Free Paper: Relationship between the Size of Payroll and the Performance of a Baseball Team

Abstract

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The study focuses on the increment of salaries among the Major League Baseball (MLB) players while determining if a team's payroll influences the success of the team while on the field. Teams that cannot afford to freely spend money on players or losing out on talent causing them to miss the postseason on a regular basis. Higher spending teams are giving their fan bases a better chance to enjoy the post season. The literature review of the study led to one main research question: Is there a relationship between the size of payroll and the performance of a professional baseball team?

Keywords: Payroll, Major League Baseball, winning percentage

Chapter 1: Introduction

Essentially, professional sports have turned into a business, whereby financial decisions have become the growing sector of the team decisions on a daily basis. This shift seems to indicate that financial elements control the organization and perhaps performance of players. In the 2008 season, around 80 million fans showed up in various ballparks in America generating more than 6 billion dollars for the first time which was a historical mark in Major League Baseball (Andreff 2011, pg. 22). This type of financial support from fans results in organizations being able invest more dollars in player salaries. This is especially true for teams who compete in larger markets.In the same season, teams also spent record amounts; for instance, payrolls of ten clubs combined exceeded 100 million dollars (Andreff, 2011, p.23).

Team payrolls are at record levels in Major League Baseball. Critics suggest that there is a wider disparity when it comes to spending could promote a competitive imbalance in favor of the larger market clubs as well as the ones that are run by the sportsman owners (Annala&Winfree, 2011, p.169). It is essential to note that major professional sporting leagues based within the United States have protective measures whichlimit the extent of the monetary advantages. In 2003, the competitive balance tax or luxury tax got levied within the league. Therefore, a maximum payroll has been set for every team that exceeds an overall player's payroll to pay the fine that is equal to the payroll percentage. This rule was introduced so that the utilization of a salary to guarantee the wins of a team can be limited.

Background of the Study

According to Annala and Winfree (2011, p. 96), "Major League Baseball (MLB) team payrolls, player salaries, luxury tax and fan attendance influences team success."The." Theplayer salaries, for example,areexample, are a major focus when it comes to the losses and wins. According to Latta (2015),"Higher priced players are notoriously more talented and have a greater chance of making a significant impact on the team.Because of this, high-priced invoke excitement from the fans that attend the games. Similarly, the wealthy larger market teams appear to view luxury tax as less of a financial burden because they have access to larger funds then small market teams" (p.112).Thisleads large market teams to spend unimaginable amounts so that they can create the winning product. Some researchers suggest that the total revenues positively relate to the expected wins and the interaction term between the market size and expected wins.

The salary cap usually gives the league an opportunity to limit money that a club spends on the team payrolls and player salaries (Brugging& Rose, 2009, p.1032). Generally, players believe that the teams that have the highest salaries effectively possess higher winning percentages. The major appeal of every professional sport is the thought that every team has an opportunity to win anytime. The notion that winning may have a direct relation to the amount of money a team possesses destroys the idea of competition which makes playing the sport irrelevant. According to Hall (2010), "The New York Yankees led the league in payroll every seasonfrom1998 to 2008" (p.56).During this period of time, the Yankees were considered one of the most successful franchises in baseball.

According to Mizak (2006), "The level of payroll and win disparity has been significantly larger since the strike season of 1995." (p. 12). In an industry that is competitive, it is expected that every player receives the intended marginal revenue of the product in wages. According to Hall (2012), "Between the years 2005 to 2006, the least salary for the MLB player was approximately 327,000 dollars; however, the average was astonishingly 2,476,589 dollars." (p.56). Such large amounts of money may lead to the assumption that most of the players are adequately motivated to offer their best efforts. Moreover, ever since the free agency was introduced in 1976, the players have more freedom to move between clubs enabling the higher spenders to accumulate more talent. It is a common assumption that teams that have higher payrolls are expected to win consistently.

The difference between the team payrolls is big enough to have a substantial effect on the results of the game.For instance, the New York Yankees possess a high payroll that is approximately four times higher than the size of its lowest which is San Diego Padres. The Yankees have 27 World Series championships while Padres have none. Such an observation could simply promote the notion that money seems to be the dominant factor when it comes to determining the number of times that a team can win.

Problem Statement and Significance of the Study

Monetary compensation tends to be one of the motivating factors utilized by sports managers to attract the best players.The case is also the same for MLB because salaries and wages can be used as a motivating factor to influence player sign with a particular team causing the sport to have a poor competitive balance. I found that tTeams that cannot afford to freely spend money on players or losing out on talent causing them to miss the postseason on a regular basis. Higher spending teams are giving their fan bases a better chance to enjoy the post season.

According to Dreiling(2014),"A limited number of teams have the chance to compete under this economic structure; he suggests a realignment of teams and a transformation in how the pennants are usually played (p.56). It is recommended that MLBimplement more changes so that the league can become more competitive (Horowitz, 2007). On the contrary, some researchers.This shows that the larger market teams possess the ability as well as desire to bid for the players, which cannot be acquired by the small market teams.

Researcher's Positionality

Growing up the California Bay Area, I was given two MLB teams to root for; the San Francisco Giants and the Oakland Athletics. I was able to see both ends of the spectrum. From the late 90's to present time the Giants have been a large market team, ranking in the top ten teams for payroll every season. During this time, they have financed a brand new downtown stadium and have won three world championships. During this same timespan the Athletics have consistently ranked in the bottom five teams in payroll, struggling to win consistently and never drawing substantial crowds at home games. As a Giants fan, I was happy to be winning but always wondered if there are ways for the Athletics to be productive while paying their players below average salaries. This type of curiosity has lead me to this research.

Purpose of the Study

The purpose of study is to for me toanalyze the relationship between the salary distribution of MLBteams and the teams' winning percentage.Research QuestionR1: To what extent is there a relationship between the size of a team's total payroll and the performance of a professional baseball team in regard to their win/loss history?

Rationale for the Methodology

The nature of this study I will require quantitative research to answer the research question.

Definition of the TermsPayroll: This is the total of salaries and wages paid to employees over a period

Luxury tax: This is the surcharge placed on an aggregate team payroll which exceeds the predetermined guideline level that has been set by the league.

WAR: Wins Above Replacement

Summary and Organization of the Remainder of the StudyEvery chapter provided will give the reader different insight to the issue. The problem is that lower revenue teams with lower payrolls are having a high level of difficulty sustaining team success. This ChapterI will introduced the topic of the study, the purpose of the study, its significance and research questions that will guide the inquiry.I have used qQuantitative methods will be used to generate outcomes that will further explain and define the research topic. In Chapter 2 of this study I will give the theoretical framework of the study by exploring the different viewpoints of other researchers with regards to the research topic. It was also to provide the background of the problem, theoretical foundations and a review of the literature.In I Chapter 3 will provide the appropriate methodology that can will be used to further investigate the research topic; this will include defining the research design and the process used to investigate the topic. In Chapter 4 I will offer the findings and of the data gathered. Lastly, in Chapter 5 I will provide the conclusions, implications, and recommendations of the study.

Chapter 2: Literature Review

Introduction to the Chapter and Background to the ProblemVarious scholars have tried to establi...