How MLB payrolls affect teams' chances of winning

There's been a lot of talk lately about the need to institute a salary cap in the MLB, particularly after the signings of Carl Crawford and Jayson Werth, the potential extension signed by Adrian Gonzalez, and the inevitable contract signed by Cliff Lee. It really doesn't seem like teams are playing on a level playing field when other teams like the Yankees can afford to spend whatever it takes to field a winner. What a seemingly endless supply of money also does is it allows teams to take chances on free-agents that smaller market teams can't take. Hell, why not sign Cliff Lee to a 7 year $160 million contract even if you only expect him to be good for another 4 years if the money really doesn't matter?

I've heard people argue that payrolls don't play as big of a role in the success of teams as one might think, and the San Francisco Giants' World Series victory seems to be the rallying cry around this school of thought. Here's the problem with that, though: The Giants had a higher payroll than every other team in its division last year. Any baseball fan tell you that it's a game of sample sizes. This is why they play 162 games a year, and why the payroll of a team is significant when related to the payrolls of the other teams within its division. Any team can conceivably win once they make it to the playoffs because the sample sizes are so much smaller. Kansas City could beat the Yankees in a best out of five series, but I sure as shit wouldn't bet on them having a better record over the course of a season.

Let's take a look at the payrolls and winning percentages of teams over the past 5 years. We've used 5 years because, for example, the Seattle Mariners and LA Angels both had payrolls nearly double that of Oakland and Texas in 2010 yet finished beneath them in the standings. To dig deeper, we averaged the payrolls by division over the past 5 years and compared that average to the winning percentage of each division against teams outside of their respective divisions over the same time period. Got all that?

Here's what we found in the American League:

AL East

• Average winning % outside division (2006-2010): 0.528
• Average Payroll (2006-2010): $107,908,176

AL Central

• Average winning % outside division (2006-2010): 0.471
• Average Payroll (2006-2010): $83,996,390

AL West

• Average winning % outside division (2006-2010): 0.504
• Average Payroll (2006-2010): $84,563,068

So what do these numbers tell us? For one thing, the average payrolls over the past five years in the AL Central and AL West are essentially the same, so we'll have to assume that the major difference here is attributed to the teams' management, player development, scouting, etc. It's a significant difference in winning percentages however and one that should not be overlooked. Then there's the AL East; generally considered the toughest division in the league. We've only accumulated stats from the past 5 years, but I'd assume you could go back way further than that and the numbers would remain the same. Fact is, the average payroll in the AL East is significantly higher than any other division in the MLB and the winning percentage for the teams within the division against teams outside the division is much higher as well.

Now let's look at the National League:

NL East

• Average winning % outside division (2006-2010): 0.511
• Average payroll (2006-2010): $82,601,940

NL Central

• Average winning % outside division (2006-2010): 0.473
• Average payroll (2006-2010): $81,563,057

NL West

• Average winning % outside division (2006-2010): 0.515
• Average payroll (2006-2010): $75,094,204

The National League numbers are obviously much harder to draw a conclusion about. It appears as though the NL is much more reliant on saavy management, scouting and player development to help decide success, as the payrolls are quite similar. The NL West is the anomoly of the league as it actually has the lowest average payroll over the last 5 years, but the highest winning percentage. Go fucking figure.

I think the biggest conclusion to be drawn here is that the average payrolls by division are all pretty damn similar, aside from the AL East. Not including the AL East, the average payrolls range from just over $75M to just over $84 million. Not a vey big difference, so the variance in winning percentages have to be attributed to something other than money (ie. scouting, player development, the GM, Manager, etc.). These factors are also at play when analyzing the AL East's dominance in terms of outer-division winning percentage, but the most obvious factor here is the more than $23M the division (and by 'division' I mean the New York Yankees and Boston Red Sox) has to spend on talent.

I realize this is a new blog, but it would be really interesting to hear what people have to think about this topic in the comments section. If you do happen to stumble across this post, we'd love to hear you take on things like what other factors are at play here? What would a salary cap mean for the league? Etc...