate the perspective.

  3. OK, I'll see what I can do. As for the Yankees' choice, simply from the perspective of visual contrast, pinstripes are only going to work on the Imperial Stormtrooper costume.

  4. For a team where maximizing revenues and winning ballgames do NOT go hand in hand, please see the Pittsburgh Pirates.

  5. Like I commented on the previous post, I love these meta-analytical pieces on baseball. BUT as a scientist, I have to take issue with your graphs. When you're doing line plots, having an axis that isn't fixed to zero at the origin isn't a big deal, but when you're coloring in the area beneath the curve to show disparity between two teams, you really have to fix your axis to zero. That strikes me as misleading… the eye is tuned to compared the difference between the two colors by integration, but you're not allowing the eye to integrate against the proper x-axis in those images.

    • Mmmmm. I was trying to illustrate trends, not so much to display relative differences, but I see your point and I have corrected.